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Let Usensure, “Mutual FundSahi Hai…”
Many times we heard on Radio, T.V. and read in the news paper regarding Mutual Fund & its famous sentence” Mutual Fund Investments are subject to market risk please read the information document carefully before Investing” in the mutual fund. Are you really read each & every information before investing in the mutual fund?
Following are the some precautionswhich can be helpful while investing in Mutual Funds:
- Investing without understanding the product:
Investment inEquity is generally for long term purpose/ results. But some investor expect benefit in short term period.
- Understanding of Risk Appetite:
Many of us just invest in the funds on the basis of tips received from friends & relatives, without understanding the risk involved in it. Even we don’t check about the fund’s performance, large cap, mid cap, that a fund is investing into,Companies in which Investments of Mutual fund is made. Even though some technical words are unable to understand but try to explore it.
- Enquire about Mutual fund charges:
Sometimes mutual fund charged the extra charges at the time of redemption. This cost may be for the account operating. Needs to ensure for such charges before investing in mutual fund
- Understand the underlying investment:
Some investors are invested with SIP or through lump sum amount without understanding the performance of the investment.Many Mutual funds invest in different asset classes instead of particular in nature. Investor should enquire investment pattern of the mutual fund & invest accordingly.
E.g. Debt funds gives less return but consistent & fixed return, Equity gives more returns as compare to Debt, but returns are volatile in nature and depends on market movement.
- Investment for dividend:
Common people always thought that mutual funds paid higher rate of dividend it means mutual fund are better performing.In case of mutual funds, dividend declaration is nothing but a mere book entry. Dividends are not interest but repayment of capital.
In fact growth option where you can withdraw the money is better from tax perspective.
- Higher expectations from fund:
Due to lots of advertisement & marketing, expectation from mutual fund is increased. Investors only see the temporary performance of the funds & invest in it. Minimum 5 years performance should be compare before investing in mutual fund.
- Comparison with its benchmark:
While looking performance of a fund’s, do not lead by the fund’s return in isolation. Also compare other factors, like rate of growth, dividend, NAV, past performance. Sometimes rate of NAV is falls but still investment can be done in that fund, because rate of falling is not more if compare to its benchmark.
Following are some tips which may helpyou while investing in the funds:
- Invest in the mutual fund that is diversified into different stock, sectors, asset class, so that risk can be minimized.
- Identify the funds that have long track record &consistent performance over the years.
- Choose the category of the securities like Debt, Equity or Hybrid according to your preference and expectation.