Can you guess the most asked question in any mutual fund forum? Right, there you go! Have I picked the right mutual fund or not is the most common question by the investors. And trust me many expert investment advisors and brokerage firms fumble to answer this question and that’s because it is difficult to be answered in one word. Many factors are involved in the decision of selecting a mutual fund scheme, criteria, starting from future financial goal to risk tolerance and many others. But what investment advisors and brokerage firms can do for you is share some secrets to pick the best mutual fund. In this blog, I am also going to do the same thing, so keep your eyes glued to the article and know a few top secret tips for choosing a mutual fund.
Pay attention to the expense ratio:
The expense ratio is one of the most important factors for choosing a good mutual fund as it can make your investment or break your investment. Things such as copies, portfolio management, management advisory fee and much more come into the fold of mutual fund investment expenses. But before you spend this amount for owning a mutual fund, calculate the ratio between the expense and the probable return. Remember, the lesser the expenditure would be, the higher would be the chance of profit. For example, if you invest in two funds with expenses of 0.5% and 1.5% respectively, then the latter is likely to have a bigger hurdle to beat before money starts flowing into your pocketbook.
Ignore mutual funds with relatively higher turnover ratios:
Often times, investors run behind the mutual funds that generate higher turnover ratios rather than the funds with no turnovers. This is where the investors go wrong because they think that the former can take them closer to their goals earlier than the latter. But the truth is investors can become wealthier by owning a fund that generates 12% growth with no turnover rather than investing in a fund that has 17% growth with 100% turnover.
So, which option would you go for in the future?
Look for a disciplined management team:
A disciplined, experienced management team is like a pillar of mutual fund investment. And specialized investment teams managing investments across a wide range of asset classes and investment styles. Search online, ask your friends and family members or do anything for finding out an experienced, well-disciplined mutual fund management company or team. If you find a company that has a little or no track record or does not have a decent work history, then you should start moving the opposite direction. The ideal situation is a firm that has been consistently offering the risk-adjusted returns to the investors and built a team of skillful individuals, ensuring a smooth transition.
Look for a similar philosophical value:
Like all other things in life, investment and wealth management also have a philosophical approach. While somebody can be a value investor and believe in every asset has an intrinsic value equal to all of the cash it generates for the investors, others can believe in growth investment which simply means buying the best and fastest growing company regardless of price or can have a belief in owning only a blue chip company. IHit’s important for you as investors to delve a little deeper in understanding all these aspects before entrusting your hard earned money to a respective fund house. So, the point here is, no matter what your wealth managing philosophy is, you need to own a fund that shares the same philosophy as you.
Aforementioned are some of the top secrets for choosing the best mutual funds in India. Sssshhhh, keep it secret!
Narnolia Securities Limited 