Five things to keep in mind while selecting a mutual fund scheme

The financial market is rife with mutual fund schemes and selecting one that matches a person’s risk appetite can be quite difficult. A solid understanding of each risk (returns, inflation, market volatility, etc.) is necessary before investing. Other than this, the following points should be kept in mind:

Investment objective | The purpose of your investment can be anything – from buying a home to ensuring a regular income for your retirement plans. Checking the investment objective of a fund will help you to find out whether it fits in well with your financial goals, risk appetite and liquidity position.

Past performance | Comparing the past performance of a fund with its benchmark indices and peer funds will allow you to find out the consistency of its performance across various market conditions. But it is advisable to compare a fund’s performance, not just over the past year or two but, over the last five to ten year period for a better decision.

Fund house reputation | A good fund house focuses on building strong processes and fund management teams. So, even if the fund manager of a good fund house exits for any given reason, the strong organisational process of the house ensures its past performance continues in the future as well.

Liquidation | When selecting a fund, you should also be aware of how soon it can be liquidated to have cash in hand in case of an emergency. You may need to liquidate your fund investment depending on your short-term need. ELSS funds, for example, have lock-in periods of three years.