After going through the performance of mutual funds for the year 2018, it has become very important to choose best mutual funds by yourself, by understanding your Rsik Profile, Goal and fund specific i.e. in which kind of mutual funds you are going to invest.
Generally we divide mutual funds in five categories
a) Debt
b) Hybrid
c) Equity
d) Solution Oriented like children marriage, education or self retirement plan.
e) Other.
Risk Profile :- This is divided into 2 parts - risk willingness and appetite as below.
Sometimes - risk willingness and risk appetite do not correspond to each other. As an individual, you may be risk-taking but you may have limited savings and/or large expenses which does not justify taking risks. In these cases, always be conservative - if either of risk appetite and risk willingness is “Low” - then be conservative.
Goal:- What is your goal? Is it long term or short term? Is it a goal where the final portfolio value is critical to achieve - like a goal for education of your children - or one where the final value is okay if exceeded or missed - like a wealth creation goal. Hence, your choice of goals is critical to choice of funds.
Once you have decided which category of funds to invest money in, then there are several features of a fund that you should look at. For reference, below are all the category of funds -
All of these fund categories will have different return and risk measures and ideal investment horizons. These have to be matched with your goals and risk profiles. Only when all of these factors are carefully considered, will you be able to invest in the “IDEAL MUTUAL FUND SCHEME”.
Your exercise is not over yet - you will have to continue to monitor that the fund continues to follow it’s laid out investment strategy, return and risk continues to fulfill your goal requirements - and do this at-least once annually.
1. Past returns - 1Y, 3Y, 5Y, 7Y returns - what has the fund returned in the long term and has the performance remained consistent?
2. Size of the fund - The fund size should not be too small - hence take a minimum size of Rs 500 cr. for these funds.
3. Fund Manager track record - Self explanatory
4. Investment Thesis and performance vs. benchmark - The investment thesis should not have changed over time. Benchmark should have been beaten consistently and the tracking error should not be too high.
Hopefully, you narrow down to your fund of choice, feel free to comment your suggestions below in comment box.
Generally we divide mutual funds in five categories
a) Debt
b) Hybrid
c) Equity
d) Solution Oriented like children marriage, education or self retirement plan.
e) Other.
Hence the path to selecting a scheme starts with self-discovery.
Risk Profile :- This is divided into 2 parts - risk willingness and appetite as below.
Sometimes - risk willingness and risk appetite do not correspond to each other. As an individual, you may be risk-taking but you may have limited savings and/or large expenses which does not justify taking risks. In these cases, always be conservative - if either of risk appetite and risk willingness is “Low” - then be conservative.
Goal:- What is your goal? Is it long term or short term? Is it a goal where the final portfolio value is critical to achieve - like a goal for education of your children - or one where the final value is okay if exceeded or missed - like a wealth creation goal. Hence, your choice of goals is critical to choice of funds.
Finally coming to Fund Specific Features
Once you have decided which category of funds to invest money in, then there are several features of a fund that you should look at. For reference, below are all the category of funds -
All of these fund categories will have different return and risk measures and ideal investment horizons. These have to be matched with your goals and risk profiles. Only when all of these factors are carefully considered, will you be able to invest in the “IDEAL MUTUAL FUND SCHEME”.
Your exercise is not over yet - you will have to continue to monitor that the fund continues to follow it’s laid out investment strategy, return and risk continues to fulfill your goal requirements - and do this at-least once annually.
Fund related parameters you must consider -
1. Past returns - 1Y, 3Y, 5Y, 7Y returns - what has the fund returned in the long term and has the performance remained consistent?
2. Size of the fund - The fund size should not be too small - hence take a minimum size of Rs 500 cr. for these funds.
3. Fund Manager track record - Self explanatory
4. Investment Thesis and performance vs. benchmark - The investment thesis should not have changed over time. Benchmark should have been beaten consistently and the tracking error should not be too high.
Hopefully, you narrow down to your fund of choice, feel free to comment your suggestions below in comment box.