Cholamandalam - Mutual Fund

SELECTING A MUTUAL FUND

Your objective

The first point to note before investing in a fund is to find out whether your objective matches that of the scheme. It is necessary, as any conflict would directly affect your prospective returns. For example, a scheme that invests heavily in mid-cap stocks is not suited for a conservative equity investor. He should be better off in a scheme, which invests mainly in blue chips. Similarly, you should pick schemes that meet your specific needs. Examples: pension plans, children’s plans, sector-specific schemes, etc.

Your risk capacity and capability

This dictates the choice of schemes. Those with no risk tolerance should go for debt schemes, as they are relatively safer. Aggressive investors can go for equity investments. Investors that are even more aggressive can try schemes that invest in specific industries or sectors.

Fund Manager’s and scheme’s track record

Since you are giving your hard-earned money to someone to manage it, it is imperative that he manages it well. It is also essential that the fund house you choose has an acceptable track record. It also should be professional and maintain high transparency in operations. Look at the performance of the scheme against relevant market benchmarks and its competitors. Look at the performance over a longer period, as it will reveal how the scheme has fared in different market conditions.

Cost factor

Though the AMC fee is regulated, you should look at the expense ratio of the fund before investing. This is because the money is deducted from your investments. A higher entry load or exit load also will eat into your returns. A higher expense ratio can be justified only by superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your modest returns.


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