10 aspects to consider before choosing a mutual fund to invest in

Investment decisions are crucial to help you gain financial freedom. Mutual funds are a popular investment option for new and seasoned investors and can be an excellent investment avenue to meet diverse financial goals.They are typically more diversified, come with different investment objectives, and are easy to invest in. They fit well into any investment portfolio. However, don’t forget to check these ten crucial aspects before choosing a fund to invest in. 

However, choosing the right mutual fund is essential to help you meet your financial goals. To pick the right mutual fund, here are a few important guidelines: 

  1. Your financial objective 

Before investing, you must have clear financial goals, which could be short-term, medium-term, or long-term. The mutual fund scheme and category you choose should align with these goals. For instance, if your long-term goal is wealth creation, you should choose an equity mutual fund. 

  • Your risk appetite and the scheme risk profile

Along with your financial objective, the mutual fund you choose should also align with your risk appetite. You could choose a hybrid mutual fund if you have a moderate risk appetite. 

  • Investment horizon 

Mutual fund investment decisions should also align with your investment horizon. For instance, if you have an investment horizon of a year, there it would be better not to invest in an equity fund. Even if you have a high-risk appetite, you should consider those debt funds maturity matching with your investment horizon.

  • Fund objective 

Another essential criterion for choosing a mutual fund is to check that the fund’s investment objective aligns with your own. If you want to generate regular income, you should opt those funds which will provide you a regular income without deteriorating your principal amount.

  • Fund performance 

Of course, the past performance of a fund will give you an idea about how you can expect the fund to perform. Checking the fund’s past performance in different time periods will be helpful as this can be one of the indicators of what kind of returns it will provide in the future. You should also check the fund’s performance against benchmark indices and peers. 

  • Diversification 

Mutual funds are a diversified investment option since they invest across many market sectors, assets, and/or geographical regions. One strategy to diversify the risks is to invest in mutual funds that invest in a variety of assets, as this reduces the portfolio’s risk exposure during uncertain times. This helps investors achieve consistent returns on investments.

  • Fund Manager’s credentials 

As mutual funds are managed by professionals you can be assured that the fund will be in safe hands. But it is advisable to check the fund manager’s track record before you invest in a mutual fund. 

  • Liquidity 

Liquidity is the ease with which your investment can be accessed. If you want to meet specific goals with your investment in mutual funds, you must ensure that you can liquidate them easily. Be sure to consider how much time it would take for you to access your investment when you are in need.

  • Expense ratio 

The expense ratio is the cost incurred to run and manage a mutual fund scheme. A higher expense ratio will eat into your profit. Avoid those funds having higher expense ratio that will affect the overall returns of the fund.

  • Asset Management Company 

You should check the performance of the AMC and the Assets Under Management (AUM) before choosing an AMC. Additionally, check the past performance of various mutual fund schemes managed by the AMC during both market ups and downs to assess its performance across market cycles. Ideally, the AMC should have strong governance principles and safeguard the investor’s interest.

Choosing a suitable mutual fund investment is crucial to help you meet your financial objectives. You can choose from a range of top-notch mutual fund investments from Geojit Insights. You can also consult our financial experts to help pick the right mutual funds. 

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