Those people who do not have the financial expertise tend to invest in stock markets through mutual funds, mutual fund are those which pool the money from investors and invest it into stock markets on their behalf. Today there are many mutual fund schemes available and investors should look into following factors before choosing the mutual fund in which he or she wants to invest –
1. Investors before investing should be clear in their mind about the objective for which investment is made, that objective can be capital appreciation, tax saving or income and then he or she should select the mutual fund according to his or her objective.
2. One should not look only into past performance of a mutual fund and take it as a guarantee that future performance will also be similar because in stock market nothing is certain as the offer document of mutual also states that return are subject to market risks.
3. One should also look into the history and details of the fund manager who would managing the mutual fund, as returns on mutual fund depend to a large extent on the professional skill of the mutual fund manager.
4. As mutual fund house tend to have many schemes for different investors, one should not invest his or her entire money into one mutual fund house rather it should be invested in 2 or 3 mutual funds.
5. One should never invest in mutual fund scheme on the advice of any agent or broking house as they tend to suggest those schemes where they receive the maximum commission, rather investors should exercise their own judgment.