*The views expressed in the blog are those of the author.

Investor is confused about investment. Which is the safe investment? Investor hears this tag line ‘Mutual funds -are subject to market risk’. In fact, Mutual Funds are the safe investment instruments which provides good returns on investment in less risk if investor considers the following points in his mind.

What is Mutual Fund? Mutual Funds are those organizations/instruments which are collecting funds from the public by way of issue of its own shares/units and later these funds are invested by them in the securities of other companies and government organizations. Thus, these organizations are acting as an intermediary in activities of fund mobilization and investments. Mutual funds are pooling the money of investors of in small saving than it is invested in shares, debentures and bonds of different types of company by asset management company. These organizations are providing expert services of portfolio management to its members. This is really a wonderful service rendered by them because even small investors are getting the advantage of diversification of investment which would not have been possible for them, otherwise. They are performing like intermediary between small investor and the Indian capital market.

How to choose the best Mutual Funds

Selecting a mutual fund for investing is a very important step indeed. Investor must keep some important points while investing in Mutual Funds.

Set your Goal The most important first step is to have an investment goal. A fantastic fund selection done without having an investment goal is completely useless. You should know the reason for your investment, how long you can be in the investment, at what stage you will re-allocate, etc. before you make your first investment.

Your Strength Your focus will lead to the correct asset allocation – the very important factor which will decide how much money you will put into an equity fund.

Do homework There are various Mutual fund schemes launched for example are large cap small cap, medium cap, equity fund debt fund, hybrid fund-based schemes. As per your risk capacity select funds.

Experienced team Asset Management Company’s team is important too! Look for experienced teams where the managers have gone through a few business cycles. Managers who have not seen a down market can be very myopic, and those managers who have been through a prolonged slow down very pessimistic. You need a nice blend in the team.

Do not chase performance the fund which has performed well in one quarter may not perform well in the next quarter. Funds with a good long-term top quartile performance is far superior than to a fund scheme which has one top position and one bottom position. Remember long term investing is like running a marathon – stamina is more important than speed.

Index of funds Index of funds with the Sensex as a benchmark are at least theoretically supposed to be more aggressive than an index of fund with nifty as the benchmark. Frankly it does not matter – if in doubt split your investment amount.

Study properly before investing in capital market. Be a smart investor.

-Jitesh Kumar Bishnoi, (PGT Commerce)

******************************