Checklist while Investing in Mutual Funds

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Checklist while Investing in Mutual Funds
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There are tens of thousands mutual fund schemes
available in the financial market. To know how to
invest in mutual funds and select the right fund
for your investment portfolio, there are certain
aspects of the fund you need to check. Here, you
bring you a comprehensive checklist to help make
your fund selection better.
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Know your objectives! Every investor has a
different financial goal or objective in mind.
This can be short-term, like for a car or
vacation, or long-term for a house or capital
growth. Based on your objective, choose the
mutual fund that will help you reach your
financial goals.
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Match your risk profile! The risk capacity of
each mutual fund scheme is different. For
instance, an equity based fund incurs higher risk
in the expectation of a higher reward, making it
ideal for an aggressive investor. On the other
hand, a conservative investor may prefer a
debt-based fund which offers low returns but also
has lesser risk.
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Track historic performance When deciding how to
invest in mutual funds, it is imperative to look
at the previous track record of the mutual fund
schemes. Opt for a mutual fund that has shown
consistent performance and has a reliable track
record for good returns. Avoid any which are
highly volatile as they may not be the safest bet.
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Check the expense and costs A mutual fund often
incurs several expenses which are charged to the
customers account. While individually they may
not seem like a lot, they can accumulate to quite
a big amount. Be sure to understand all the
expense deductions by the fund house including
exit load.
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Know your fund manager The fund manager is the
financial expert hired to manage your investment.
You can research their credentials and ensure
they have a good track record in the financial
market. Also, avoid any mutual fund that changes
their fund manager very often as it can lead to
instability in earnings.
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Know your tax objective The tax implications
also vary across mutual funds. A long-term equity
fund (held for more than 12 months) is exempt
from taxes whereas the others may have some tax
liability. Based on your tax objectives, you can
opt for short or long-term mutual funds.
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Investing in mutual funds is a great way to
enhance your wealth and build your portfolio.
However, with the existence of several schemes,
it is essential to know how to invest in mutual
funds the right way. A financial consultant can
help guide you on the right scheme for your goals.
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