Planning to Invest in Mutual Funds? Here’s What You Should Know
Planning to Invest in Mutual Funds? Here’s What You Should Know
Many people invest in mutual funds nowadays, but there are some people who are confused about it. Have you ever thought what makes a mutual fund ‘Good’?. It’s not the last year’s return, the TV ad or the fancy brochure.
When you start looking for a mutual fund. Your mind quickly thinks and looks for the “Best mutual fund in the market”? You want a name that sounds guaranteed, beats inflation, saves tax and never seems to have a bad year. Because people believe that a brand name matters more and they trust on it blindly.
If you want to invest in a mutual fund, try these tips and tricks:
Start chasing
People do believe in the aspect of fund in its past returns, but that is the most dangerous thing to look over at. If a fund has topped the charts in the last 1 or 3 years, investors assume it must be good but the reality is very different.
Let’s take an example: Fund A did it with wild swings-up 40 percent, down 25 percent, up 30 percent, while Fund B stayed in a narrow band, between -10 percent and +30 percent. On paper they both look similar but in real life, investors will go with Fund B.
Know about the role
A fund is only good if you know the context you are using it for. The small fund is not useful for those whose child’s college fees are 8 to 10 years away and who panics more.
Through cycles
A really good fund shows its character over multiple market cycles:
We look for funds that:
- Do well in bull markets
- Don’t completely fall apart in bear markets
- Recover after falls
The fund that lives in the range between 5 and 15 is boring but that boring consitency is what helps in building the wealth.