Mutual Funds are no doubt the best root to enter stock market for a novice Investor but some care needs to be taken while chosing a mutual fund. You take some time to investigate thoroughly whether a particular fund is right for you or not. Dont just Invest in a fund getting tempted by the ratings given in magazines. They are not always authentic. There are many factors you must see before investing in a mutual fund.
Always see who is the fund manager of the mutual fund and his past track records. You will always want to invest in a fund with a good manager. Since you are essentially turning your money over to someone to invest for you, you want to be sure that the manager of the fund has the reputation and experience to invest that money well. Also, you want to be sure the manager is open to answering any questions you may have along the way. The manager may be in charge of investing in a mutual fund, but you are in charge of the ultimate decision about where you want your money invested.
Make sure that the actual % annual return coincides with the fund manager's tenure. If a new manager was hired 1 year ago and the advertisement publishes a fantastic 5-year return, the other 4 years were not produced by that manager!
It is always advised to diversify while investing in mutual funds. Example you have 10000 in any currency then invest 5000 in two funds. A large group of mutual funds does not necessarily provide diversification because the companies whose stocks they hold will overlap. Use internet resources to pick up high performing funds which have a good track results in last five years.
Also you must see whether the mutual fund does well meet your short and long term financial needs. Also choose a mutual fund in which you have a good risk tolerance. Mostly all kinds of investments carry risks of some kind or the other.
Always thoroughly investigate a mutual fund's history and be sure that it has performed in a way that you'd have been comfortable with had your money been invested during past years.
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