Even for savvy investors choosing the best mutual fund can be a somewhat daunting task, so if you are an inexperienced or part-time investor it can be slightly overwhelming going through all the hundreds (if not thousands) of different choices available out there to the small investor). This is not ideal when you are going to be investing your hard earned money (and your kids future) in one of these funds. You want to be able to invest with total confidence in a fund and the only way to do that is to do some serious research and put together a system to find the best possible fund for your money. This article will offer some pointers on how to do exactly that:
(1) Draw Up A List With Your Investment Goals – This is the most essential part of selecting the correct mutual fund because it involves you working out exactly what you are looking for. You need to ask yourself a few questions and then jot the answers down on a piece of paper. Firstly, what are the aims of this investment? Are they short or long term aims? Are you planning for something soon that you need to save for – like a car or school fees – or are you thinking longer term, such as for your retirement? How much do you want to put away and how much risk are you prepared to take? Answering these questions on paper will go a long way to helping you select the correct fund and to pick from schemes that offer a balance between risk, reward and security that you are comfortable with.
(2) Picking Funds That Match Those Investment Goals
The next step of course is to try and find a fund that ticks all of the boxes you have identified. Thus if you were looking for a short term gain with a moderate amount of risk involved you might turn to an income fund. The amount of return you get on your investment would depend on the conditions of the market at the time you invest, but generally your exposure in such a fund would be a little larger and would offer you better rewards. On the other hand, if you have decided you are looking for a longer term fund with long term capital appreciation and which factors in the variations of the market then you would be risking a lot less, and balancing your investment a bit more, but you would have to wait a lot longer for those rewards. For both types of fund if you are very risk averse then the best thing to do is put money into those schemes that invest both in equity and in debts.
(3) Calculate the Costs
Finally, the last thing you need to sit down and work out is how much all this will cost you before you start actually making money. This means researching and calculating the amount you will have to pay in both entrance and exit fees for the fund. Most funds will charge similar, standard charges but you can also choose no-load schemes. However, even these can come with fund admin fees which you will have to pay. All of this is why it pays to do your research first and have a total cost breakdown of all the funds you are considering.
Esther is a financial and legal journalist based in Chicago. She writes about all areas of business and personal finance affecting the consumer from credit and store cards to tax relief and from legal aid to personal injury compensation and nursing home abuse law.