Mar 04, 2010 02:42 PM
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What to look for in a fund?
To start with please remember one thing always “your money will not appreciate if it is kept idle.”According to me one of the better options to appreciate your money is to invest it in mutual funds. Well, to choose a mutual fund is not an easy task with so many funds competing in the market. Hence, to simplify or to help I suggest the following few criteria to be thought on, before you invest in mf. As the correct first step towards deciding, is to decide on a way of deciding.
performance: performance comparisons must be used only to com pare the same type of fund. They are meaningless otherwise. A record of at least 5 years should be studied before investing. By the time you come to the stage when you are comparing performance numbers of different funds, you should already have a good idea of how much you will invest in that category.
Risk: almost all investments are risky, at least those investments that get you any meaningful returns. In general it is said that the riskier a fund, the more its potential for earning high returns. However, this is a simplified view that implies that a given amount of risk always gets you the same returns. The true measure of risk is whether a fund is able to give you the kind of returns that justify the kind of risk it is taking.
You should evaluate your risk appetite too. Here your age plays a vital role; say if you are an unmarried, young earning person who doesn’t have too much responsibility can take more risk. As compared to a married person.
Portfolio: portfolio of any mf gives the clear picture of what are the constituents of the scheme. In which sector the fund manager is investing your money can be understood by learning the portfolio of the fund. Unlike performance and risk, portfolio is one of the'internals' of a fund. It is internal in the sense that the result of good, bad or ugly portfolios is already reflected in the first two measures and it's perfectly ok for you to choose funds on the basis of those two measures alone without actually bothering about what they own.
Management: fund management is a fairly creative and personality-oriented activity. This may not be true of some types of funds like shorter-term fixed-income funds and, of course, index funds, but equity investment is more of an art than a science. When you are buying a fund because you like its track record(and unless you can foresee the future, that's the only way to buy a fund), what you are actually buying is a fund manager's(or sometimes a fund management team's) track record. What you need to make sure is that the fund manager who was responsible for the part of the fund's track record that you are buying into is still there. A high-performance equity fund with a new manager is a like a new fund.
These are few important aspects which should be carefully workout buy “new investors”.
I guess its helpful. All the best
