Mutual Fund SIP | What to look for while choosing a mutual fund? Always keep these 10 important things in mind
Mutual Fund SIP Investing in mutual funds is considered safe and profitable compared to the stock market today. Mutual funds have recently given significant returns compared to investments in the stock market and bank or government schemes. But your mutual fund investment can be successful only if you choose the right mutual fund plan wisely. To choose the right mutual fund, you should have all the necessary information about the schemes available in the market for which not only doing online research is enough but also carefully checking the documents related to the scheme should be very helpful. This allows you to make the right decisions based on your risk profile and investment goals.
How to choose the right mutual fund
Scheme information documents and fact sheets are very important documents to get information about the policy, objectives and risks related to a mutual fund. This document can help you make the right decision, but for this you need to know what you want to focus on in this document.
Fund overview
The first thing written in the Scheme Information Document (SID) is usually an overview of the fund which details the investment strategy and objectives of the fund. The investment objective of the fund explains the main objective of the scheme. Long-term capital growth, regular income, or both? Furthermore, there is a scheme with active management, in which investment decisions depend on the fund manager, or it is a passive scheme that completely copies the benchmark index, commonly called an index fund.
investment strategies
The documents related to the scheme also contain information about the investment strategy. Under this, investment portfolios, sectors, asset classes and segments of the fund are offered. Also know how and to what extent the fund will invest in equity, debt or any other asset class. Similarly, some funds focus specifically on specific themes, such as technology, health care or infrastructure.
Minimum Investment and SIP Options
Investors should also check what investment options are available in this scheme. How much can be invested in lump sum and how much investment can be started through systematic investment plan.
What is the risk – Mutual Fund SIP
There are different risk factors associated with each investment. Risks associated with market fluctuations and changes in interest rates have a greater impact on debt funds. Credit risk, which is particularly associated with investments in low-rate bonds. Similarly, liquidity risk is associated with less liquid assets and it is very important to check the risk factors so that you can choose the right fund as per your risk tolerance.
asset allocation
Asset allocation provides information about how the fund invests by dividing it into different sectors, market segments, industries and geographies. For example, largecap funds invest in strong companies, including large businesses, while smallcap funds invest in stocks of emerging companies.
Track record of fund manager
Since the experience and track record of the fund manager has an impact on the performance of the fund, it is important to look at their past record.
cost ratio
Expense amount is the percentage of the fund's total assets that is spent on management fees and other things. If the long term returns of both the schemes are similar then it is beneficial to invest in the fund with lower cost ratio.
Exit Load and Redemption
Entry and exit of scheme documents should also be monitored. Entry load has to be paid while investing in the scheme and exit load while withdrawing money from the scheme. Apart from this, one should also be aware of the process of reselling the units of the scheme i.e. to the fund house.
tax provisions
To know the net return from any fund, one must know the tax provisions and their consequences related to the investment. For example, profits made after holding an equity fund for more than 12 months have to pay 12.5% long-term gains tax (LTCG) while Rs 10,000. There is no tax on profits up to Rs 1.25 lakh. At the same time, under Section 80C of the Income Tax Act, investment in ELSS is exempted from tax and according to the new rules, no matter how long you keep the debt fund, you will have to pay tax as per your income tax slab.
Disclaimer : Investing in mutual funds and stock market is based on risk. Before investing in the stock market, definitely consult your financial advisor. tezzbuzz.com will not be responsible for any financial loss.
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