5 Things to Check While Selecting a Mutual Fund


The most common type of investment is mutual funds. It's available to rookie, intermediate, and advanced investors – all that is necessary is a basic awareness of the essentials and a desire to increase one's knowledge to make sensible, informed selections.

Mutual funds, in a nutshell, are an investment program that pools the funds of multiple individuals to produce an investment product. The fund management can then use this money to buy various securities, such as stocks, gold, bonds, etc. On the other hand, each mutual fund will have a specific goal.

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Here are top 5 things you must check while deciding which mutual fund to invest in:

1. Do Research

When deciding on the best option, there are various factors to consider right mutual fund- return expectations, risk tolerance, investment horizon, financial expertise, and so on – and the investment can be rated on past performance, expense ratio, assets under management (AUM), and your fund manager's experience. Before you begin your investment adventure, conduct some research to assist you in making a more informed decision and better understand the "what is what" in the mutual fund business.

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2. Know Your Investment Objectives

The first step in selecting a mutual fund is to determine your objectives – the period in which you want to invest, return expectations, and so on – since they will help you select the fund best suited to your needs. However, without a precise aim, one does not need to stop their voyage short.

Also read: What Are The Main Objectives of Investment?

The goal of investing can also be included in a goal. Examples are:

  • Higher education.
  • A down payment on a home.
  • Even long-term aspirations like retirement.

The correct mutual fund category – mutual debt fund, equity mutual fund, or hybrid mutual fund – will be determined based on the goal.

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3. Make a Risk Assessment

This applies to the investor's risk appetite and their comprehension of the hazards associated with each mutual fund and whether they are compatible with their risk tolerance. Equity mutual funds, for example, carry a higher level of risk, and the portfolio may see some ups and downs. However, equities mutual funds' returns are frequently more significant than those of other funds, making them suited for investors prepared to take a "high risk, high reward" strategy.

Also read: Evaluation of Investment Products

On the other hand, Debt mutual funds carry less risk and are more stable, but their returns are smaller than those of equity mutual funds, making them a good choice for conservative investors and beginners.

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4. Examine Your Expense Ratio

The commission charged for proper investment management is known as the expense ratio.

Because the expense ratio is calculated across a client's whole portfolio and has a significant impact, an investor needs to seek out a mutual fund with a lower expense ratio. It is commonly stated that the smaller the expense ratio, the larger the AUM.

Also read: Prioritizing Expenses and Opportunity Cost

5. Consider the Taxes on Your Investment

Tax considerations are something that all investors, especially newcomers, should consider. The taxation of equity mutual fund returns is determined by the holding period and the appropriate tax rate. In terms of after-tax returns, mutual funds are frequently efficient. For example, long-term capital gains (those lasting more than 36 months) are taxed at 10% beyond the INR 1 lakh exemption level, while short-term capital gains are taxed at 15%.

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Investing will become a good habit that will aid in accumulating wealth for you. Before choosing the correct fund to invest in, it's essential to think about the factors above. You'll also need to check the fund's performance and make adjustments as needed.

(Check out 'Learn & Grow with Wizely' to learn more about financial planning and investments.)