Mutual Fund Trading Tips for Beginners [The Informative Guide]

Before discussing the different ways one can successfully invest in a mutual fund, it is mandatory to know and understand what mutual funds are. A pool of money accumulated from a large number of investors, professionally managed and regulated by SEBI, to yield higher returns are called mutual funds. Being regulated by SEBI, the investment is quite safe and secure.

Mutual Fund Trading Tips for Beginners

It is also the best possible way to escalate your wealth if proceeded in the right matter. Here are a few tips that may come in handy for  beginners who are willing to step into the world of mutual funds confidently:

Proper planning

Before you step into the whole process of investing and figuring the type of funds you wish to invest in, chalk out a plan for yourself for a better understanding of what you are looking for.

Clarity about the fund you are investing in

There are a plethora of schemes that you may have to choose. Thus, a proper understanding and sound knowledge about the type of mutual fund that you are investing in is fundamental. Get a clear idea of it before you take a step ahead.

Past Performance

It is essential to have a clear picture of the past performance of the fund in which you are investing. Sensex can be a useful parameter to measure the fluctuations. It is also essential to get an idea about the returns of the fund.

Choosing the right index fund

A common mistake that mutual fund investors make is that they choose a low-cost index fund instead of a high-cost fund. You don’t want a negative effect on your return. If you are looking for a smarter approach, go for the high-cost actively managed fund.

The credibility of the team

Experience plays a significant role everywhere. The more the experience of the managers you are handing your money over to, more the reliance and dependability. So, do take note of the tenure of the members of the management team.

Avoid common mistakes

Often winning funds sell and the losing ones are held. Proper and sound judgment is vital when handling mutual funds. It is essential to be sensible about every step you take in this process.

Stay invested for a reasonable amount of time

If you are investing in an equity fund, make sure you do so for at least five years. It will ensure recovery from losses and also escalate your returns. However, a shorter time is advisable for money funds.

Fund Robbers

Fund robbers, such as inflation, income tax, and interest rates, need to be kept at bay. Choose a mutual fund that makes sure to guard you against fund robbers. The funds that protect you from these are called balanced funds. Funds With a low exit load are preferable.

These were a few points to get you started with investing in mutual funds with full confidence.

How to Judge a Mutual Fund’s Performance?

mutual funds

A mutual fund is a pool of stocks, bonds or other securities that has been divvied up into shares for an investor to purchase. Choosing a mutual fund that is expected to perform well and meet your expected goals is done by thorough analysis and research. The steps to judge how a mutual fund is expected to perform are:

  • Classification-

Firstly, classify the various funds available on the basis of your goals. If it fits your scope, keep it in for comparison with others, if it doesn’t chuck it out. Many companies offer the same type of competitive models of the same type of fund which can be kept in for comparison. Set one as a benchmark and compare others to it.

  • Historical Performance Data-

Collect data of the mutual funds that you have selected and want to compare. Several financial investment tracking websites like Morningstar provide data of the funds over the years along with tools that will help you in evaluation

  • Analyse the Data-

Now, compare the selected funds and their performance data on basis of different parameters. These parameters can include risk return trade off and match it with your own risk tolerance. You can also find rankings and ratings for different funds on historical returns and risk on the websites thus making it easy to compare.

  • Measure Consistency of Performance-

Then, try and look at the individual returns for each year rather than the average returns. Check which fund constantly returns more than its set benchmark. There are some funds that might have fallen tremendously for just one year which might have affected the average return rate gravely but that does not reflect the consistency of the bond. That counts as an anomaly. It could also go the other way around where in the average is affected positively by a skyrocketed price for just one year. Also compare the fund’s upside and downside data against its peer funds.

  • Look at Expenses-

Expense Ratio plays a vital role in the amount of return that you are able to extract from your investment. Actively managed funds might have a higher annual expense as compared to funds that charge a higher management fee. All these costs are to be taken into consideration to maximise the real time return that you get. Only by minimising cost can you maximise profit.

The above steps if followed properly and carefully are sure to help investors in mutual funds to choose the perfect option suited to their goals. But care must be taken as to the nature of the bond and its consistency. After all, shares are nothing if not unpredictable.

Mutual Fund Types and Investment Tips

If you are interested in mutual fund investment or already started to invest in the market, then this article can help you with better investment tips. Mutual funds involve some tricky financial terms and you need to understand the basic concept of mutual funds. Mutual funds are basically collection of a small tranche of money from individuals and later this collective amount is used to invest in different big avenues to earn money. Due to high transaction volume, mutual funds entertain lower transaction benefits.

Additionally, investors are provided with expanded portfolio with mutual investment as mutual fund houses invest the collective amount in several sectors and diversified businesses. Mutual funds are the best option for the person who has just started his share market activity. Even if you don’t know a thing about Stock market, mutual funds offer you a safer side. Your investment is less vulnerable of market crash due to use of your money in different companies. Even few of those companies dip due to market crash; the rest investment will save you or minimize your loss. [Read more…]