Mutual Fund Investment

Mutual fund is the best option on date to invest for long-term goals as it has several advantages which includes lower cost of investing, very liquid, higher safety in comparison to other products and also tax-efficient. Mutual fund is also diversifying investor’s money in to different Asset class. It is less risky than equity, as fund units are professionally managed. It is highly operational transparent and user friendly. On the other hand, mutual funds generate consistency return over long-run.

What are the criteria for selecting MFs?

The selection of investing in mutual fund of portfolios by the investor will be generally guided by two criteria:

  • The investor would prefer to invest in the lowest risk fund with same expected return in a specific time frame in two funds.
  • The investor would prefer the higher expected return in portfolios of two funds with same risk.

An investor should make an investment strategy based on risk-tolerance capacity. Risk tolerance capacities differ from person to person and also their age. It is prudent for investor to invest in large cap, multi cap & diversify equity mutual fund scheme, rather than aggressively invest in mid-cap as well as small cap funds.

Invest directly in MFs

Expense ratio is the amount an investor pays a fund every year as a percentage of investment as payment for managing one’s money. In the long term, a high expense ratio can reduce returns massively. However, a lower expense ratio does not necessarily imply a well-managed fund. Rather, a good fund is one that delivers a good return with minimal expenses. You must therefore consider the fund management charges while investing in a mutual fund.

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For an investment of Rs 10 lakhs in a mutual fund scheme which offers a rate of return of 12 per cent per annum, a one per cent extra fund management charge will result in a loss of Rs 70.67 lakhs over a period of 30 years. By investing directly with mutual fund houses instead of through distributors/ agents, you can save on distribution fees, and there is evidence that over the long term, direct equity mutual fund outperform regular funds by over 1%.

Impact of GST in mutual fund?

Question, whether GST will have any adverse impact on mutual fund investment. The government has fixed the service tax at a standard of 18 percent for financial services industry. This means a three per cent points hike in tax liability for distributors. Increase in service tax from 15 per cent to 18 per cent will lower the returns in mutual fund schemes due to higher expense ratio. Mutual fund investors who have planned for long-term need not to be worry about marginal impact of GST. Overall it will reap good returns in long-run.

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