A few things to keep in mind while choosing a Mutual Fund

Understanding Mutual Funds isn’t rocket science. And Here are few parameters to consider while choosing a fund. Select your fund based on your individual risk profile: First and foremost understand your risk profile. If you are looking for a low risk investment option, a debt scheme could work better for you. If you don’t mind taking higher risk for higher returns, equity funds should work for you. For those who are looking to invest in a mixture of equity plans and debt plans, a balanced fund approach should work for you. [caption id=“attachment_2009271” align=“alignleft” width=“380”]  Image courtesy: Thinkstock[/caption] Past performance: The most important thing to remember is that past performance doesn’t guarantee the future performance of the fund. Having said that, reviewing the past performance will tell you about the kind of returns the fund has given over a time period. Ideally you should check the past performance for a one year, two year, and five year period. Also see how the fund has performed in a bull and in a bear market. Who’s the fund manager: This is an important parameter to look into too. Why? The fund manager influences how the fund performs, since he/she along with a team of analysts and experts are investing on your behalf. Knowing who the fund manager is, his/ her performance record, the investment ideology and the AMC’s investing ideology is important. Read the fine print: Reading the fine print of the scheme gives you an idea about the investment objective of the scheme, the strategy and the kind of risk it faces. Make sure that you go through the prospectus of the fund. There’s a lot in there that will acquaint you with the fund. Know the diversification of the fund: As a thumb rule remember that the greater the diversification the lesser is the level of risk. Hence, it’s important for you to know what kind of diversification the fund you plan to invest in has. Besides these, other parameters to look into are the cost, the fund house pedigree, return-risk trade off and expense ratio.