Tips to pick a top quality mutual fund

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As part of your investment strategy if you have made an attempt in opting for the best mutual fund scheme to invest you might be thinking how to start. The exercise is easy with due diligence on your part. You are well on your way by understanding about risk tolerance and your investment objectives. The choice of superior mutual funds ensures optimum returns at minimum costs.

The moment you choose a mutual fund you need to analyse the past performance, expense ratios and management team. Clearly outline the different investment strategies paving way for your fund choices. You could be thinking on the lines of diversifying your investment portfolio with considerable international exposure, to buy the market index etc.

Clearly understand your goals and your risk tolerance

From an investment point of view you might have hundreds of funds to choose from. So it is necessary that you prescribe a set of parameters in place. In this regard you can ask some questions about the choice of funds

  • Thinking on the lines of short term or long term association
  • Would the money collected contribute to the corpus of retirement

From a risk aspect you need to consider are you in a position to tolerance a fund that has its own ups and downs. Also take into consideration are you comfortable with a conservative investment strategy. Last but not the least clearly thinks about the time horizons of your investments.

Suppose you invest in mutual funds incorporated with sales charges, all of them add up invest on a short term basis. You need to make an investment for a period of 5 years to offset the charges.

Give due consideration to expense ratio as it can make or break you

Money is a telling factor in a mutual fund investment. Basic operational expenses and management advisory fee relates to expense ratio.  In simple terms it connotes the cost of owning a fund. Things being equal you do want to invest in funds offering the lowest expense ratio.

Keep away from mutual funds offering a high turnover ratio

Do focus on the turnover ratio as it works out to be the percentage of funds which is the amount of funds you buy and sell every year for any type of mutual fund you end up purchasing. If investment is made through your tax account, this does not seem to be a consideration as it is not going to matter. Be varying of funds which offer a recurring turnover of 50 % on a consistent basis.

To sum it up in the fast paced world of today it would be very easy to find a fund manager of your choice. In case if you find a fund manager whose track record is a cause of concern, then consider moving to the other direction. In an ideal situation the fund manager needs to have a dedicated team at their peril who handles day to day investments. They are renowned firms which makes the task easy.