Mutual funds are suitable investment options available for investors who want to diversify their portfolios. In September 2023, overall assets of mutual funds in India rose 19.84% year-over-year, which is a testament to the popularity of mutual fund investments in India. Here are seven major factors to before investing in top mutual funds in 2023.
- Investors should have an investment goal: Investors planning to invest in mutual funds should have a clear idea about their goals. The goals make it easier to choose a mutual fund scheme. Different funds suit different objectives. For instance, equity funds may work better for long-term growth and debt funds for steady income.
- They must decide on a time horizon for their mutual fund investment: Investing in stocks may involve more fluctuations of the markets during a longer time period that will result in bigger profits. On the other hand, short-term focus might need a focus on the debt funds that are more stable and with less volatility. The time factor is of great importance when making plans on how best to manage mutual funds.
- Investors must assess their risk-taking capacity: Investors should gauge their risk-taking capacity before they invest in different types of mutual funds. High-risk investments usually have the possibility of offering higher returns, however, they are often accompanied by more risk. Knowing one’s risk appetite allows an investor to choose a mutual fund that will suit them depending on their goals.
- They should assess the performance of a fund over time: Past performance does not guarantee a mutual fund’s future growth. Investors should examine how a particular fund has performed under different market scenarios. An excellent performance over several market cycles can mean that a fund is better managed and can sustain growth. Nevertheless, one should bear in mind that the evaluation of a fund’s performance shall be carried out with the fund’s investment objective and the state of the market at a point in time in mind.
- Investors must check the net asset value of the fund: The NAV is the individual unit price of that mutual fund scheme. It is the ratio obtained by dividing the sum of all the assets belonging to the fund, by the number of existing shares. Investors must keep close tabs on the NAV so that they can evaluate how well the fund is faring. A high NAV is not always a sign of a well-performing fund. However monitoring NAV trends may give investors hints regarding the fund’s overall course over time.
- They must check the fund’s expense ratio: An expense ratio refers to the annual charge that a particular mutual fund charges its investors for managing their funds. Lower expense ratios are most appealing to investors since more profits accrue to them. Investors must also analyze the expense ratio of competing funds of a similar category and prefer those that have lower fees to avoid spending too much while investing.
- Before investing, investors must use a mutual fund calculator to plan their investment: Investors should use mutual fund calculator before making any investment. These calculators assist investors in forecasting possible returns according to their investment term, projected return rate, and investable amount. These variables enable the investor to fine-tune their strategy and make it aligned with their financial goals.
From setting clear investment goals to evaluating fund performance and utilizing tools like mutual fund calculators, investors must navigate the market with diligence and foresight. They can enhance their chances of building a resilient and rewarding mutual fund portfolio by following the steps mentioned in this article.
Interesting Related Article: “5 things to know about mutual funds “