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Friday, March 4, 2011

good equity mutual fund for a long term

good equity mutual fund for a long term : The question that I expect the potential investor to answer is that “What are your financial goals, if any?” Because only if you have big long term goals does the choice of a mutual fund really matter. If you are investing for a short period of time – you will be investing in say a liquid fund. It hardly matters in which liquid fund you invest since the performance gap between two liquid funds is not so high. Choose the liquid fund with a high AUM (assets under management) and one which gives good service in terms of redemption on the phone or net or such considerations.

However if you are looking for a longer term investment i.e. 8 to 10 years, then equity mutual funds is best suitable for you. This article is aimed at selecting a good equity mutual fund for a long term.

1. The first step is to have an investment goal.
A fund selection done without having an investment goal is completely useless. You should know the reason for investing, how long will you stay invested, at what stage you will redeem, etc. before making your first investment.

2. 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.

3. Do your homework:
Buy large cap well diversified good quality funds. Do not buy opportunities funds, international funds, contra funds as a staple part of your portfolio. If you are not comfortable with a pure equity fund, choose a fund with say 65% in equity and the balance in debt.

4. Today in India there is no sales cost!
This means if you invest Rs 10,000, the full amount gets invested. For a large cap equity fund, it may not make too much sense to pay somebody to pick the fund for you, try doing it yourself.

5. Have a close watch on the asset management charges.
As a fund starts to do well, it should attract lot of investors, and as its assets increase it should keep dropping its asset management charges. Look at well managed funds with charges below 1.9% p.a. – there are many.

6. Look at the portfolio turnover ratio
the greater the ratio, the more is your total cost. One cost which is not visible to the investor is the brokerage that the fund pays. This is a function of the turnover of the portfolio. So a fund with a lower turnover would be incurring lesser costs.

7. Do not look at ratings of a mutual fund
too many people are doing ratings for mutual funds. This is a backward looking fund performance appraisal. Completely useless for choosing which is a good fund to invest in.

8. Most important:
Start as soon as possible, put as much as you can and do not withdraw for as long as possible! For the latest updates PRESS CTR + D or visit Stock Market news Today

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