iStockI am 21 years old. I would like to know how to select a mutual fund (parameters).
-Jishnu Nambiar
Deepali Sen, Founder, Srujan Financial Advisers, reponds:
You should choose a mutual fund based on your goals (needs). For goals requiring money in less than two years, short term/ultra short term mutual funds are advisable. For goals between 2 to 7 years, one can choose from a well-managed corporate bond fund or banking & PSU debt fund. For goals in excess of 7 years, one can look at a well-managed diversified equity mutual funds.
Equity funds should be chosen for their consistent track record (by minimizing risk and maximising returns). One needs to ascertain that there are robust processes and systems in place for stock selection, risk control and for adhering to the mandate of the fund. Well known pedigree of the fund managers and the brand helps. Also, the correlation of the portfolio returns with its benchmark is important.
A debt-based mutual fund needs to be evaluated for the credit ratings of its constituent holdings, the yield to maturity of the portfolio, the modified duration (it captures the interest rate risk to the portfolio), the liquidity quotient of its holdings and the overall expense ratio.
-Jishnu Nambiar
Deepali Sen, Founder, Srujan Financial Advisers, reponds:
You should choose a mutual fund based on your goals (needs). For goals requiring money in less than two years, short term/ultra short term mutual funds are advisable. For goals between 2 to 7 years, one can choose from a well-managed corporate bond fund or banking & PSU debt fund. For goals in excess of 7 years, one can look at a well-managed diversified equity mutual funds.
Equity funds should be chosen for their consistent track record (by minimizing risk and maximising returns). One needs to ascertain that there are robust processes and systems in place for stock selection, risk control and for adhering to the mandate of the fund. Well known pedigree of the fund managers and the brand helps. Also, the correlation of the portfolio returns with its benchmark is important.
A debt-based mutual fund needs to be evaluated for the credit ratings of its constituent holdings, the yield to maturity of the portfolio, the modified duration (it captures the interest rate risk to the portfolio), the liquidity quotient of its holdings and the overall expense ratio.
(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)
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