A few pointers to consider before choosing a mutual fund scheme

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A few pointers to consider before choosing a mutual fund scheme
There are so many mutual fund schemes, that it may at times be a complicated affair choosing the right one. The first thing to do before choosing a mutual fund scheme is to analyse your own ability to take risk. If you are young and are between 20 and 40, your ability to take risk is high.

Hence, it maybe prudent to opt for an equity scheme. On the other hand, if you are a retired individual than the better option would be to choose a debt dedicated scheme.

Sometimes, it's good to time the markets

While analysts say that it's not good to time the market, one need not necessarily agree. For example, what you should do is avoid buying equity schemes, when the stock markets are at a high, simply because you would get the schemes at a higher NAV. When the markets are high, put money into debt schemes, and when they fall, you could quickly switch to equity schemes.

Past track record no indication of future performance

So often we see advertisements that highlight the above fact. Remember, if a mutual fund has performed well in the past, there is no guarantee that it would do so in the future. It's best not to go by the herd mentality

Ask an expert for advice

Sometimes, it could be helpful if you ask an expert for advice on the kind of portfolio in a particular scheme. For example, in the present context, if a portfolio has an overwhelming number of stocks from the pharma sector, you might want to avoid the same, because the NAV would already be high, because pharma stocks have already rallied.

On the other hand in the present context, you might want to bet on a scheme, where the portfolio is skewed towards economy related stocks from the infra, capital goods and banking sector, because the economy may have bottomed out. Seeking expert advise may always help.

Remember, there is no fixed mantra, when it comes to investing in mutual fund schemes. Sometimes, it's a matter of chance, if the stocks in the portfolio click, you are going to get returns, or else, you would be better off in a bank fixed deposit.


Read more about: mutual funds
Story first published: Monday, March 10, 2014, 8:32 [IST]
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