What should I consider when investing in mutual funds?

When comparing any two mutual funds that belong to the same class and sub-class (e.g.: Equity-Midcap), look out for the following FIVE aspects:

1. What is track record of the fund manager?

• Check out the fund manager pedigree and track record.
• Does he stick around long enough to see the results of his actions?
• What are his views on the markets, economy etc.

2. What is the process architecture of the fund house?

• Does the fund house stick to the fund objective?
• Do they take short cuts in promoting their funds?
• Are they interested in long term performance for their clients, or quarterly performance of their own AMC

3. What is the volatility of the fund over market cycles?

• Does the fund manage the deliver consistent performance over long periods of time?
• Is it in line with your risk profile?

4. What is the fund performance over time?

• Check the rolling returns over 1 year, 3 years, 5 year horizons.

5. Does the fund recover quickly from bear markets or corrections?

• Also called the draw down number, this tells you how the fund rebounds after market falls.

Bonus Tip: What does the fund actually invest in?

• If you have the time, open the bonnet and look into what the fund holds.
• Are they over exposed to a sector? Does it align with your views on that sector?

Finally, make sure you invest only in direct plans with the help of a honest advisor who doesn’t peddle free stuff. Investing is a serious business and ensure your hard earned money is well taken care of.

Happy Investing!