How to Select Mutual Funds?

While Selecting a Mutual Fund scheme for making an Investment, an Investor needs to consider following parameters as mentioned below-

I. While selecting a category of Mutual Funds, you must take into account –

  • Your Purpose of Investment

Investment goals you are targeting at?

It can be anything as mentioned in below

  • Your Risk Appetite –
Factors which
Affect Risk
Appetite
High
Risk
Appetite
Moderate Risk Appetite Low Risk Appetite
Your
Age
Young – 18 to 35 Mature – 36 to 55 Senior – 56 to 100
Current Income
Potential
HighModerateLow
Future Income
Expectation &
Goals
High,
Bigger
Targets
Moderate-
Goals
Low- Easily Achievable goals with Little Hard work
  • Investment Time Horizon

It is how long, can you hold the investment without withdrawing the funds invested?

How soon you want to reach to your Investment Goals?

Combination of Investment Goals & Horizon, determines the Risk Appetite. And in turn the category of Mutual Fund, an Investor opts for making an Investment.

To Select which category of Mutual Fund ?

There are various categories of mutual fund schemes, which suits as per each Investors Investment Goal, Risk Appetite and Investment Horizon

FOR EXAMPLE.                   

II. Historic Return:

The Mutual Funds Historic Return over a 10 year,5 year, 3 year period reinforces the consistent performance of the fund house and fund manager’s over the past period. The similar performance can be anticipated to be duplicated in future, combined with other parameters.

III. Ratio Analysis:

Analysis of various ratios like Sharpe, Sortino, Beta, Alpha gives an indication of Risk-Adjusted return of the Mutual Funds towards market risk, stocks specific risk & downside risk.

WHILE COMPARING RATIOS –KINDLY NOTE

IV. Exit Loads:

Different Categories of Mutual Funds have different Exit loads which need to be taken into account before investing into the Mutual Fund. Equity Funds usually have 1% exit loads, Debt funds have exit roads ranging from 0% to 3% depending upon various types.

V. Diversification:

While Investing in Mutual Funds, it is important to Diversify your Investment in different mutual funds to reduce the risk related to Fund manager – Experience, Category of fund selection – Large Cap, Mid Cap, Sector Allocations etc.

VI. Expense Ratio:

There are variety of expenses incurred by Fund houses – Fund management fee, marketing expenses, fees paid to the registrar and transfer agent, etc. In a category, Funds with Higher expense ratio have to give higher returns on Investments made in comparison with Funds with Lower Expense ratio in same category to remain best performing fund. Only Few Funds are able to maintain the High expense ratio with best performance.

NOT A THUMB RULE – But In majority cases, Lower expense ratio, results in better fund performance.

VII. Size of AUM :

Assets under Management (AUM) indicates the Trust shown by the investors in the Fund till date & also reflects flow of cash & thereby reduces expense ratio of the fund.

Generally, Higher the AUM better it is for the Investor.

VIII. Dividend / Growth Option:

The Mutual Fund has two options – To either PAY Dividend regularly or REINVEST them for Future Growth.

IX. Experience & Qualifications of Fund Manager:

The Educational Qualifications & Experience of the Fund Manager plays a vital role in selection of the Mutual Fund. The Fund Manager past track record, details of other funds managed by Fund Manager also helps us to evaluate them.

CONCLUSION:

While Selecting the Best Mutual Fund – it is important to analyze the parameters mentioned above. Even after making an investment, an Investor needs to review the parameters quarterly to keep track of the fund performance.

In case, if the Investor is not able to find time to analyze the mutual funds, then they should consult a financial advisor for the same.

As Financial advisor, analyzes the mutual fund from the parameters described above keeping in mind the Investor’s Investment Goals & Time Horizon thereby taking into account their Risk Appetite. And also reviews them at regular intervals to keep the Fund performance under check.

It is often suggested to consult a Financial advisor for Selecting the Best Mutual Fund when Investor is not able to find time to analyze themselves.

DISCLAIMER

This is solely for information of clients of Wellgrow Securities and does not construe to be an investment advice. It is also not intended as an offer or solicitation for the purchase and sale of any financial instruments. Any action taken by you on the basis of the information contained herein is your responsibility alone and Wellgrow Securities its subsidiaries or its employees or associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained in this recommendation, but Wellgrow Securities or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this recommendation or any action taken on basis of this information. This report is based on the fundamental analysis with a view to forecast future price. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Wellgrow Securities has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Wellgrow Securities makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. The information and any disclosures provided herein are in summary form and have been prepared for informational purposes. The recommendations and suggested price levels are intended purely for stock market investment purposes. The recommendations are valid for the day of the report and will remain valid till the target period. The information and any disclosures provided herein may be considered confidential. Any use, distribution, modification, copying, forwarding or disclosure by any person is strictly prohibited. The information and any disclosures provided herein do not constitute a solicitation or offer to purchase or sell any security or other financial product or instrument. The current performance may be unaudited. Past performance does not guarantee future returns. There can be no assurance that investments will achieve any targeted rates of return, and there is no guarantee against the loss of your entire investment.

Leave a comment

Address:
306, The Summit Business Bay,
Andheri Kurla Road, Andheri (E),
Mumbai -400093.

Email:
info@wellgrowsecurities.com

Wellgrow Securities Investment Advisors © 2018 All rights reserved. Terms of use and Disclaimer

Wellgrow Securities” refers to “Wellgrow Securities Investment Advisors” is a brand representing SEBI Registered Investment Advisor & offers investment advisory services.

The entire content displayed in the site is for general information use only.  The Past performance is not an indicator of future results. No information should be taken as investment recommendation whether directly, indirectly or in any way whatever. Wellgrow Securities Investment Advisors shall not accept any liability for any direct or significant loss that results from reliance upon any material or information displayed on the website. The Information given on site is neither an offer to sell nor solicitation to buy any securities & is subject to change without notice.