Mutual Fund Investments are an excellent option for those who wish to generate a secondary income source. Every investor wishes to invest in profitable funds that help them achieve different financial goals. However, certain factors evaluate which funds make for the best investments. Following are factors to consider when evaluating different types of Mutual Fund schemes:
Returns accrued
While selecting the Mutual Funds in India, consider the returns accumulated by the fund. The fund performance, particularly concerning the investment returns, is the most crucial parameter based on which funds get ranked. As an investor, review the performance throughout three, five, and seven years based on whether they are short, medium, or long-term funds, respectively.
The thumb rule is to invest in funds that have consistently beaten or broken their benchmark indices, i.e., the index to which the fund returns are compared. Also, compare the funds with their peers and ensure that they have fared reasonably well over time.
Fund expense ratio
The expense ratio is another factor to consider if you are looking for the best funds. It is the amount investors pay to the companies managing Mutual Funds. The expense ratio essentially represents the operating costs and the fees charged against the fund management. It gets calculated by dividing the fund operating expenses by the total rupee value of all assets in the fund. Several factors play a role in influencing the expense ratio, be it high or low.
Mutual Funds generally carry higher expense ratios as they depend on human management, and hence, consider the fund’s expense ratio before investing.
Fund history and AMCs
Before finalising the scheme, ensure that a trusted fund house actively manages it. Research the Asset Management Company overseeing the fund and consider the other assets under management. Ensure the company managing the fund has a good market reputation. A good AMC must have been in the investment business for five years.
This information instils the faith that the fund has been in the market for a long time and has seen different market cycles like rallies and slumps.
Fund’s financial ratios
This is a crucial factor. Remember that there are several significant risks involved when you invest in Mutual Funds, so consider the risk-return rate. This ratio marks the potential profits investors earn for every rupee invested. It also compares your expected returns on your investment while calculating the risk you undertake to make those returns.
Mutual Funds in India are indeed profitable if you consider the factors mentioned. If you are a first-time investor, check before employing the services of a financial advisory firm. These firms typically hire financial experts who recommend the best funds based on your investment capital, goals, tenures, and risk appetites.