Invest smart today for a better tomorrow
Financial advisors say that even if you’re able to save just 10% of your hard-earned money, you can still fulfil all your financial goals, provided that you invest it in the right manner. One of the best ways of investment is contributing your savings to ‘mutual funds’. By investing in mutual funds you can see your money grow. However, with a plethora of mutual fund options, it could be quite challenging to pick the right one. Well, not worry, here a few tips that help you choose the best mutual fund. Check them out:
When you have 10K+ mutual funds and a number of fund management companies to choose from, it’s important that you narrow down your search to pick the best mutual fund. And, for this, you need to set your investing goals by analysing your risk tolerance. Begin by asking a few questions to yourself such as:
Once you’ve answered all these questions, it’s time to determine the period for which you need to invest in the funds. For instance, if you’re investing for short term, no-load mutual funds should be your choice. Funds with sales charges are not ideal for short term investment. An investing term of a minimum of five years is ideal to offset these charges.
Be it direct or regular fund, it takes money to run mutual funds. Money is required for administrative, management, advertising, and all other expenses. With this cost, you may have to compromise with your profits. Since you don’t want to end up paying more than your returns, it is necessary to consider the expense ratio. It is the total percentage of fund assets used for management, administrative and other expenses.
A turnover ratio of a mutual fund is the percentage of the portfolio that has been bought or sold in a fiscal year. High turnover ratio is usually associated with low overall performance of the fund. Experts say that mutual funds with higher turnover rates should be avoided as they have negative tax consequences. They are likely to bring capital gains taxes, which are then distributed to investors.
Usually, mutual funds are associated with ‘sales charge’ – a fee payable to brokers when shares are purchased. Such mutual funds could serve as a great way to earn money for wealth managers. However, if you’re not amongst them, you should consider buying a no-load mutual fund. These mutual funds are sold without a commission or sales charge as the shares are distributed directly by the investment company, instead of going through a secondary party.
Being spoilt for choice is not always good. With tons of options, it might get difficult to pick the best mutual fund. Just one wrong decision and you may end up with a big hole in your pocket. To avoid such a scenario, just keep one thing in mind that your goal is to build wealth over a long-term rather than making short term monetary benefits. Therefore, while investing in a mutual fund, it is necessary to remain disciplined and rational and not to mention, but avoid being moved by short-term price movements in the market.