Investments in mutual funds is soaring as investors have realized that these investments have made good returns for investors in the last 3 to 5 years. Some schemes like SBI Blue Chip Fund, have generated returns of almost 28 per cent each year, in the last three years.
Here are some smart ways to get even higher returns from mutual funds.
Look for low entry and exit load
Entry load is the amount of charges levied when you buy an existing mutual fund scheme.
Exit load on the other hand is the amount of charges that are levied when you sell a scheme. The exit load is generally 1 per cent, if you sell the scheme before one year. So, if you sell a mutual fund unit and there is 1 per cent exit load, your returns stand reduced by 1 per cent.
So look and check, if the scheme has an exit load.
Look for expense ratio
Every mutual fund incurs expense for commission, advertising, fund management fee, etc. Now, this is charged to the fund, which reduces investor returns. Some funds have as high as 3.50 per cent expense ratio, while others could have as low as 1.5 per cent. For example, SBI Blue Chip Fund currently has an expense ratio of 1.99 per cent.
Look for ratings
There are many research and rating houses that rate funds. While this may not be precise it is a good indicator to use, before choosing a fund. For example, Crisil provides ratings of various funds. Value Research online also provides ratings up to 5 star.
These are considered to be highly credible and investors should look at them before investing.
Avoid switching frequently
If you frequently switch from one mutual fund scheme to the other, there could be charges that are levied. A certain number of times is free, beyond which charges could apply.
This would reduce your overall returns.
Compare past track record
If you do a simple research you can get the track record of a number of mutual funds. Look at the past track record though past track record is no indicator of future performance.
At the moment from among large cap mutual fund, SBI Blue Chip Fund is the star per former in the last three years. This could change quickly though.
Learn to time the market
If somebody says, you cannot time the market, do not listen. For example, we believe that if somebody is in an equity fund, he should sell when the Sensex is at 30,000 points, because the markets are highly valued at those levels.
Of course, people would defer with the argument, though it is a matter of an individual's own perception.
Stay invested in debt
Stay invested in debt if you are retired. In case you are a retired senior citizen stay invested in debt schemes, as returns from equity schemes could pose grave risks.