When investing in a mutual fund, it is imperative for investors to look at the following important parameters:
<p>Parameters consider before investing in mutual funds are broad in nature. Read on to know more</p>
When investing in a mutual fund, it is imperative for investors to look at the following important parameters:
■ Pedigree of a fund house: A fund house with a good parentage and trusted brand name could be a good way to start. Investors should assess the attitude and approach of the management, and the experience of the fund house’s investment team in implementing sound risk management practices.
■ Long-term track record of a scheme’s performance: Investors should look at the consistency of the fund’s performance against benchmark and category average over 1, 3, 5 and 10-year investment horizon.
■ Past performance: The main concern right now is the way people select funds. People look at a fund’s performance and put money in those funds that have performed well only in the recent past.
■ Market scenario: One should also consider the current market situation and assess its impact on the future performance of their funds of choice. For instance, since the markets could remain volatile this year, we are currently recommending defensive equity investing with products in the balanced advantage and dynamic asset allocation category like ICICI Prudential Balanced Advantage Fund and ICICI Prudential Dynamic Plan, which aim to benefit out of volatility. If markets were in a bull run then diversified equity funds would have made sense.
■ Investment objectives: It is important to align the investment objectives of the fund to one’s financial goals. The investment objective spells out where a fund will invest its corpus, whether in equity or debt, and even within them, which specific sub-segment the fund is aiming for. For example, some funds invest only in mid- and small-cap equity while others may invest in short-term debt papers. This helps investors decide which funds to look at in order to match their goals accordingly—mid- and small-cap funds can be used in case the financial goal is of longer term while for a shorter term investment horizon, fixed income funds are more suitable.
■ Risk profile of funds: Each fund category has a different risk profile, defined by a Risk-o-meter printed on fund application forms. This system has been instituted so that investors familiarise themselves with the risk levels of a fund and help them to allocate to only those funds that meet their risk appetite.
■ Transparency and ease of transacting: The fund house’s website offers investors comprehensive information to ensure transparency and build investor knowledge.