3 Check Points Before Investing In Mutual Funds

The idea of investing in mutual funds through the Systematic Investment Plan (SIP) route is promoted by personal finance experts to achieve long term financial goals as disciplined investing and power of compounding multiplies one's hard-earned money amply. Also, investment in mutual funds in the current times when Sensex is hovering close to 39,000 points, which is not too cheap, will offer a hedge against any huge downside risks to the market.

3 Check Points Before Investing In Mutual Funds

For some time now, retail investors have been continuously investing money in mutual funds via the SIP route. And as per the Association of Mutual Funds of India (AMFI) data released in February 2019, the industry has accumulated a sum of Rs. 8,095 crore through SIPs in February 2019, registering YoY growth of 26%.

The major advantage that comes with mutual funds is that these are well-managed portfolio of assets and highly diversified. So, risk-averse investors and also others who do not have the acumen to invest directly in stock markets may bet on the investment option. But before you begin your investment journey into mutual funds, you need to check whether the mutual fund is regulated and certified or not. Also, there are a few pointers which you surely need to check before zeroing-in on a suitable mutual fund scheme for yourself.

Few pointers to note before investing in mutual funds

Portfolio holding: You need to look for the mix of assets or a set of different units of the same asset that make up the mutual fund scheme. By briefly accounting for the mutual fund holding, a potential investor can have a holistic impression of the sectors from which stocks are included as well as the fund's performance.

Say for instance in an equity mutual fund scheme there can be the host of stocks chosen on the basis of mutual fund-type such as index funds, large-cap equity mutual fund, small-cap mutual fund, multi-cap mutual fund, etc.

Past performance of the scheme: Past performance of the mutual fund should also be assessed by the investor as to how the fund has performed over a period of time and during high stock market volatility. Though the reasonable performance of the scheme in the past does not assure of better performance of the fund in the future time period also. At best, it can suggest the fund's weaknesses and strengths and also you can have an idea of the return potential of the scheme.

Exit load: Also, the investor needs to check exit load for the mutual fund scheme i.e. the charges levied by mutual fund houses while redeeming mutual fund investment. Fund houses in most of the cases charge an exit load of up to 3%. So, make sure to double check exit load charges whether you go in for an equity, debt or index fund.

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