10 important Pointers to investing in Mutual Funds!


Investopedia says “Mutual Fund’s main advantage is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or shares, are issued and can typically be purchased or redeemed as needed at the fund’s current net asset value (NAV) per share.”

You can read the MF Basics here.

Mutual Funds

While investing, one should look at these 10 points to select the right fund!

1. A fund sponsor with integrity:

You must check the sponsor (promoter) record in financial service area. He should have requisite background and track record apart from being clean and consistent.

2. An Expert fund manager:

He must be experienced and good historical track record.

3. A suitable investment philosophy:

Fund manager can be aggressive or conservative. You should make style that he suits to your style.

4. Nature of the Fund:

Open ended: A fund that can subscribe throughout the year. Prices linked to NAV of the funds

Close ended: Fixed corpus beginning with a fixed duration.

5. Correct fund category:

  • Debt Fund: Invests funds in fixed income instruments like debentures, bonds, etc
  • Equity Fund: Focus on stocks and shares.
  • Balanced Fund: Attempts to maintain the balance between debt and equity
  • The criteria for selection is need for regular income, capital gains and safety.

6. Fees and charges:

mutual fund deducts charges and fees from the net asset value (NAV) of the fund. As an investor you must be aware of the fees and charges of the AMC.

7. The load

: You may be required to pay a load at the time of selling the units. Your net gain depends upon the load charged by the scheme.

8. Tax Implication:

The investor needs to understand the tax implications before investing in mutual fund schemes. Currently, if an investors exits (sells) his equity oriented fund prior to the completion of 12 months of his holding period, he will be liable to pay a short-term capital gains tax @ 15% + 3% education cess. However where an investor exits (sells) his equity oriented fund after the completion of 12 months of is holding period, he will not be liable to the payment of long-term capital gains tax. The dividend earned on an equity oriented is also exempt from tax.

9. Transparency:

Some MF’s are friendlier than others. i.e. intermittent reports disclosing expense ratios, competitive performance, etc.

10. Fund Performance:

You must track the performance of the fund by benchmarking it against BSE Sensex, Nifty, BSE 100, CNX 500, etc. Compare other funds, look at historical records.

These are some of the basic things that you should look at while you choose your Mutual Fund.

  1. Banyan Financial Advisors says

    Apologies to refer to another link – which talks upon the more important part – as to What is a Mutual fund and the organisation aspects associated with it. You may want to read it at http://insight.banyanfa.com/?p=663


  2. Banyan Financial Advisors says

    Hi Rishab,
    It is a nice concise article on top 10 items to watch out for while investing into Mutual Funds. I have written a detailed article on one of the items mentioned in your link – Tax aspects associated with Mutual Funds. Have a read of http://insight.banyanfa.com/?p=690 and let me know what you think of it.


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