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Choosing right and suitable mutual fund for investment is easy if you understand working of mutual funds and some important facts before starting an investment. This article is in addition with my previous article-Tips to improve your mutual fund investment.

Sometime it gets hard for an investor to pick right fund from so many options. Therefore, Following are some important facts or checkpoints which investors needs to consider before starting mutual fund investment.

1. Before starting any investment one should find out his/her profile as an investor. In simple words, identifying goals for investing, risk tolerance level, duration of investment and other financial needs. This task will automatically eliminate the fund options which does not matches your needs and makes it easy to pick correct funds.
2. Mutual funds are not always about equity and for long term. Equity mutual funds are one of the popular type of mutual funds. But there are some other kinds of mutual funds like debt funds, liquid funds, balanced funds which invests in debts, bonds and government securities with more or less exposure to stock market. Therefore, if your goal and duration is for short term say, less than 1 year then liquid funds or ultra-short term debt funds are great options to park your savings.
3. If you are investing in Sector funds then do not invest for short term. Sector funds are highly volatile and risky. Also, if you are new to mutual funds then avoid investing in sector funds.
4. SIP and Lump-sum are two modes/ways of investing in mutual funds and which mode is suitable depends on factors like available savings, type of cash inflow, income source etc.. A salaried person finds SIP mode more suitable because he gets fixed income regularly while a business owner prefers to invest in lump-sum because of irregular income. But it’s recommended to have your core portfolio in SIP with lump-sum investment.
5. Understand how lock-in period is calculated when you invest in ELSS through SIP mode. When you invest in ELSS through SIP mode, each installment gets locked-in for 3 years. This is because your each installment is treated as fresh investment and hence automatically gets locked for 3 years.
6. Mutual funds with low NAV does not always means they are good and cheap investment.
7. Sometimes investors asks to suggest best dates for SIP. There is nothing like best date for SIP. What important is to make sure that money will be available in the account on the given/mentioned SIP date. If you think at the end of the month, money will be there in your bank account then go ahead but if you think it is better to invest at the start of each month before spending then its a good way to save and invest.
8. Avoid investing in child specific mutual fund schemes. Choose a equity diversified fund or Multi-cap fund and invest for long term(5+ years).
9. Do not concentrate your investment in same types of fund or in any single sector. Diversify your investment over equity, debt and balanced funds as per your age, duration, goals etc.
10. Go through an advisor for financial success. Going through a good advisor is always recommended as it can save you from the making losses or risk of getting into wrong funds. After all experience and knowledge matters than plain suggestions.