There are over 10,000 mutual funds available and it can be quite difficult to pick a good one.
However, most smart investors take many things into consideration before opting to invest in a mutual fund.
If you pick a mutual fund based on the rating, remember you will not get to know how the mutual fund performed in the past.
A rating will not tell you anything about the future performance of a mutual fund.
However, performance consistency along with management skill and expense limitation does influence the prospects of a mutual fund.
If you want to invest in a mutual fund, you should take time out to evaluate these three aspects in order to select the best one.
Before investing in a mutual fund, you should first create a financial goal for yourself.
You should be clear about the reason for your investment.
It could be for retirement, buying a home or even funding your child's education.
This will have a serious implication on the type of mutual fund you select.
If your need is not immediate, you can go for an aggressive approach.
However, an immediate need for money means being careful and preserving your capital.
Do not get taken up by past performances of mutual funds.
Yes, a fund's record can be attractive especially in a weak market scenario but remember past performance helps to predict which mutual funds will perform badly.
Top fund performers will rarely hold their position while really bad performers will continue to perform dismally.
You have to make sure that you use the past performance indicators to avoid mutual funds which continuously perform badly.
Look for mutual funds that have a consistent record year after year.
Do not opt for a mutual fund that had just few good performances.
Look for mutual funds with historically good performance and avoid those that have good years followed by bad ones.
Once you take all these things into consideration, you will be able to select and invest in a mutual fund that best suits your needs.