Top questions to ask before you start investing in mutual funds

Before you begin, you must understand and list down your financial goals along with a deadline. They can be then classified as short-term and long-term.

May 20, 2018 07:05 IST India Infoline News Service

Invest in Mutual Fund
A whirlpool of questions may storm your mind when you think of investing in mutual funds. This was also the case with Mayank, who wanted to invest in mutual funds, but had been in a dilemma about mutual fund investments, i.e. how to start, which portfolio to choose, etc.
 
When he discussed the same with his elder brother Mohit, he advised Mayank to ask himself a few questions before making any investment. In finding the answers to these questions, Mayank would get a clear picture of his investment, which would prevent him from making any blunders.
 
If you find yourself in the same spot, here are the questions Mayank found answers to before investing in mutual funds.
 
What are your financial goals?
 
Before you begin, you must understand and list down your financial goals along with a deadline. They can be then classified as short-term and long-term. However, ensure that the targets are realistic. This will help you know the direction you want to head in and the speed you should achieve to get there. Financial goals play a vital role in deciding the kind of investments you should opt for.
 
Can the fund achieve your financial goals?
 
Once your goals are set, the next thing you should do is evaluate whether the fund suits your financial goals both in terms of the value and time frame. If the fund’s growth prospects match with your financial goals, you can mark the first checkbox for the mutual fund.
 
What are the constituents of fund’s portfolio?
 
If the fund suits your financial goals, then you should look into the details of the portfolio. Mainly, you should know what the constituents of the portfolio are and the risk quotient they carry. This will help you get a microscopic picture of the fund and help you decide if the risk involved suits you.
 
How efficient are the fund managers?
 
Even if the portfolio looks good to you in terms of risk and suits your financial goals, the returns it gives will still largely depend on the fund managers. It is important you know who will manage your funds. Ensure the expertise, credibility, and efficiency of the fund managers by checking their history. This way, you can ensure that your funds are in safe hands.
 
What is the investment size of the fund?
 
The fund suits all your requirements, and should also be able to achieve your objective in time, but does it still fit your pocket? You should check the investment size of the fund, whether it is affordable to you at the current state or not. Making investments that are beyond your reach will not help you, but would rather worsen your finances. However, this is where a systematic investment plan (SIP) comes in. SIPs help you invest in mutual funds with as little as Rs500 on a daily, weekly, bi-weekly, monthly, or quarterly basis.
 
Are there any hidden costs?
 
Many a time, a fund may involve hidden costs and charges which makes it more expensive. Make sure you inquire about the presence of any such overhead costs before paying more.
 
What are the terms and conditions?
 
Experts say “Read and understand all the offer documents carefully before investing”. The same applies here; understand all the terms and conditions of the mutual fund in question before agreeing to invest. This will save you from any unforeseen roadblocks you might face if you ignore the details.
 
How is the fund performing?
 
Above all, it is always the performance of the fund which matters the most. If the fund performs well and has good future prospects, it should be a good bet. Ensure the performance of the fund by analyzing the fund history to get a better insight.
 
The bottom line
 
Once you find answers to all the above questions, the scope for confusions and dilemma should, more or less, be eliminated. You will get a crystal clear picture about your investment, which will only increase your confidence in the fund and increase your chances of claiming better returns without making mistakes.

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