The best way to make some extra money is to save some money and make it work for you. One such way to make your money work for you is by investing in mutual funds.
As an investor, you can follow this guide to choosing the right mutual funds in India that works best in your interest.
1. Sector or pedigree - It is important that you consider the sector where the mutual funds invest. A mutual fund who has a fixed pedigree is often a reliable bet. A good mutual fund will have strong financial leverage among its peers. A well distributed mutual fund will give you a balanced result.
2. Portfolio diversification - It comes as no surprise a diversified portfolio can give you if not the highest but a well-balanced return. Many investors looking at a long-term horizon can plunge into a less diversified portfolio, given their risk tolerance, as market volatility affects the long term plans less. For a new investor or investors with low-risk tolerance should consider mutual funds spread overstocks, fixed income funds and real estate funds. Such a strategy works best when the market is at its most volatile state.
3. Objectives - All investments should be done keeping clear goals and objectives in mind. It is essential to align your investment tenure with your goals. If you can invest for longer horizon equity will bring you the most benefit. For short term investors, debt funds or hybrid funds are great options to consider.
4. Risk tolerance - It is well-known that mutual fund investment involves a degree of risk. You can do a risk analysis to ensure that your investment brings to you adequate returns. Also, do a personal risk analysis to see how well you can cope with market volatility. Calculated risks are always welcome in the world of mutual fund investment for your maximum benefit.
5. An expense incurred - A mutual fund company will require you to pay fees for its services. Get full clarity on the types of fees and get an estimate of how much will be your net expense. There is also the provision of exit load, should you want to withdraw before the tenure is up. Understanding the fees and taxes are important so you can calculate the value of your expected return.
6. Turnover frequency - A fund which is frequently subjected to turnovers may indicate vulnerability. Financial analysts believe 50% or lesser turnover ratio is a worthy fund of investment.
7. Performance - As a prospective mutual fund investor analyze the fund's performance over the years. It will give you a good insight into what you can expect. Consistent performance over the years is a good indication of the fund's impact and value in the market.
Mutual funds are an investment. It is advisable that you understand as much as possible before you commit to any fund in your investment portfolio. If you have any doubt you can clear it with a financial advisor. He or she can explain and help you make a good investment choice.
To learn more on how to invest in mutual funds, you can visit popular online brokers like Kotak Securities.