How to Select an Apt Mutual Fund Investment Option

With the increasing popularity of mutual fund investments, it is obvious for more and more people to involve in creating wealth with mutual funds. However, the most important aspect of investing through mutual funds is selecting the apt scheme that would suit your financial goals and timely needs. An investor should be aware of the parameters which determine the selection of mutual funds, as the same would help him meet his financial goals.

Most importantly, study and comprehend the various types of mutual fund investment schemes available in the market and analyse their risk-return pattern, limitations and options, objectives and strategies. As soon as you understand each and every kind of mutual fund scheme, it would help you in the selection process. The same is required for assessing your personal finances and your stage of financial goals.

The first thing to consider is the investment objective and the risk-bearing capacities of the mutual fund. Make sure that the investment objectives of the chosen mutual fund should match your financial objectives and goals. Investment objectives generally include aspects like tax planning, high returns, fixed income, long term planning etc.; and you as an investor should make sure to buy a mutual fund which is in sync with your timely financial goals and needs.

Next, purchase a mutual fund which would be in accordance with your risk tolerance capabilities. If you are a beginner, it is advisable to invest in safer and low-yielding mutual fund options like debt funds with regular income which come with low risk and low return objective. However, in case you have gained expertise and foresight about mutual fund investments, you can select high return and high risk schemes like equity funds, which are also tax-efficient.

On the other hand, if you are aiming at long-term capital appreciation, close-ended equity funds can suit your needs. Based on the state of your personal finances and future goals and objectives, you should assess your risk-tolerance level and accordingly invest in the specific kind of mutual funds. For low-risk investors, it is best to go for government-aided securities or high-rated debt papers; medium-risk takers can opt for balanced funds, index funds and asset allocation funds, whereas the high-risk bearers can choose diversified and specialized equity funds, mid-cap funds and offshore funds.

Another factor which should be considered before selecting a particular mutual fund scheme is its past performance in comparison to its competitors or other similar funds. However, make sure that you are comparing 2 or more funds in the same category. Another deciding factor should be the efficiency of the fund management team, the skill and expertise of the fund manager and the quality of fund management. You can find about them by weighing the performance of the mutual funds managed by the fund manager. Apart from that, the size and the expense ratio of mutual fund can also play a deciding role in helping the investor to select an apt and profitable mutual fund scheme.