The Crucial Factors to Consider Before Making a Mutual Fund Investment

Mutual Funds, although considered to be one of the most profitable forms of investments someone can make in the present volatile return market, is also the one that is known to be the riskiest.

Seeing the blend of risk and profit that Mutual Funds have created around them, it becomes very important for people who are new to putting in their money to know what factors are to be considered to make the whole investment journey convenient and profitable.

In this article, we will be looking into the several factors that an investor, no matter how new or old in the industry, should know before buying their fund scheme.

Factors to Look at Before Making a Mutual Fund Investment

1. Find your investment objective

Knowing what your financial objective is, is the key of mutual funds investment. Only when you identify your goal and then demarcate it in short, medium, and long-term investment form, can you make a sound investment decision

So, start with finding your need. It can be anything – buying a car (short term), retirement planning (long-term), etc. And then invest in funds like Guinness Atkinson that would help you achieve them within the stipulated time.

Unlike any other form of investment, in Mutual Funds, the funds are themselves divided in short, medium, and long-term, making it easier for the investors to make a calculated investment.

2. Hidden Fees and Charges

All the different mutual fund types come with their share of hidden charges and fees. They can vary from the transaction cost and advisory fees to fund manager’s expense and sales fees. Note what those additional fees are that you would have to pay besides the mutual fund cost.

Only after you have analyzed the additional costs and calculated the number of returns that you should expect after deducting the additional charges, purchase the mutual fund.

You can find the hidden cost details in a number of different places, but the one most trustworthy is looking at the fund house or getting in touch with your fund manager.

3. The facility of Tax Exemption

Mutual fund investments come with the benefit of a tax rebate when you invest in ELSS… So, if you are looking for a mutual fund with tax-saving intention, look for fund types that give that benefit.

Talking of taxes, like bonds and stocks, mutual funds also come tagged with tax liabilities ranging to both long and short term. So, it is very important for investors to look at the returns they will be getting on funds after calculating the returns on them.

To make it easy for you, here are the questions you should find answers to:

– Is the amount exempted from tax?
– Is there a lock-in period for availing the tax benefit
– What about the payouts and dividends? Are they tax exempted?

4. The Risk and Reward Ratio

It always works to know the risk-taking ability before making an investment. It goes without saying how you should make an investment in the mutual fund only after you have analyzed the risk that you can take and the rewards you would get in return.

Although it is said that the secret of getting profit at the back of a mutual fund investment lies in taking a greater risk but you have to ensure that the risk you are taking are well calculated and are put in fund types that are definitely going to get you profit.

5. Evaluate the Long-term Fund Performance

The best process to measure a mutual fund scheme performance is through analyzing its long-term performance metric. In addition to the rate of return, you should see if the mutual fund scheme would be able to meet the objective of the mutual investment.

At this stage, you should also look at the portfolio parameters to find out if the fund you are planning to invest in is applying undue risks.

While these five factors are a good starting point, there are a number of other things that you should consider before making a mutual fund investment, like the fund manager experience, the objective of the fund, etc.
Ultimately, you should take the decision based on the objective and risk-taking ability in addition to the probability of making higher returns.