What to Look for in a Fund?

Labile - Mutual Fund

Mutual Fund Industry started in India after 1995.Before that there was only one Mutual Fund and that was UTI. I don't know the much details of history of mutual funds but it was not a modern type of mutual fund.

While in USA and other developed countries, Mutual funds are in existence since over 4 to 5 decades.

When Mutual funds are launched in India first Time, There were only few mutual funds. So tracking and selecting mutual fund was easy.And after all the main aim behind investing in mutual funds is convenience.

But after year 2000,So many mutual funds came into market that Selecting Mutual Funds became an another job.

Yes,Right now there are so many number and varieties of mutual funds in the market that selecting a good mutual fund is itself is a different job.

So Here is a Quick Guide for "What to Look for in a Mutual Fund?"

01) Performance -

- First of all as a rule of thumb, you have to select only those mutual funds for investments which has a past performance record of at least 5 years. If a fund does not have minimum of 5 years of past performance record than you should not think of investing in it. This is as Simple.

- Once you select funds with past performance of at least 5 years, you have to see its percentage wise return.One common mistake people do is, they think that the funds which has given high returns in past are better than those funds which does not have given high returns in the past.

Well see.You don't have to see only past returns but you basically have to compare those past returns with 2 things.

One is Benchmark of that Fund means Underlying Index and Second is performance with Peers(Competitor fund having same objective and same Category)

You can't compare the returns of Large Cap funds with Mid cap funds because Mid cap funds are more aggressive than large cap funds so they will give much higher returns than the large cap funds in the up market while in the down market large cap funds will provide stability to your portfolio. So compare any fund performance with its underlying Benchmark Index such as Sensex, Nifty,Sensex Top 200....etc.....

02) Risk -

You have to see that how much risk so and so fund is taking in comparison to Index to achieve so and so return? Return is always a factor of Risk. So higher risk means you should be awarded with higher returns and at the same time in the down market you will have more loss.

So how much risk a Fund takes is determined by Various Statistical Ratios Such as Sharpe Ratio and Beta.

We will discuss later in some other article that what these statistical ratios are and how to do statistical analysis of any Mutual Fund?

03) Portfolio -

You have to see the Portfolio style of any fund before buying it. If you want a stability in your portfolio than select Large Cap Funds while if you want a growth and aggression in your portfolio than Midcap & Small cap funds are best for you.

You also have to check that weather the portfolio of any fund is Diversified,Sectoral or Thematic?
Diversified means the portfolio has Asset allocation in every sector while in case of sector or thematic funds only one sector portfolio will be there.

So you have to see the Fund objective first and Portfolio style of any fund before making any Investment Decision.

For long term Investments Diversified Portfolio is best. In fact any Investor's Core holding should be in Diversified Funds only while you may add 1 or 2 sector or thematic funds for aggression in your portfolio.

04) Fund Manager & Fund Management -

Before selecting any fund you have to see who is the fund manager and what is his past record.You can fund a past performance track of any fund manager on websites such as Valueresearchonline.com

After all we are investing in Management team. So it is necessary that you check that who is the fund manager and what is his past record of performance?

05) Cost -

Any Fund will charge Fund management fees every year from you.After all Fund house Services are not Free of charge.

So you have to see that weather any fund's Fund management charge is Reasonable or costly.If it is costly than you should avoid such type of funds.So you should check various expense ratios also before selecting any Fund.

06) Fund Rating -

If you don't want to check all of these things than Best way to select a Mutual Fund is to go at some Fund rating site and just buy 4star or 5 star rated Funds.

Valueresearchonline.com is a one such kind of reputed site cum fund rating agency.These people will do all of the above hard work for you at free of cost. All you have to do is just visit their sites and find some good 4star or 5star rated funds and simply invest in it. Monitor every 6 months and if you find that star rating of any fund in your portfolio has declined than simply exit that fund and buy new Fund.

So Look the above things before you buy a Fund........!!!!!!!!