How To Select A Mutual Fund Scheme | Key Points To Remember

While investing in Mutual Fund, selecting the right mutual fund scheme is a key. There are a basket of Mutual Fund schemes available in the market be it Equity, Debt or Money Market schemes. Within equity also is a wide range of options like Large Cap Funds, Mid Cap Funds or Sectoral or Thematic Mutual Funds schemes.

However, one needs to select the mutual fund scheme that best suits one’s requirements.


Key Points to Consider while Selecting Mutual Fund Schemes


key points to consider while selecting mutual fund schemes


1. Performance Of The Mutual Fund Scheme


While selecting any mutual fund scheme it is important to review the performance of the fund. The key things that would determine the performance of the fund would be:


performance of mutual fund scheme while selecting mutual funds schemes


o Returns /Yields

The fund houses publish the performance of each fund scheme managed by them. Net Asset Value (NAV) is a key factor in Mutual Fund parlance. The movement in NAV is a fair indicator of performance of the scheme.

For long term investment, the investor needs to evaluate 3 to 5 year return generated by the scheme. It is also important to note that the return generated under the scheme needs to be compared with the performance of similar schemes managed by other fund houses as well as performance of the benchmark during the said period.


o Fund Manager

The Fund Manager is the ‘decision maker’ of all transactions done by the fund. The investor should therefore check the past performance of the fund manager and also the performance other schemes managed by him.


o Expense Ratio

All fund houses have to incur salary expenses for their fund manager, employees and also distribution expenses for their mutual funds. These expenses are ultimately charged to the investor’s whose funds are managed.


Typically, larger the Assets Under Management (AUM), lower is the expense ratio. The investor should also check the Exit load (charges levied on redemption of mutual fund units) under the scheme they want to invest.


2. Risk Appetite Of The Investor


risk appetite of the investor while selecting mutual fund schemes


There are mutual fund schemes available for all kinds of investors in the market. Mutual Fund investments are subjected to risk with no assured returns. The risk appetite of the investor goes a long way in deciding the Mutual fund scheme that the investor should choose. Depending on the risk appetite the investor can select the schemes as follows:


o High Risk Investor

A young investor or a Middle aged salaried professional would typically have a high risk appetite and can opt for investment in purely Equity linked Mutual Fund Schemes. These schemes are generally high risk -high return schemes suitable for these kind of investors.


o Low Risk Investors

Retired people should opt for schemes which have a moderate return but a lower risk. Debt mutual funds or Balanced/ Hybrid mutual funds (equity and debt mix) best meet their requirements.


3. Time Horizon Of Investment


time horizon of investment while selecting mutual funds scheme


The other key factor in deciding the scheme would be the time horizon.


o Shorter Time Duration

If you intend to park your funds for a short period of time say six months to a year, debt mutual funds or money market schemes are a good option.


o Longer Time Horizon

The longer the time horizon the better. If the investment is to meet long term goals open ended equity mutual fund schemes should be opted for.


4. Purpose Of Investment


purpose of the investment while selecting mutual fund schemes


Goal setting is an important step in financial planning. The purpose of investment needs to be understood before selecting the scheme:


o Long term goals like higher education, marriage of kids

In case the goal is to save for your child’s higher education or marriage you should opt for aggressive equity linked schemes which would generally give desired returns in a long time period.


o Tax Savings

Mutual Fund investment is an effective way of tax saving. There are various Equity linked savings schemes (ELSS), investment in which is allowed as a deduction under section 80C of the Income Tax Act. Thus, it serves a dual purpose of tax saving and return generation.


o Regular Income

Retired investors need a regular flow of monthly income. Mutual Fund schemes offer two options under any fund scheme- Growth and Dividend. Under the ‘Growth’ scheme there are no payments made to the investor inspite of increase in NAV.

However, under the ‘Dividend’ scheme dividend is declared under the scheme on a regular basis and paid to investors. The people desiring a regular flow of income should opt for the ‘Dividend’ scheme.


there are various mutual fund schemes available by the mutual fund industry for investment


Thus, there are various mutual fund schemes made available by the Mutual Fund industry and the investor has to choose the one best suited for him. Do consult a Financial Advisor before investing. He/She may be able to understand you and your needs and give you a proper solution.

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Investwell June 19, 2019 0 Comments

Factors Influencing Investment Psychology To Be A Genius Investor?

It is indeed difficult to invest successfully. Yet, it does not take a genius to be a prosperous investor. Even Warren Buffet, arguably one of the smartest investors of all times, is of the opinion that a high-level IQ is not integral for proper investing. In fact, he was of the opinion that once you pass the age of 25 years and have ordinary intelligence,


IQ does not factor much with investment.


In actuality, it is your control over actions that usually cause investment trouble that will determine your success. A sound investment psychology will ensure you do not fall in a financial pit. A true investor successfully overcomes his/ her own psychological weaknesses and limitations. Let us look at a few factors influencing investment psychology.


Factors Influencing Investment Psychology To Be A Genius Investor?


  • Overconfidence Influence Investment Psychology


overconfidence influence investment psychology


This is the primary factor that gives an investor an illusion of control. It makes you invest in a rapid manner. Investing in a rapid manner is a costly affair and does not always give rich rewards. In stocks, rapid trading costs can reduce the return on your investments. Be confident but do not let it get to your head as exercising caution makes for a sound investor. Although If you want to become rich then here are some lessons from billionaires to become rich.


However, keeping a control on your actions and doing what is right, consistently, over the long run reaps better results and is a proven fact.


  • Dive in Boom/ Dive out when Bust – Don’t Let You Be A Genius Investor


dive in boom dive out when bust - don't let you be genius investor


We are wired to review past events and identify patterns in order to make decisions moving forward. Stock markets make you delirious as when the market is booming everyone feels like investing. When the opposite happens and the market loses steam, investors tend to back out and sell their equity holdings.


This is wrong pattern identification and this is what the herd does. Fight your inherent tendency to fight or flight when facing a challenging financial situation.


Warren Buffet says, Buy low, Sell High and most of us end up doing just the contrary. We tend to buy when everyone else is buying in a boom market and sell after the market slips!


How Investment Psychology Works


understand how investment psychology works and become genius investor


A decent investor must be defiant by virtue, be able to take educated risks and find the value that is veiled. Do not be swayed by how the market is performing.


You should be confident in your abilities as an investor even when the market says otherwise. Remember your financial goals and do not give up your stocks when the market is not performing well.


Your educated risk will pay off if you stick to your gut. If you do not you may face the risk of not reaching you financial goals. Do not give in to pessimism and follow the market blindly. Do not give in to Mr. Market and rely on your personal research and investment acumen.


intrinsic stock value is a factor influencing your buy or sell decision


The intrinsic stock value should be the only factor influencing your decisions to buy or sell at all times.


Additionally, your research will ensure that you find the hidden value of a fund or company that may not be apparent on the face of it. It may take a while to find this out but it will be worth the investment decision. You will stand to make a ton of money if you have an eye for success.


Hidden value can be determined by studying the intellectual property worth of brands. Other ways to determine are understanding estate holdings that can be developed and the worth of subsidiaries.


sound investment psychology to be a genius investor


Let sound investment philosophy shape your judgments in the stock market for longevity and guaranteed returns on investment. Being invested through all times is the simplest and the easiest form of a healthy portfolio.


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Investwell June 17, 2019 0 Comments

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