Mutual funds selection depends on many parameters. These parameters include return expectation, return expectation, risk tolerance and investment horizon. You should consider several factors when selecting a fund, including past performance, fund manager experience and assets under management. You will be able to decide where to invest once you have done your research as an investor. What type of fund or category?
Common question: How to choose a mutual fund?. This guide to mutual funds investment is that you might consider when selecting mutual funds for investments.
Know your Goals –
This is the most important. Keep your goal in mind when you invest in a Mutual Fund. This is how you define investment. What time are you planning to invest and what return do you expect?
You may decide to sell your investment if you don’t have a clear goal. It can be for short term goals like buying utility goods, making a down-payment on a house, or taking a vacation abroad. You can also set a long-term goal, such as retirement or college education.
You will need to determine the reason you are investing. How to Choose Best Mutual Funds To Select The Right Type of Mutual Fund. You can choose from debt mutual fund or a hybrid mutual fund
For some investors, their main goal is capital appreciation. Others may seek tax savings.
Know Risk before invest
Uncertainty about what you’re getting into can lead to risk. The risk involved in investing in a mutual fund should be evaluated before the investor makes a decision. The investor must also assess the comfort level of the investment.
Equity mutual funds investments can be affected by market fluctuations. In the short-term, volatility could also be experienced by an equity-oriented portfolio. However, returns can be significantly higher than those of other types of funds. These funds may be suitable for long-term, aggressive investors.
Debt mutual funds are more stable. However, the returns may be lower than those of equity funds. These funds might be suitable to conservative investors. To determine which category you fall within based on your time horizon, risk profile and to help you choose the right mutual fund for you, please refer to the table below.
Investment Strategy for Mutual Funds
This aspect of investing is often overlooked by most investors. It is crucial to the success of your investment portfolio. The investment strategy can also be called the investment approach. This is the strategy the fund houses use to make all their investment decisions. Conflicts of interest can arise if the fund house’s investment strategy is not consistent with your investment philosophy. This could lead to you having to exit investments at unfavorable prices.
Performance of Mutual Fund
Knowing the Performance of funds is important. This should be done within a reasonable timeframe. This is to ensure that investments have been through multiple market cycles. This would ensure a consistent return over time.
If the benchmark is not met in three, five or seven years, it’s reasonable to suspect that the fund may not be a good investment.
It is crucial to review the performance details of the fund manager and the fund management team when evaluating the performance of a fund. Investors would benefit from a stable, reliable, and experienced Fund Management Team with a track record of success.
As per the Income Tax Act, if you make money (returns), it becomes taxable.
Equity fund units that are redeemed are subject to tax for the duration of their holding.
Equity funds are exempted from the Rs 1 Lakh exemption, but Long Term Capital Gains (holding periods of 12 months or more) are subject to 10% tax.
Short-term Capital Gains (with a holding period less than 12 month) are subject to 15% tax.
Indexation benefits are available for capital gains in Debt funds.
These funds are considered long-term if they have a 36 month or longer holding period. Any holding period less than 36 month is considered short-term and gains are taxable.