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What are the Factors for Selecting a Mutual Fund?

Factors for Selecting a Mutual Fund
1) Investment Objective
Investment objective refers to an investor’s financial goal which he/she aims to accomplish with the mutual fund investment. The investment objective can be any short-term or long-term financial aspiration of the investor – buying a house/car, financing children’s higher education, going on a vacation, retirement, etc.


2) Time Horizon
The time horizon refers to the period for which an investor wishes to keep his/her money invested in a mutual fund scheme. It can be either as short as 1 day or as long as more than 5 years. Different fund categories work best for different time horizons. This is because some funds invest in shorter-dated debt and others invest in longer-dated debt. Equity funds should ideally be chosen if the investment horizon is more than 5 years.

3) Risk tolerance
Risk tolerance refers to the amount of risk an investor is willing to take with his/her invested money. SEBI in 2015 made it mandatory for all mutual fund houses to display a risk meter which consists of five levels of risk associated with the invested principal amount. The five risk levels are – low, moderately low, moderate, moderately high, and high.

4) Expense ratio
This is usually considered when you invest in an inequity fund. The higher the expense ratio, the more it affects you directly. It comprises of the brokerage fees and other costs that the mutual fund houses charge from investors. Hence, you need to see if the charges are not over the top. However, some funds charge high but make it up by offering a higher NAV or better returns. So consider these also while checking the expense ratio.

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