While planning to invest in a mutual fund, there are many things you have to keep in mind while investing in it. Let us first look at the various kind of mutual funds and then we will further go on the several ways of analysing which investment would be better and how.
There are seven most common types of mutual funds which are fixed income funds, money market funds, fund of funds, index funds, balanced funds, speciality funds and equity funds. Of these, equity funds dominate the market. Equity funds are also categorised into broad spectrums, however, the most dominant forms are short term equity fund and long term equity fund. Short term equity funds as the term suggests is investments over a short period of time and long term equity fund are investments over a long period of time. Both are effective in their own ways but often long term equity fund is a preferred choice by most investors since long term equity fund brings in easier and profitable returns in the long run. Now let us analyse a few aspects of these funds to understand which one is the better investment scheme. You must be wondering how will you understand which is a better fund. For this, first, you need to compare the fund history since only through the history you will be able to understand how the market has been evaluating during the difficult phases and how were its performances over the past few years. The second thing which you must compare between funds is its expense ratio. Expense ratio is a term used to imply the annual fee that is charged by the fund manager for managing your records. A key point to be noted here is that expense ratios are calculated over the fund return; therefore, you must look for funds with lower expense ratio since higher ratio means fewer returns. Next pointer for comparison would be the tenure for maturity or the duration of the funds. This condition is specifically used in term of debt funds. If you are planning to invest in debt funds then compare the duration and check which one which has a shorter duration and accordingly make that fund your priority. Besides these, there are a whole bunch of comparisons to be made in order to get hold of a better investment choice. These comparisons are done between a fund with their aspects like the returns which the fund brings, alpha and beta traits of a fund, portfolio turnover ratio, and things like that. Therefore, many proportions and ratios of the various facets of funds need to be calculated in order to get the most beneficial kind of mutual fund for investing capital with expectations to get valuable returns with time.
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