20 Things to consider while investing in mutual funds

We all have heard from various sources and veteran investors that mutual funds provide great returns over the long period of time. But what they don't tell is various points one should consider before taking a plunge in the sea of mutual funds, here is a list of 20 things you should keep in mind while planning for a mutual fund investment.

  1. Check if you have a lump sum of money to invest at a go and leave it to grow till it reaches the value you have targeted or if you can make available a small sum of money at regular intervals and invest in a MF Systematic Investment Plan.
  2. Analyse the total wealth you want to create out of the mutual fund investment over a short/ medium or long term according to the kind of financial obligations you have to meet in future.
  3. Make a self-analysis and see whether you qualify as your own investment manager. If not, seek advice from friends, family and public websites like the one you are reading (wink!) or else look out for good financial consultants and wealth managers who would help you achieve your targets.
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  4. Make simple forecasts of the MF scheme returns you may earn from lump sum vis-à-vis SIP investment over a period of time and choose between them.
  5. One thing many investors fail to do and later on feel sorry about is that they don't calculate the mutual fund returns after deducting the tax payable which is what you need to be doing.
  6. Check the tax savings you can enjoy if you hold your investment for a specific time period (applicable depending upon your country's tax regulations).
  7. Perform your own research on mutual funds. Understand them thoroughly through any channel you are comfortable with. Keep yourself abreast with the different types of mutual funds like equity oriented funds, debt oriented funds, hybrid funds, sectorial funds, thematic funds, index funds; know the differences between each of the types, see which type suits your risk taking ability and which serves the purpose of achieving your financial goal etc., know what are Systematic Investment Plans, Systematic Withdrawal Plans, Systematic Transfer Plans variants of mutual funds and see what suits your financial goals.
  8. Shortlist a few mutual fund types and schemes that would complement your future money needs and do a thorough check of each mutual fund scheme, AMC, mutual fund type, etc.
  9. Compare the expenses charged per annum on your investment,expense ratio, by different AMCs for different mutual fund schemes.
  10. Watch out for entry and exit loads on these prospective investment schemes.
  11. Calculate and analyse the savings you would make if you go in for a direct plan versus a regular plan of the Mutual Fund scheme.
  12. While choosing any scheme be wary of whether you want a growth plan (G) if you are looking at capital accumulation over the investment span or a dividend pay out plan (D) if you need regular pay outs from your investment. Read about difference between growth and dividend options in mutual fund schemes.
  13. Check if you really need a DEMAT account for your MF investment. (It is not mandatory for a mutual fund but you may choose to have a Demat account if you have multiple financial investments and you want to view them all under one roof)
  14. Be careful to time the investment rightly in case of lump sum investment although you may be care-free about your SIP investment if it’s for a period of time.
  15. Start your investment and keep a track of the market conditions that might affect your investment performance.
  16. Acquaint yourself with the online portals where you can view your investments regularly.
  17. Make use of data available on trading websites.
  18. You must be well-informed that there are no guaranteed returns on mutual funds. They perform in tandem with the market conditions in the economy, sector and industry your investment is focused towards.
  19. Keep yourself away from rumours, misinformation, and temporary market fluctuations.
  20. And lastly, know when to exit from the mutual fund investment.
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