6 Things to Consider Before Investing Your Hard Earned Money in Mutual Funds

Investing in Mutual funds in one of the best ways to save tax while earning good returns. Many of the financial experts suggest making an investment through ELSS mutual funds for better growth of funds. We all understand that investing money is a must if we want our money to grow faster. But to find the right mutual fund is one of the most mind blogging tasks as the market today is stuffed with more than 3,500 mutual fund schemes.

When you are to invest your hard earned money in mutual funds, you are to take utmost care so that the maximum profit can be earned with a less exposure to potential risk. There are a number of things to be taken care while making an investment through any of the schemes of mutual funds.

The Basics of Mutual Funds

 Top 6 Things to Consider Before Investing in Mutual Funds

Choose the Right Scheme

Before you chose any of the schemes, you are to ask yourself about the types of investor you are. The investors can be of three types- conservative, moderate or an aggressive investor.  You are to choose the right scheme based on your risk appetite.

If you have a long-term goal and want to invest for five years or more and a high-risk appetite, then equity schemes are considered best for you.

If you are a moderate investor, largecap and multicap schemes can be a better choice for you.

If you are an aggressive investor, midcap and smallcap schemes which carry high risk with high returns can help achieve your financial goal.

How to Create Perfect Mutual Fund Portfolio for Every Stage of Life

Cost

The next point to be checked is the cost. The mutual fund companies charge a fee for managing your money which they call the expense ratio. If you are a long-term investor, these small costs can make a great impact on your returns. As per SEBI regulations, the maximum expense ratio for a debt fund should not be more than 2.25% and for an equity the fund, it should not cross 2.5%. Along with the recurring cost, one has to check the exit load too. This is a cost paid by the investor if he withdraws his money before a certain period. The exit loan may vary in different types of funds.

Fund Performance

The next point to be checked is the performance of the fund in the previous years. But the past performance should not be the only thing to be checked as some funds may not have performed well in past but carry the potentiality to perform excellently in future.

By checking a number of points, funds are rated from 1 star to 5 stars. Following only the stars may not be a good way to choose funds to invest. One must invest in funds which is suitable for him rather than the high rating only.

Know the Terms and Conditions

If you have planned your surplus corpus to use in a mutual fund investment, you must know all the terms and conditions before taking any step ahead. It is highly recommended to read the fine prints and understand each and every clause that the fund house may have mentioned. Sometimes the fine print of a mutual fund may be full of jargons which a person from a different background may find confusing. If you are in such situation, you can take the help of a fund aggregator that will help you to explain the same in simple language.

The Systematic Methods of Mutual Funds: SIP, STP & SWP

Companies

If you are investing your money in a systematic investment plan (SIP), remember the fact that the money which you invest through SIPs is invested in a bunch of companies from different sectors. The manager of a fund house makes the final decision on the list of companies where your money will be invested. You can also check the profiles of those companies picked by the MF and see how they have performed in the past.

The Experience of the Fund Management Team

Every asset management company appoints a fund management team lead by a fund manager. The main function of this team is to manage your money. Before you invest your money through any AMC, it is better to check the experience of the team which will handle your hard earned money. Ensure that you are giving your money in the right hands. Many a time people gives invest their money through the AMCs who are handling more number of schemes. It may happen that the fund managers replicate the portfolio. In such a scenario, there will be no uniqueness which can carry more risk.