Just; like you would need information to invest in the stocks and shares, same is the case when you wish to invest in the mutual funds. There are lots of mutual funds and these include index funds, diversified equity funds, exchange traded funds (ETF), balanced funds, debt funds and many more. The list is quite endless.
How does one know, if a particular mutual fund is suitable for them or not? All individuals have different risk appetite, funds at disposal and age factor. Considering these they must invest in the mutual funds. Some of the funds are aggressive and will invest entirely in the stock exchange, while other funds are relatively secure and will invest only in debt or government securities. Many of the mutual funds are aimed towards protecting the capital, while others will be risky.
These are some of the factors that you should look into.
When you start investing in the funds early, you have more time to see your investments grow, rather than someone who starts investing in their 50’s or even 40’s. Younger investors can withstand the risk and are more risk takers as compared to those that are older or nearing their retirement.
If you have a higher disposable income and fewer debt obligations, then you should always look at growth-oriented funds that will help your investment to grow. Many people have no appetite for risk and are constantly worried that they might lose their investment. For them mutual funds that invest in debt or government securities should work the best.
Balanced Funds would be the best option for investors who cannot afford to take risks. These funds invest in stock markets as well as debt and government securities. They yield better returns than mutual funds that invest only debts and government securities. When investments are held for a longer period of time, they yield better returns than investments that are held for a short period of time. When there is an economic slowdown or even when there is a crash, long-term investments have the power to withstand these problems.
If you are looking at college funds or funds for marriage or even planning for a retirement home, then it’s best to start early. Invest in market-oriented mutual funds as these give better returns. Over a period of time, you will be able to see your investments growing steadily. However if the college funds are required within a year or so, then don’t lock in all the money in the stock oriented mutual funds. This is because a year or even two years is very risky and in fact you could even see your capital worth go down.
A great way of using your mutual funds is to start redeeming close to the period that you need the money and then investing this in more secure investments such as debt instruments or even fixed deposits.
Growth funds will fluctuate as the market goes up or down and this could be bad for your investments especially if the money is for your children’s higher studies or marriage. Growth funds will usually outperform any other funds during a long-term period.
The fund will also be good for you, in case the objective of the fund and the objective and strategy of the fund is the same as that of the investor. When investing in the mutual funds, compare the mutual funds and what they have to offer. While past performance of the fund is never a guarantee, you could always get an idea of the strategy of the fund’s performance. Select a fund that has low expense ratio as well as administrative charge. Always put your money in a number of mutual funds and don’t restrict yourself to just a single mutual fund.