Now that you’ve determined your allocation to equity and debt funds, it’s time for the difficult task of selecting specific funds. With so many AMCs providing numerous schemes, plans, and options, it’s worth considering some key factors before investing. When seeking the expertise of Mutual Fund Consultants in Rajkot. This involves both quantitative and qualitative considerations you should look at, such as the 6 points highlighted below:
Does the fund fit into my investment objective?
When selecting a fund, it is pertinent to consider your overall investment objective. Are you hoping to remain conservative or are you seeking greater risk? Examine the goals of the fund and whether it has consistently followed its mission.
If you prefer stability and steady income, purchasing a debt fund that takes an active approach to rate management will not fit your criteria. On the other hand, if you want equity performance identical to the index, index funds are better suited. In this case there is no point taking a risk with equities and choosing a diversified equity fund with elevated expense ratios.
How has the fund performed in risk-adjusted terms?
It’s essential to remember that past performance is no guarantee of future results, particularly when it comes to mutual funds.
Mutual Fund Consultants in Rajkot are financial experts dedicated to guiding individuals and investors. They assist clients in selecting the right mutual funds based on their financial goals, risk tolerance, and time horizon.
A 15% return with low volatility is more appealing than 17% returns with increased risk. Put simply, if you can’t outwit index funds in the long term, your best bet is to stay invested in passive options like ETFs.
Keep in mind too that assessing returns sensibly is paramount; look at them in terms of risk-adjusted terms and, for example, the Sharpe and Treynor ratios for a better perspective. A 16% return with a reasonable amount of risk is preferable over 19% return but with high volatility.
Experience and longevity of the fund management team
You may be inquisitive as to why it matters that the fund management team’s longevity. The reason is that it provides uniformity in the investment approach and a strong connection between traders, dealers, researchers, the CIO, and CEO. Generally, fund managers stay with a fund if they’re content and if it is doing well.
But if this isn’t the case, then these managers search for other opportunities. You’ll observe that funds that consistently execute well over a longer period have had dependable fund management teams. This guarantees unceasingness in fiscal decisions made.
How much is the fund loading on to you
You may incur costs that are billed directly to you as well as those charged to your NAV in the form of expense ratio. Entry loads, previously common, are no longer applicable but exit loads may still be applicable if you withdraw a fund before the preset period. Other charges such as transaction costs for the fund, operational costs, administrative costs and marketing costs can also be deducted from the NAV.
Mutual Fund Consultants In Rajkot managements must clearly disclose the expense ratio and its components in a transparent way. Equity funds typically have an expense ratio between 1.5-2%, whereas index funds usually feature much lower expense ratios. Make sure to compare any fund’s returns with its respective expense ratios before investing.
What are the exit loads and the tax implications?
It is essential to understand the implications of these broadly applicable characteristics, so as to make wise and beneficial choices. For instance, STCG tax at 15% applies should you choose to sell equity funds before a period of 1 year; however in the case of debt funds being sold before 3 years, it stands at 30% (peak rate).
Furthermore, LTCG gains from equity used to be tax-free but from April 01st 2018 onwards, any gains exceeding Rs.1 lakh will incur 10% taxes without indexation. Additionally, exit loads reflect varying percentages depending on the size of funds involved – from 0.5% for larger funds to 1% for smaller funds – and therefore one must take note of this and consider its impact on return on investment.
Has the fund been ahead of the investment curve?
This qualitative assessment is essential before you choose a fund. For example, did the equity fund director get in on winners and bow out of losers quickly? They may not capture every market trend but it’s adequate if they catch the key ones. Have they adjusted the maturity of a debt portfolio respecting interest rate movements?
Furthermore, have they managed to handle the mix between equity and debt in hybrid funds astutely? Ultimately, a talented fund manager is one who can stay ahead of the game; this is what really separates an impressive manager from an average one.
Also Read: 10 Things You Normally Miss Out Reading in a Fund Fact Sheet