4 Steps to Select the right Mutual Fund

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Identify Goals and Risk Tolerance
Before investing in any mutual fund, it is
necessary that you identify your goals and
desires. Do you want to achieve long-term capital
gains or do you prefer a stream of income. How do
you plan to use the money - college expenses,
vacation, to supplement your retirement. Identify
ing your goals is important is it helps you to
filter out a major part of the mutual funds which
don't align with your objectives. Additonally,
consider your risk tolerance. Will you be able to
afford and mentally accept the rise and fall of
the market. If not, would a safer approach be
better? It is must that you identify your risk
tolerance.
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Fund Type
Choosing the type of fund that aligns with your
goals and risk tolerance is of prime importance.
If you plan on using the money for a longer-term
goal and are ready to deal with risk and
volatility, then the best choice for you could be
a long-term capital appreciation fund. These
funds have the potential to give higher returns
over time. Alternatively, if you are in need of
current income, you should buy into an income
fund. These funds commonly hold government and
corporate debt. At times, you may want to invest
over a long-term horizon but will be unwilling to
undertake risk. Then, a balanced fund is the best
alternative for you. Balanced funds invest in
both stocks and bonds.
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Charges and Fees
The source of income for mutual funds is charging
fees to the investor. It is important that you
know all the different type of fees that you may
face when investing. Some funds charge a load
fee, which is charged either at the initial
investment - known as the front-end load fee or
at the sale of the investment - known as the
back-end load fee. Typically, both front-end and
back-end fees charge 3-6 but can go upto 8.5 by
law. The fee is charged to cover any
administrative charges associated with the
investment. Choose no-load funds to avoid these
fees. However, be aware of other fees that you
may be charged in that case, such as the
management expense ratio and other administration
fees.
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Managers and Past Results
As an investor, you should particularly research
a fund's past results. Find answers to questions
regarding the performance of the fund compared to
the general market returns, the volatility of the
fund and the turnover. This information
provides an insight into the performance of the
fund manager as well as the historical
trends. However, past performances, whether good
or bad, do not guarantee the future results.
Before investing your hard earned money, review
the company's literature. A forthright fund
manager would give you an idea about the industry
trends and potential prospects for the fund.
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Direct Mutual Funds
Choosing a mutual fund might seem difficult, but
good research, identifying your objectives, and
with diligence, you can increase your chances of
success. You can invest through Invezta, an
online platform where you can invest directly in
mutual funds without any additional commissions.
You can also choose to invest through Invezta's
robo advisor which selects a portfolio tailored
to your specific needs. And you pay only if it
works. Visit them at http//invezta.com to start
investing.
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