How to select the right Mutual fund?

Hey,

Welcome to the fourth newsletter from Big Hit Bulletin. Today we would be discussing some important tips to help you choose the right mutual fund for yourself. Let’s start right away.

But, before selecting a Mutual fund ask these 3 questions to yourself, 1. What is your risk appetite? 2. What are your return expectations? 3. How much time are you willing to stay invested?

Depending on the answers to the above questions you can choose the right type of mutual fund for yourself using the visual below,

Select the right Mutual fund

Select Mutual fund based on investment period

Once You are Sure about the type of mutual fund that would suit your expectations, you must check the following parameters to select the right mutual fund among the several funds available for investment in your category.

1. Expense Ratio: The expense ratio is the amount of money you are paying to the fund management company to invest your money and make the right decisions for the highest possible returns. It is recommended to choose a Mutual fund with the lowest expense ratio possible.

2. Taxes: If you sell your Mutual fund units within 1 year, the government levies a tax or 15% on profits. This is termed as Short-Term Capital Gains. If you stay invested for more than 1 year, the tax applicable up to 1 lakh capital gains is exempted. But, you have to pay tax on capital gains beyond 1 lakh rupees as per your applicable tax slab.

3. Entry Load or Exit Load: This is the amount paid by you as an Investor while entering or exiting a mutual fund.

The most important point to be taken into consideration before choosing a mutual fund is to verify the Fund Managing Company and Fund Manager.

The Fund manager is responsible for making all investment decisions. Hence, It is necessary that the mutual fund has a good fund manager who can earn maximum returns using your money even in tough market conditions. Also, do some prior research to verify that the Fund managing company was not involved in any suspicious activities in the past.

Some Red Flags

1. Mutual Fund focusing on a single Sector/Company

2. High Expense Ratio

3. Portfolio Turn over

4. Fund management company involved in disputes

There are many special types of Funds that have a unique investment pattern. Index Funds: These Funds are passively managed, they invest in Market indices such as Nifty 5, Sensex, etc. Funds of Funds: It is a Mutual Fund that invests in multiple other types of Mutual funds. This helps in the diversification of your investment Real Estate Funds: They invest mostly in securities offered by public real estate companies Tax-Saving Funds: These are Equity Mutual Funds that offer tax-saving benefits under Section 80C

I hope this mail was helpful. See you next week!!!