“Mutual Funds are subject to market risk”, a disclaimer you may have heard several times, be it a commercial or a financial advisor promoting Mutual Funds. But despite the high-risk factor, Mutual Funds are the leading market-linked investment instruments in India. Their returns and risks are unpredictable. However, you get a fair idea of the investment by doing your homework.
Analyzing your investment is very important. It helps create a better asset portfolio. Following are some key points to consider while analyzing your Mutual Fund Investments.
Measure Against a Benchmark
The benchmark fund should have all qualities you expect from an investment. Whether it is minimal risk or reasonable returns, the benchmark fund should define it all. Explore the market and know the various Mutual Fund offerings. Once you have narrowed down a few funds, measure them against your benchmark. The fund you plan to invest in should outperform the benchmark fund.
Mutual Funds that generate higher returns than the benchmark fund are called ‘alpha’. Your aim should always be to invest in an alpha fund.
Compare Similar Funds
You should also compare the fund you plan to invest to similar funds in that category. Remember that if you plan to invest in Equity Fund, you can only compare it to similar kinds. You cannot compare the performance of Equity Funds to that of Debt or Hybrid Funds. An accurate analysis can only be derived if the comparison funds are alike.
Consider the External Factors
These include market and economic cycles that play a crucial role in any investment. Any investment expert you speak to will state market conditions as the driving force of Mutual Funds India. You may invest in the best Mutual Funds, but it fails to earn good returns if the market standing is unfavorable. It is impossible to predict the market.
But you should attempt to understand it. Your market research helps pick a suitable fund and protect it in vulnerable times.
Know the Fund Manager’s Expertise
Mutual Funds are managed by professional fund managers. They are experts in their field who help you with asset allocation and maximize your returns. While you sit back and enjoy your investment returns, your fund manager monitors your fund. They decide your asset mix and modify it whenever required. You can say that your investment returns and risk depend on your fund manager. Hence, you should learn about their expertise before investing.
Note the Expense Ratio
The expense ratio is the amount you pay to invest and manage your fund. You need to pay this fee upfront. It adds up to your total investment cost. Look for an online Mutual Fund that has the lowest expense ratio. This ensures you earn from your fund investment accurately. You need not pay a high expense ratio from your profits.
