Friday, September 6, 2013

Choosing the Best Mutual Fund for You

A mutual fund is an investment method that consists of a pool of funds gathered together from many investors. These funds are then used for investing in securities such as stocks, bonds and money market instruments. The portfolio of a mutual fund is designed and maintained go along with the investment objectives stated in the prospectus. So how do you know the best mutual funds for you? Here are some things to look out for when choosing the best mutual funds in India.

Identify your Goals 

Before putting your trust in any of the shares, you must identify your ultimate goal for the money being invested. Are you looking for long-term capital gains, or would you prefer a current income? Will your money be needed for use immediately, or is it to guarantee you a better retirement decades away? Identifying your goals is one of the most important aspects because allows you to shortlist the more than 8,000 mutual funds to suit your goals. 
The time issue must also be looked into. You must estimate the amount of time they are able to tie up their money, or if you are anticipating issues regarding liquidity. This is caused by the fact that mutual funds do contain sales charges and that can a big chunk of your return over short periods of time. It would be best if you have an investment plan which is five years or more. 

Type of Fund 

Your may be best suited for a long term capital appreciation fund, if you are planning and willing to use your money in the fund for a long term need, assuming there’s a fair amount of risk. A high percentage of your own assets are typically held in these types of common stocks. They are considered to be volatile. The potential reward over time would be quite big.

In contrast, if you find yourself in need of current income, you should look to acquiring shares in an income fund. Common holdings in an income fund are such as governments and corporate debts.

Charges and Fees 

Mutual funds make a profit by charging a small fee to you as an investor. Make sure you gain understand a handful of the different types of fees that you may come into when investing.
Look for no-load funds to avoid this kind of sales fees. This way, you can make sure they don't charge a front- or back-end load fee. However, keep an eye out for other fees in a no-load fund. There might be a high management expense ratio or other administration fees; this is to make up for the missing sales fees.

Here are some useful tips for you while choosing the best mutual fund for your needs.