July 16, 2024

Business Bib

Business & Finance Blog

4 Tips to Choose The Right Equity Fund

2 min read

Investment has always been a way to secure future and with Gen-X making investment a priority as soon as they start earning market is flooded with funds of all kinds. Seasoned planners believe ‘never put all potatoes in one bag’ and equity gives ample of option in terms of tenure, sector, tax saving and scope. With heaps of equity fund investment options available, it can be hard to determine which one is best for your investment horizon, here are the top tips to help make it easier –

  1. Fund Performance

It’s on the top of our list for a reason – to review any fund’s performance over the last few years is the most critical façade of consideration before taking an investment step. Check for the annual returns of at least previous three to five years. Always go with the house (Equity management house) that is reliable and is there to stay long.

Also, make use of the online sources and read reviews of former clients, talk to your AMC (Asset Management Company). You’ll find a lot of equity mutual funds that are rated 4 stars for one particular year but have delivered poor returns prior to and post that; remember, you’re looking for consistency, not fads.

  1. Know Yourself

The best equity mutual funds are the ones that meet your specific goals and are compliant with your distinctive risk appetite, so look for the ones who do, and for that, you have to define these two terms for yourself. As a rule of thumb, your investment objective and philosophy should match with those of the service provider.

Also, your investment style is important – whether you’re growth style (would hit the high-end securities which have a wider scope for growth) or value style (would buy cheaper securities that consistent pay off through dividends) or blend style (would buy affordable securities with high growth potential), choose a fund that educates you about your pattern and is also compliant with them.

  1. Expense Ratio

In simplest terms, the expense ratio is the cost of owning an equity mutual fund – the amount of money a service provider earns to break even. You want to own the funds which are operating with the lowest possible expense ratio, as higher the cost of running the business, higher is the hurdle that needs to be navigated before any amount of money starts to roll in your account. Industry experts recommend equity funds with a maximum of 1.5% expense ratio.

  1. Diversification

The most preliminary criterion to judge the level of education and experience of an equity mutual fund is to estimate the diversification in the portfolio it creates.

The equity market is famous for its evergreen risk and insecurity, and that is why portfolio diversification is so important for stability and hedging. This is where you judge if an equity fund is able to optimize its returns by investing in different securities that would react differently to upcoming possible events.