Numerous mutual funds are available, making it difficult for investors to choose. There are advantages and disadvantages for every fund, but the requirements and objectives of the investors vary. So they should make the investments according to their goals. Before investing, choose the mutual fund category, which means deciding whether you want to invest in hybrid, equity, or debt funds and their sub-categories. After that, you can choose different funds considering some parameters. There are several factors to consider before choosing a mutual fund. Here are some of them.
● Find Your Investment Goals
Finding your investment goals refers to your choice of value or growth. You can invest in equity funds or find aggressive hybrid funds to make more returns. However, there are many risks associated with these funds. Investors who do not want their funds to be highly affected by mutual funds must invest in bond funds. You must have a well-prepared objective before investing such as a retirement plan, education of your children, or building a house.
● Time Horizon
Time horizon is an important part of investment goals. You may set your investment goal according to the time frame you choose for your investment. You have to choose equity funds focusing on growth if you have long-term goals, which provides you enough time to travel through the fluctuations in the market. There must be a balanced portfolio of both value and growth funds if you focus on mid-term goals. It will provide good profits and stability defending the market volatility. Those with short-term goals have to invest 30% in bond funds so that market fluctuations will not affect their funds in the near term. As you will want your money whenever needed, choose a fund that is easy to redeem. Income funds can provide you with regular income.
● Risk Tolerance
Risk tolerance is an important point to consider before investing in mutual funds. You must decide whether you are ready to take risks or go for safe options. You also have to determine the risk tolerance level – high, moderate, or low. You can choose the funds according to your risk tolerance. Returns and risks are directly proportional. When you take more risks, your chance for high returns is more. Equity funds are the best option for investors ready to take high risks, while debt funds offer more stability.
● Performance Of The Fund
Before investing, investors must have a look at the performance of their mutual-fund scheme. Consider at least 3 to 5 years of performance with the benchmark and the fund category with the performance consistency of the fund. The fund’s asset allocation has to go hand-in-hand with the benchmark index. You can also compare the other schemes available in the same category.
● Net Asset Value
NAV or Net Asset Value is the market for each unit of the mutual funds. Many investors consider it a key factor. Mutual funds having high NAV are often costly and the growth will be low, while low NAV are cheaper and provide more growth opportunities.