How Do You Choose The Right Mutual Funds?

There are total 42 mutual fund companies (Asset Management Companies -AMC) in India as per AMFI (Association of Mutual Funds in India) website at the end of September 2017. To know about schemes, there are more than 2000 primary mutual fund schemes in India.

There are lots of choices for investors.

Many mutual fund investors have the habit of searching for top mutual fund schemes while investing in mutual funds. Often, they land in sites where mutual fund schemes would be listed on the basis of their performance over a short period. No wonder, many investors keep wondering whether they picked up the right schemes even after investing in them for a few years.

How do you choose the right mutual funds? 

Any selection of mutual funds, ETFs, or any other investment vehicle should start with an investment plan, which is ideally an outgrowth of your financial plan.  Once you have an asset allocation strategy you will want to fill these allocation buckets with funds and ETFs that are appropriate for your situation.

Here are six mutual fund selection MISTAKES to avoid:

  • Assuming that a “brand name” fund from a well-known fund family is automatically a good investment choice.
  • Relying on lists of top mutual funds from popular magazines or websites.
  • Ignoring a fund’s history.
  • Avoid mutual funds from fund issuers that you’ve never heard of.
  • Assume that all index funds are created equally.
  • Assume that mutual fund companies automatically have your best interests at heart.

Some additional considerations in selecting mutual funds and ETFs:

  • Expenses matter.
  • When using an index product make sure that you understand what index the fund is tracking and that it tracks that index closely.
  • Avoid actively managed funds that are nothing more than closet indexers.
  • When building a portfolio understand the concepts of diversification and correlation.
  • Understand why you are choosing a given fund or ETF, where it fits in your portfolio, and what would cause you to eliminate this holding.

Happy Investing!

[blockquote style=”1″] “If superstition enters, the brain is gone.” ~Swami Vivekananda[/blockquote]

 

I am a CERTIFIED FINANCIAL PLANNERCM. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do.

If you have a question about your own financial situation please connect with me.  I’d be delighted to try to be of service.

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