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

Top #3 Reasons To Increase Your SIP In 2019

Should you consider the long term horizon, equity investments outperform most of their counterparts by a handsome margin. They are your best bet to build a solid corpus. Yet, the short-term volatility is something that might churn your stomach. Not to forget the inherent risks involved in dealing with equity.


A simple solution is to invest in SIP. A systematic investment plan ensures that you benefit from rupee cost averaging. Thereby keeping you at bay from swings in the capital market. By investing in a SIP, you can reap the benefits of the capital market without having to worry about the pitfalls that it comes with.


Since most of the funds are handled by experts, you no longer have to worry about the structure or tracking the market on a regular basis. We recommend you to increase your SIP by 10-15% on a yearly basis, keeping in line your salary increment at the beginning of the year.

Top 3 Reasons To Increase Your SIP In 2019:

Here are the three major reasons why you should do that favor to your portfolio and increase your SIP amount periodically.

1. Make The Most of Tax Efficiency of Mutual Funds

You invest your hard-earned money in some investment avenues and end up paying taxes as per your income tax slabs. An investment that earns you 25% returns and you end up paying 20% of it as taxes, it doesn’t really bring a lot to the table.

Investment in equity mutual fund is much more rewarding in such scenarios. Your gains from an equity mutual fund are taxed at only 10% if the amount exceeds the cap of INR 1,00,000. This is irrespective of which tax slab you belong to.

If you aren’t too keen on investing in the slightly higher risk-rewarding equity funds, debt funds are always there. Unlike their alternatives, FDs, debt funds bring in the concept of indexation. With indexation, your overall tax liability reduces thereby you do not have to worry about feeding the taxman.

2. Reach Your Goals Faster

reach your goals faster - increase your sip in 2019


One of the most prominent reasons to increase your SIP amount is to reach your goals a tad faster. When you set up an automated SIP, you can consider it as a positive EMI. One that does a world of good to your finances rather than regular EMIs.


By increasing your SIP amount on a yearly basis, you will be able to save for a vacation or buy a new car a few months ahead of your initial plan. If you have plans of taking a sabbatical, increasing the SIP is just what you need. Once you cut down on your expenses, it is only natural that your money will last longer and you will be able to create a much larger savings pool.


When you get into a habit of investing regularly, unknowingly you can handle the volatility in the market. When the market is high, you might get slightly lesser units. On the other hand, when the market is up, the additional units are all yours.

3. Early Retirement

early retirement - increase your sip 2019


How many of us think or plan for early retirement? Well, a substantial number of people do. But do we take any significant steps towards the same? Increasing your SIP will help you do just the same.


On increasing the SIP amount on a yearly basis, you are putting your best foot forward to handle and tackle the beast called inflation. And do not worry about the short-term fluctuations. As far as early retirement is concerned, you are in it for the long haul.


A SIP of as small as INR 1,000 per month can lead to a corpus amount of INR 7,57,703 in about 15 years. This comes from a total investment of merely INR 1,80,000. That is the power of compounding over a period of time.


You can choose the SIP amount and aim to reach your retirement early. So that you can focus on things you always wanted to. For instance, you can start your work on the start-up plan that you always had, pursue any dreams that you had or do philanthropy, there are numerous opportunities. 


Individuals who seek to build a financial buffer for their future, increasing your SIP in 2019 is a right step in the same direction. However, if you want to know what will be the benefits after increasing your SIP in 2019 then you can easily analyse with the SIP performance Calculator by InvestWell.

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Anuj Jain April 26, 2019 0 Comments

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