Selecting a mutual fund purely based on its past performance may not be a logical way to select the best fund for yourself. Instead, funds that match your risk profile and financial goals should be selected.
As a financial advisor, we often come across this question. However, most of the investors tend to make their decisions on the basis of the historical returns of the fund, and the scheme giving the highest returns is the one which often gets selected by the investor. Desiring the best is certainly a rational investing behaviour. But, at the same time, a logical approach needs to be implemented to choose the best among the rest. The investors need to be made aware of the fact that there is no single mutual fund scheme which fits all the scenarios for them.
Following are the basic factors which need to be considered while selecting the mutual fund scheme:
1 Goal-based Planning:
It is often said, “if you don’t know your destination, any road will take you there.” So, before starting any journey, you must set your destination right so that you can take the appropriate navigation route to reach it. This is equally important in your financial planning, as your investments must be selected on the basis of your financial goals and the desired time to reach such a goal.
While there are many mutual fund schemes and categories available for the investors, the suitability of such schemes for the investors’ goals tends to differ and each goal with a different duration may ask for a specific product. For example, an overnight fund or a liquid fund may be suitable for parking the short-term surplus funds, but may not be suitable for investing for a long-term goal like buying a house or a car etc. Similarly, a small-cap fund might not be suitable for short-term goals like an annual family vacation but may be much suited for retirement planning, etc.
2 Risk Profile:
Bu hikaye Dalal Street Investment Journal dergisinin March 4, 2019 sayısından alınmıştır.
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Bu hikaye Dalal Street Investment Journal dergisinin March 4, 2019 sayısından alınmıştır.
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