5 steps to follow for reviewing your mutual funds

A mutual fund is an investment tool made up of including the money collected from investors for the purpose of investment in securities like stocks, bonds, money market instruments and other assets. Mutual funds are great investment vehicles consisting of funds that have been collected by investors and the funds that have been collected are invested in different securities by the wealth mangers to ensure that the investors are getting good returns on their investments. Mutual funds are operated by professional wealth managers who allocate the fund’s investments and try to produce capital or income for the investors of funds. The portfolio of a mutual fund is structured and maintained to match the objectives of the investments that was stated in the brochure. Mutual funds provide small or individual investors the access to professionally manage portfolios of equities, bonds and other securities. Each of these shareholders participates in the profits and the losses of the fund. Mutual funds invest in securities and the performance is generally tracked as the change in the market cap of the fund by improving the performance of the underlying investments.

Through mutual funds the money is pooled together that is collected by the people who have invested, and that money is used to buy securities, stocks and bonds. The wealth manager will efficiently allocate the funds provided by the customers for getting good profits on the investments. The value of the mutual fund company depends on the performance of the securities that was decided to be bought. So, when the customer buys a share of a mutual fund, they are actually buying the performance of its portfolio. A customer should follow these 5 steps to review a mutual fund:  

1.Review based on type or structure of fund:

With the goal of simplifying the funds selection criteria for investors and help them, all the mutual funds options should be categorized by rules and they should mandate all fund houses to restructure their offerings based on the rules. Following standardized rules while selecting mutual funds has made the method of review mutual fund simple.

2.Review based on risk profile and suitable asset allocation:

Once the customers understand the type and different categories of a mutual fund they will find it easy to review mutual fund. High returns most of the time comes with high volatility and if the customer does not like high volatility, then they should not be into high equity exposure. Equities are similar to investing in businesses, businesses are also exposed to different risks which make it volatile a growth-oriented segment.

3.Goal based investment review:

For short to medium term mutual funds, the investment portfolio should be as per the goal requirement. Review mutual fund on basis of goal is essential. The goals for a mutual fund change with age, for example, if the customer is in their retirement years, their goal will be to generate monthly income through their investment portfolio and not to keep it for a long term.

4.Cost based review:

Another way to review mutual fund is through a cost-based review. While selecting funds for an investment portfolio, the customer should go with the
funds that have lower expense ratios. Cost is one of the major factors that affect the total return on investment. Lower the cost, higher will be the return.


5.Returns based review:

It is important to check and compare the rolling returns of the fund for different time periods. Daily rolling returns show you a better picture of the fund and help while you review mutual fund.

 

 

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