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How to Examine Whether a Mutual Fund is Right for You


If you are an experienced shareholder, you must be aware of the fact that mutual funds have managed to gain a great grip in the last few years. The latest reports say that India’s Mutual Fund industry has witnessed a growth of 14.22 trillion on April 30 to ₹32.38 trillion on April 2021. Experts suggest that the number will only tend to rise.

Irrespective of the beneficial nature of MFs, it is important to know how you should invest in the right fund. This post talks about the parameters that show how you can analyze a mutual fund whether it is right for you.

  • Expense Ratio

The expense ratio is the fraction of the entire property that any MF charges to an investor every year to manage the wealth. The expenses of mutual funds usually fall into five different categories, and they are –

  • Security transaction fees
  • Distribution charges
  • Investor transaction fees
  • Fund service charges
  • Management fee

The expense ratio mainly shrinks the profits to the shareholder, and thus, one should always consider the finances with a lesser expense ratio. It is good for the investors to evaluate the expense ratio of different finances prior to putting money in it. And experts also recommend that fund with the minimum expense ratio is always preferred.

  • Risk Level

Determining the level of risk for a mutual fund is as significant as looking for returns. When it comes to mutual funds, returns and risks are the two sides of the same coin. There is one very vital motive that shows why every scheme reveals risk level.

It is because the investor gets aware of how much menace the specific investment involves. If you consider yourself as an investor with a low or moderately low-risk appetite, you must stay away from funds with high risk.

  • Fund Manager

The overall performance and the history of the fund manager are also very crucial. It is important for the investor to look at the experience of the fund manager as well as other schemes that the fund manager is currently managing. This helps increase confidence and credibility and makes you feel assured that the money is in safe hands. Though, the reputation and the detailed account of the fund house, where the schemes belong, should also be considered.

  • Portfolio Turnover Ratio

Portfolio Turnover Ratio suggests how often the fund manager purchases or sells the securities from the scheme. It is important for the investor because the higher the portfolio turnover ratio of a fund, the higher the trade and selling of the security. This will help in attracting maximum operation fees as brokerages as well as other fees involved. The portfolio turnover ratio also minimizes the net returns from the savings.

  • Exit Load

Exit load is the penalty charged by the mutual fund for leaving the scheme before the stipulated time frame. The exit load usually ranges between 0% (for the liquid funds) and 1% (till 1 year of holding the equity scheme).

Investors should always invest in schemes that have a lower exit load. It is also important to note that the exit load will be charged based on the overall structure of the load applicable during investment but not at the time of redemption.

Get in touch with a reliable service provider or an issuer to get the best rates for the mutual funds and make the most of the opportunities available to you in the future. Always be careful about the charges and other clauses available with the scheme before investing. This will help you to be on the safer side and will save from unwanted losses.

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