One of the easiest ways to capture the gains of equity and fixed income market is staying invested in Mutual Funds. Mutual Funds provide a hassle free investment option to an investor who has little or no time to understand the intricacies of investment. Choosing a single Stock is a pain taking task; investor has to keep a round-the-clock monitoring of the stock and the market movement. He needs to be aware of the fundamentals and technical views of the company and the stocks. He might not have sizable investment to diversify into several stocks and sectors.
For investors who don’t have much time and clarity in investment has an excellent investment option called mutual funds. These funds pool the resources of several investors and compose a fund portfolio accordingly. These funds are actively managed by a dedicated Fund Manager. He initiates a complex hold-sell-buy strategy which helps in capturing the market moments. His expertise helps in active management of the funds and help in generating revenue.
There is more than 1000 plus funds available in market. Now the big question is how should one choose a mutual fund? To choose a mutual fund an investor first need to understand his tenure of investment as in for how long can he hold the fund invested. An investment wanting to invest for just two three months would have to select products which are specifically designed for that time horizon i.e he can invest in Liquid Funds and FMPs which do not charge exit load for short period. On the other hand if one has 3 to 5 years horizon one can choose a proper equity Diversified, Mid-Cap, Small-Cap funds and other host of categories.
There are several parameters which clubbed together helps in identifying a mutual fund. One has to look at the historical annualized return, return against its benchmark, return against its peers and the asset size, the top 10 performer in the category and the rating of the fund by top rating agencies like CRISIL, Valuresearch agencies. There are various technical parameters too which sometimes is not being properly understood by a common investor which actually is being efficiently taken care by these rating agencies.
An investor should prefer funds which have a good asset size, which is managed by a reputed fund manager and also those funds which has a proven track record.
This is a guest post by Mr. Mitesh Agarwal, BBA & MBA (Finance). Currently working as Financial Analyst with a leading firm in Mumbai.
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