Mutual funds are a preferred choice among investors today. Owing to attractive returns and a diversified portfolio, it has taken over popularity. When we have to invest in any gadget or home décor, we do thorough research and choose the best. This ensures we have the best thing we need and avoids wasting money. Similarly, before investing your hard-earned money, you need to be careful and do complete research. However, as an investor, one must remember that no single scheme or set of schemes is suitable for everyone.
All mutual funds come with pros and cons. It is you who decides which is best for your objective and requirements. But beforehand, you need to decide on the category of mutual funds. Later, you may choose from a variety of funds based on certain parameters. In this blog, we shall look at the major factors an investor must consider before investing in it.
Every Mutual Have Different Risk Levels
One of the important things you must know is that different mutual funds have different types of risks involved. It is very challenging to determine the various levels of risk in any specific components of Mutual Funds through specific factors or scales.
Identify Your Investment Goals
If you want higher returns, invest in equity funds or aggressive hybrid funds. But these funds also come with high risks. You should plan out your objectives, like whether you want to have a retirement fund, fund children’s education or wedding, or have an emergency fund for urgent requirements or medical expenses.
Expense Ratio
All funds come with some costs and fees, which include managerial and operational charges. The higher the expense ratio, the more it affects you directly. It comprises the brokerage fees and other costs that the mutual fund houses charge from investors.
Fund Performance
Investors should consider the fund performance of the mutual fund scheme before investing. Analyzing the trajectories according to market conditions gives an idea of whether the funds were able to live up to the objectives. Comparing the chosen fund’s performance to other similar funds in the market also maps a better picture.
AUM (Assets Under Management) of the AMC
A bigger AUM signifies a larger fund corpus from the collecting of funds from investors, as well as the involvement of more investors. A greater AUM makes it difficult for equity funds to enter or exit businesses, but it is advantageous in the case of liquid funds or other short-term debt funds.