5 Tips of Selecting Mutual Funds

Mutual funds offer the most convenient way to invest in the capital, debt and money markets. The increased participation is testament to the fact that there is a general awareness of it. It is also recommended to put a mutual fund on your personal financial planning. Recent years, the industry of investment funds has grown many, not only in terms of size but also in terms of tenders.

While one hand is good, the increase in the number of deals has also led to a state of dilemma in the minds of investors. They are often confused when it comes to selecting the right of the large amount of funds available. Worse, many investors think that "any" investment fund can help you reach your desired goals.

The fact is that not all funds are the same. There are several aspects within a fund that an investor should carefully consider before short-listing for the investments.

The fund's past performance is important in the analysis of a mutual fund. However, remember that just because a fund has performed well in the past does not mean you have a good performance in the future. If a mutual fund has a well established history, the probability for a good performance in the future is higher than those have not worked well.

The following factors should be considered in evaluating the performance of a fund, and could guide you in selecting mutual funds:

1) Comparisons
The performance of a fund on its own says nothing. Therefore, it becomes crucial to compare the fund with its benchmark and peers, in order to derive a meaningful conclusion. Again, be careful when selecting pairs for comparison. “Do not compare apples with oranges "

2) Period of time
It is pertinent for investors to have a long term (at least 3-5 years) horizon of financial planning, if you want to invest in venture capital funds targeted. Therefore, it is important for us to assess the long-term performance of funds. This does not imply that the short-term performance is ignored. Short-term performance should be assessed, however, attention should focus more on long-term performance. It is equally important to assess how a fund has performed over different market cycles (especially during the recession).

3) Returns
Returns are obviously one of the important parameters that one should look at while evaluating a fund. But remember, if it is one of the most important, is not the only parameter. Many investors simply invest in a mutual fund, given that it has increased profitability.

4) Risk
Risk is usually measured by the standard deviation. From the perspective of an investor, a fund assessment of risk parameters is important because it will help to check whether the fund's risk profile fits your risk profile or not. For example, if two funds have issued similar statements, then a prudent investor would invest in the fund that has less risk.

5) Concentration of the portfolio
Funds that have a high concentration in certain stocks or sectors tend to be very risky and volatile. Therefore, investors should invest in these funds only if they have a high risk appetite. Ideally, a well-diversified fund must maintain no more than 40% of its assets in its top 10 stock holdings.

Make sure not to put all your eggs in one basket. Happy investing :)

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