1. Draw up your asset allocation
Allocate available assets across different asset classes based on your level of risk capacity and risk tolerance.
2. Identify funds that fall into your Buy List
Find mutual funds that meet your preferences. Check the objective of the fund whether the same is in line with your investment goal.
3. Obtain and read the offer documents
Offer documents inform about the fund’s objective which is the legal document that contains information about the fund, its history, its officers and its performance. You could do this by either asking your broker or the asset management companies.
4. Match your objectives
Read through the offer documents and check to see whether the mutual funds identified meet your investment needs in terms of equity share and bond weightings, downside risk protection, tax benefits offered, dividend payout policy, sector focus and other parameters of relevance to you.
5. Check out performance comparison
Refer to the past performance of the fund and take appropriate decision in selecting the fund though the repetition of the past Performance is not guaranteed in future. comparisons must be used only to compare the same type of fund. They are meaningless otherwise.
Think hard about investing in sector funds: Investing in specific sector funds is recommended for aggressive investors. However, if you are not in close touch with the developments in the sector or do not review your portfolio regularly, we would not recommend investing in sector funds.
6. Look for ‘load’ costs
Management fees, annual expenses of the fund and sales loads can take away a significant portion of your returns. Try and avoid funds that have a sales load, unless of course, they have a consistent track record of being a top-performer.
7. Does the fund change fund managers often?
Since you will be giving past track record a consideration, you are inadvertently relying on the continuity of the fund manager. Stay away from mutual funds whose fund managers change often.
8. Look for size and credentials
As far as possible avoid investing in funds with an asset base of less than Rs25 crores. Which means that we are recommending you invest in funds only after they have established a track record. And unless it is a really exciting new (theme) fund that fits into your asset allocation plan, try and avoid new funds.
9. Customer Service
Check out the customer service delivery mechanism of the mutual fund you choose. Can you get in touch with them easily? How long do they take to disburse payments? How often do they send you portfolio updates? And investor newsletters? These questions are important to address because shortcomings on any of these factors could affect your overall returns.
10. Diversify, but not too much
Do not hold just one fund in each asset category. Its good to diversify your risk between different funds, but do not overdo it.
11. Style, not returns matter first in the long-term
Don’t let a top performing fund veer you away from a disciplined approach. Stick to your chosen asset allocation plan.
12. Monitor regularly and review
Try to review your mutual fund holdings at least once a quarter. If you follow the same principles to review as you did to identify the mutual funds you invested in, you will be able to take `sell decisions’ very easily.
13. Invest regularly, choose the S-I-P
Try to make mutual fund investing an integral part of your savings and wealth-building plan. The systematic investment plan option offered by mutual funds is a strongly recommended approach for you to execute this process.
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