Most people only think about investing when they need to files their returns at the end of the financial year. But smart people know that it’s best to start early. It isn’t enough to start early, though – you need to have a solid plan of investment. While it helps that your final goal of investing in a mutual fund is to save tax, you need to make sure that the mutual fund also helps you in other ways. The first thing to do, no matter what your goal while investing, is to do your research thoroughly. Narrow down your search to those that help you save tax. Once you’ve got your options down to a manageable number, you start organising on some criteria.
There are some things that you just can’t compromise on. One of those things is the fund’s performance. Look at the performance for a period of 3 to 5 years. Most funds have a lock-in period of three years, so that’s your minimum. Look at both calendar as well as annual returns, just in case. The next criterion you want to look at is the fund’s volatility. Make sure that funds with high risks come with high rewards. If the rewards aren’t what you think they should be, or if the risk itself isn’t to your liking – it’ll help you narrow down your list even more. Most funds do have a few ups and downs, though. And that can be a good thing, so long as you also have a good Sharpe ratio to go along with it. After volatility, check what the expenses of the funds are. You’ll be spending money from your returns on maintenance, so make sure that it’s low. There would be hardly any point in investing if a large chunk of your returns were being eaten up by maintenance costs. Also look at the company’s history.
If there is turbulence in their history, or if there are likely to be disturbances in the future, you want to reconsider investing there. More the problems your company faces, the less likely it is to be reliable. It’s worse if the problems arise out of managing client assets – check to ensure that all things are clear at that level too. Once you’ve gone down the list on keeping in mind these factors, you’ll find it easier to pick a fund that’s more to your liking. Remember that planning your investment is important – and these are crucial steps to making wise investments. Remember that being thorough with these steps can help you with not just saving money, but also growing it.