5-point guide to choose a mutual fund scheme

If you had started investing Rs 3,500 every month in an equity mutual fund 20 years ago, then your kitty would have swelled to Rs 53 lakh at 15% rate. Regular and disciplined investing can help you bag big benefits in the long term.

If you want to start investing in mutual fund schemes, here are five simple steps to begin your journey:

1) Identify Goal: The first step is to identify your goal. What is the purpose? If buying a car is a short-term goal, then saving for your child’s future could be a long-term goal. You can easily achieve your financial goal if you identify and start allocating money towards it.

2) Risk-taking capacity: The next step is to link the goal with your risk-taking appetite. For example, people who are fine with higher risks can go for mid-cap and small-cap funds. Those who don’t want to take a great degree of risk, large-cap funds fit the bill.

3) Choose MF category: The next step is to identify the category of mutual fund which suits your requirement. For long-term goals, consider investing in equity funds. For short term (three years)  you should consider debt funds. For a duration of one year, invest in liquid funds.

4) Fund Performance 

Once you you have decided on the category to invest, select a scheme. It is advisable to compare the performance with the benchmark and other funds in the same category.

5) Fund Manager

You need to take into account the track record of the fund house and fund manager. It is advisable to choose the fund house after tracking the long-term performance of the fund and not get swayed by spectacular returns.