The task of identifying what specific funds to buy can be quite overwhelming - with over hundreds of plans, schemes, and options, you have a tough choice to make. Investing in mutual funds for the long term is often considered one of the best ways of accumulating wealth at a rate that can help you beat growth in inflation. However, there are several crucial factors that an investor should consider while selecting a mutual fund plan. Here is a round-up of the top five factors that you should look at while choosing a plan for your mutual fund's portfolio. Credentials of the fund house It is vital to check the credentials of the fund house before investing in a plan. The assets managed by the house, fund manager, the AUM of the scheme are crucial indicators that you need to look at. A long-standing process-driven fund will be more likely to have consistent performance. Consider the expense ratio After selecting the mutual fund’s category, you will have to select a plan as well. As an investor, you should be aware that fund houses charge the investors for managing their portfolio, and this charge is known as the expense ratio. On average, the expense ratio of mutual funds varies from 1 to 3 percent. One should invest in funds with an expense ratio of more than 2 percent. Net Asset Value Before choosing a mutual fund plan, you should look at the plan’s Net Asset Value (NAV). Lower NAV is more likely to give a higher return. But while considering NAV as an investor, you should also look at the fund management and track record of the plan. Determine your risk appetite You need to identify your risk-taking ability. Schemes can be categorised into high, low, or medium risk, depending on the type of asset classes and securities these invest in. If you have a medium-risk appetite, invest in a diversified large-cap equity fund or a balanced fund. Equity is a risky game, and you should avoid it if you want to avert risks. Performance of the scheme It is essential to assess the performance of the scheme that you wish to invest in. Evaluate and compare the scheme's performance since its inception, over one year, and after five years, with the peer funds and the benchmark index. Check the rolling as well as annualised returns of the scheme. If you are still unable to choose the right plan for yourself, consult a Sebi-registered investment adviser for further assistance.
