If you call your bank manager for advice, they will indicate some funds for you. In his opinion, they are the best. If you go to Google or Quora to search for "which is the best mutual fund investment", you may get 10 to 15 different topics, all from reputable sources. If you are like most people, you should call a friend you know who knows the industry and recommend a good mutual fund. They may provide you with another list of funds. Therefore, you will have a short list, for example, 15-20 quality funds that are only suitable for your investment. But the key question is how to choose the final list of 3-4 mutual funds. To help you, here is a 5-minute guide to review mutual funds and see if the fund recommended to you is really a good fund.
Mutual fund category test
The first thing to do is to check the mutual fund category. Generally speaking, there are three categories to open an account at Groww and start investing in social capital for free, and there is another category called ELSS (Equity Linked Savings Plan). According to Article 80C, investment is exempt from income tax, but there is a limit of 1.5 lactose They have a lock-up period of 3 years. At a glance, you can see which fund category is the mutual fund you are reviewing. If it meets your investment needs, please pass. If not, it fails. E.g. DSP Blackrock Tax Saver and Birla Sun Life 96 Tax Relief are very good tax-saving investment funds. However, if you have exhausted the 1.5 lac limit set out in Section 80C or do not have taxable income exceeding 2.5 lac, then you should not invest in these funds. prove. Debt funds and equity funds hardly further restrict the subcategories of the fund's purpose. It is important to understand the potential benefits and risks associated with each of these categories. Although it looks like a lot of work, it is actually very simple. I listed the subcategories from low risk-low return to high risk-high return.
Category Analysis of Mutual Fund Review
Subcategories mainly represent the investment strategies of mutual funds (and fund managers). Kotak Select Focus is a multi-share equity fund that invests in companies through market capitalization (the company's market size). The risks associated with such funds are greater than large funds such as Birla Sun Life Frontline Equity. On the other hand, Franklin India Small Company, a microcapital fund, invests in very small companies. Therefore, the fund is expected to be more volatile (risky) than large-cap or multi-cap stocks. At the same time, compared with large-cap funds, micro-cap funds have higher return potential. After all, the investment strategy of a mutual fund should be consistent with its investment needs.
Past performance tests.
If the type of mutual fund is tailored to your investment needs, the next step in reviewing mutual funds is to observe returns. Return is the only reason for you or me to invest, right? Unfortunately, there is no definite way to know the future return of any mutual fund. Therefore, we must ensure that the fund has performed well in all types of markets in the past. Past performance does not measure the future. agree. But a good fund manager with a sound strategy can repeat this performance. You can consider two different data points to measure the past performance of the fund. Annualized returns Most investment products talk about annualized returns. To provide you with background information, the annualized rate of return on a 7% fixed deposit is 7%. However, when it comes to investing in market-related returns, the annualized return gives a cumulative (fixed) annual return, which will result in the final value during the investment period. Past performance can give you an idea of the best or worst you can expect in the future.
Compared to the benchmark return, when you see it, the best prospects appear. The returns of mutual funds should always outperform benchmarks. Birla SL Equity: Review the annualized returns of mutual funds. As you can see from the chart above, Birla Sun Life Equity (multi-share equity fund) has consistently outperformed the benchmark:
Nifty. -AUM TestAge for mutual funds-This fund should not be a recently launched fund. The problem with this type of fund is that you may not see the ups and downs of the market. It does not have enough data to verify its performance in various situations. In addition, if you do not have enough data, you cannot compare the performance of similar funds. For example, if you are reviewing a 3-year mutual fund, you may find that the returns in the past 1 and 3 years have been very good, but you are not sure whether your performance will be so stable during difficult times. Therefore, unless you perform a more in-depth analysis of your investment portfolio (we will briefly introduce it in the next minute), follow the investment style of the fund manager and understand the overall philosophy of AMC, don't choose a very young fund. )-AUM is the total funds invested in mutual funds. The very small AUM (less than 100 million rupees) is a sign of suspicion. The size represents the trust level of the people and the company in the background. On the other hand, even a very large AUM (over 10 billion rupees) is not good. Learn how ICICI Value Discovery and Axis Long Term Equity started to perform poorly after AUM exceeded Rs 10,000 crore. Fund managers find it difficult to find good opportunities for such a large scale of asset management. They ended up investing in most large-cap stocks, so the fund became a replica of the market.
If the plan survives these five minutes, you must invest in it. The only thing you worry about right now must be macroeconomic factors: if the market is overvalued, if some political event is about to happen, etc. If you don’t have a deep understanding of these factors, please choose SIP.