Friday, August 19, 2011

5 Things to Check Before Investing in Mutual Funds

Bangalore: Investing in mutual funds in India is a great idea as it is comparatively less risky than investing in stocks. The only problem with mutual funds investment is the large variety of mutual funds schemes available in the Indian market, which makes it difficult to choose the one that most suits your needs. The biggest roadblock in mutual fund investing in particular is getting started.

As an investor there are few things you know when investing in mutual funds to be a successful investor.


Fees and Expenses
The investor must be careful about the various expenses and fees imposed by the mutual funds. Make sure you buy a no load, low fee mutual fund. Any money you pay in fees is less money you'll make in returns.

Age and Size of the Fund
The performance of the fund you plan to invest in can be figured out when you know the age and size of the fund. It may give some insight into the investment approach and the objective followed by the fund managers. You will know where the fund has been invested in? Does it abide to the objective set up? Similarly the size of the fund is also important, since it will indicate the effect that a single scrip or stock have on the NAV of the fund.

Tax Implications
Some funds trade more than others. As an investor you should know about the tax implications of your mutual fund investments very thoroughly. When does the investment become taxable, what is the amount of tax, and how is it to be paid? If you hold your mutual funds in an IRA or other tax deferred account, then tax efficiency is not an issue.

Asset allocation
You wish to have 25 percent exposure to international stocks, then invest 25 percent of your money into international mutual funds. Try and experiment your risk among a variety of stocks, but keep in mind that pretty much any mutual fund will give you diversification into the asset base that it invests in.

Nature and Volatility
Any kind of investment includes risk and investing in mutual funds is no exception to this. Beware of any fund which claims to the contrary. The expected rate of return is proportional to the amount of risk. Check if the risk-return profile of the fund is aligned to the investment objectives of that particular fund. If you are an aggressive investor, equity based funds will be a good choice. 


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