Friday, September 16, 2016

How to Choose the Right Mutual Fund to Invest?

Choosing a mutual fund is very crucial and while selecting a mutual fund following factors shall be kept in mind:

Vintage

For how long the fund has been in business - the longer the better, for in general more one is engaged in a particular trade more intimately one knows that business. UTI Mutual Fund is the pioneer in India.


Nature of Ownership


I will prefer and advise government owned or public sector (PSU) mutual funds for the following two reasons:
Though slow and inefficient in providing good customer service, generally PSUs do not take  customers on a ride through the fine print in the contracts.
In case the organisation gets into financial troubles, the government will step in with the rescue-act.


Size

Size does matter. Bigger the size safer it is. One can take the assets under management (AUM) as the parameter to measure the size. India’s Top Ten Mutual Funds command over 80% of the total assets under management.


Growth Funds

Funds fall under two categories namely income and growth funds. While income funds distribute regular dividends (some times obnoxiously out of capital instead of profits) growth funds reinvest the profits. For long term wealth creation, growth funds are preferable.


Diversified Index Funds

Well diversified index funds are preferable for the following advantages:
  1. Diversity produces safety
  2. Index funds are passive and therefore involve lower fund administration cost


Conclusion:

In conclusion careful consideration is required while choosing the right mutual fund to invest in for the purpose of attaining financial freedom and wealth creation.


Related Links:


A Few Mutual Fund Examples












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