A beginner’s guide to invest in mutual fund

A frequent question posed by various investors is which funds to put their hard earned money. With the types of mutual funds on offer it is pretty confusing on which funds to choose and what to avoid. Though mutual funds are managed by performance managers it is not that all would provide higher returns. Many funds are there in the market that might not even be able to meet the index. For this reason it is equally important that you choose a mutual fund which aligns with your investment goals.

But unlike investing in stocks, investment in mutual funds is a long term relationship. There is a long term commitment involved. For this reason it is important that you end up choosing a mutual fund that provides you with the best in terms of performance and does not fall way behind. The choice of the wrong funds may ensure that you lose money and time.  For a beginner the following steps would enable you to choose the right fund

Go through the offer documents carefully

The most important thing in a mutual fund is the prospectus. The main step before you chooses a mutual fund is to go through the offer document in a proper manner. Here all the details of the fund outlining the objectives, past performance, scheme type, even the class of the underlying assets are outlined. In case if you are not familiar with the names then it is better to check out the must have mutual fund names. It would not be that much difficult to understand more about the offer documents.

The objective of the fund needs to align with your own personal objectives

Each mutual fund has a specific objective. Based on this objective the other aspects continue to vary. By going through the offer document it is easy to understand whether the fund objective aligns with your own investment goals. If they are on the same line it is better that you make an investment in such funds.

Check out the exit loads and fees

Any mutual fund which offers services to clients has fees in the form of administration, operational and manager’s fees involved. On the other hand the expense ratio of a fund could be as high as 2.5 %. In certain cases there are some mutual funds that would levy a fee the moment you make an investment or deferred charges in case if you plan to exit the fund.

All these information are present in the offer letter of a mutual fund. For an investor it is suggested that you need to stay away from mutual funds where higher fees are levied so that you can cut down on unnecessary costs.

Last but not the least you need to evaluate the past performance of the fund. Though the past performance is not a precise guide on how it is going to perform in the future. You can gain a rough idea about the returns and even expectations of a fund.