What are the strategy to make money by investing in the mutual fund? Obviously this question is the mostly wandering in the investors mind.
While selecting the best mutual fund we usually select those mutual fund on the basis of two methods.
First is to see the star rating for that fund on the money control website and second they see the ranking for which mutual fund has given the best return in past two to three years and we think that the stock which has given the highest return will be the best mutual fund to invest. But this is absolutely wrong.
There are many investors who invest in mutual fund on the basis of the star rating. But what happens when many investors invest in that fund, a lot of fund have been accumulated in that company. So it will be very difficult to manage this huge fund to the fund manager. So they makes the compromise with the quality. So start performing mutual fund will not give the best return in the future.
Secondly if you decide to invest on the basis of past track record of return, obviously there are the company which might have given the 30 to 40% return. There is problem in this approach.
Now we see what are those strategies .
1. To see the past 10 Years track record of fund you want to invest
You have to see the track record of the past 10 years not just three to four Years, this gives you the complete understanding of which fund is most profitable.
This is not important that the fund should be on the first and second rank but you have to see that, if within 10 years if there are 100 of large caps schemes, whether these are in the list of top 25. whether it is 10 years, 5 years or 2 years you have to see that fund should be in top 20 or 25 consistently. It is not important that the fund should be winner but it should be average.
2. Ensure the fund Manager managing the stock consisting 10 to 15 Years
The question might be came in your mind is that how the fund manager helps to maintain the consistent return. For this we took an example, Suppose the X cricket team is performing best from 10 to 15 years. This is because the captain of the team best in able to manage his team, he decides for whom to send for opening and for whom to choose the bowling and because of his such strategies he win the matches.
Same thing applied in the mutual fund, if the fund manager is been best in able to manage the performance over 10 to 15 Years then there might be the chances of consisting the same performance in future. So fund manager is vitally important and he not be changed.
3. To See How much fund invested in past and compare it with Present
You can check the money invested in past years as compare it with today’s fund. It will easy to fund manager to manage the stock and invest it in right place to give maximum return. If the there is sudden investment in the fund, then it is very difficult to fund manager to manage and invest in the best niche to give maximum return.
But if there is sudden investment happen in that stock then you have stay away from that stock market.
4. To see Risk vs Return track records
The good fund manager is those who take the minimum risk and give maximum return not the maximum risk and give maximum return. Generally there is trend that the large cap fund are less risky than mid cap fund.
If the large cap company has given the 20 percent return in last 10 year and if the mid cap fund has given the 21 percent return on the last 10 years, then i will prefer to chose the large cap fund who given the 20 percent return. I will not take the risk in mid CAP for 1 percent return. It is better to take less risk to take by choosing 20 percent return.