Factors to Consider When Choosing a Mutual Fund | Factors Affecting Mutual Fund Investment

What are the Factors to Consider When Choosing a Mutual Fund product?

Following factors must be considered selecting a suitable Mutual Fund product:

  • Investor must carefully read the offer document of the mutual fund scheme in which he can get necessary information like the main features of the scheme, risk factors, expenses to be charged to the scheme, investment experience of fund managers, performance of other schemes launched by the mutual fund in the past, loads, sponsor's track record, educational qualification of key personnel, pending litigations, penalties imposed, etc.
  • Check the past track record of performance of the scheme.
  • Compare the performance of a scheme with its benchmark or with other schemes having similar investment objectives.
  • Apart from the returns, investor should also look at the volatility of the returns given by the fund.
  • Check the Corpus or Asset Under Management (AUM) size of the scheme.
  • In case of debt oriented schemes, the investor should also check the quality of debt instruments through their credit rating.
  • In case of equity oriented schemes, the investor needs to check the quality of portfolio.
  • Investor can compare funds with the help of various websites, blogs, financial newspapers, etc.
  • Investor can also take an advice of mutual fund advisor or an expert.
  • The investor should invest in such a way so that he can achieve his investment objectives. He can achieve short term as well as long term objectives through mutual fund investments. So he is also required to pay attention towards time horizon.
  • Before selecting any scheme, he must know his capacity of risk tolerance. Equity oriented schemes are riskier & volatile as compared to debt oriented scheme. He should select the scheme according to his risk bearing capacity.
  • While choosing the MF scheme for investment, the investor also need to check who is the fund manager of the scheme, fund manager's experience and also the scheme's performance against benchmark & against category.
  • It is also necessary to check, if there is any exit load in the scheme and if yes, then what is the percentage of that exist load?