When you decide to start investing in a mutual, either SIP or lump-sum, there is a common confusion regarding choosing the best mutual fund.To make it easy for you, we have listed here the 5 things to check for choosing a mutual fund for investment. In this article, you get to not only know which these 5 things are but also how to check them quickly for your independent decision.
Mutual Funds in India
There are around 44 Asset Management Companies (AMCs) in India which are regulated by SEBI. And each of these AMCs can have multiple mutual fund schemes which you can choose for investing money.
Further, these themes can have different investment objectives and thus you need to know if they fit in with your investment goals.
Here is a quick list of these 44 AMCs for your reference –
|1. Axis Asset Management Company Ltd.||23. JM Financial Asset Management Limited|
|2. Aditya Birla Sun Life AMC Limited||24. Kotak Mahindra Asset Management Company|
|3. Baroda Asset Management India Limited||25. L&T Investment Management Limited|
|4. BNP Paribas Asset Management India||26. LIC Mutual Fund Asset Management Limited|
|5. BOI AXA Investment Managers||27. Mahindra Asset Management Company Pvt. Ltd.|
|6.Canara Robeco Asset Management Company||28. Mirae Asset Global Investments (India) Pvt. Ltd.|
|7. DHFL Pramerica Asset Managers||29. Motilal Oswal Asset Management Company Limited|
|8. DSP Investment Managers||30. PPFAS Asset Management Pvt. Ltd.|
|9. Edelweiss Asset Management||31. Principal Asset Management Pvt. Ltd.|
|10. Essel Finance AMC||32. Quant Money Managers Limited|
|11. Franklin Templeton Asset Management (India)||33. Quantum Asset Management Company|
|12. HDFC Asset Management Company Limited||34. Reliance Nippon Life Asset Management Limited|
|13. HSBC Asset Management (India)||35. Sahara Asset Management Company|
|14. ICICI Prudential Asset Management Company||36. SBI Funds Management Private Limited|
|15. IDBI Asset Management Ltd.||37. Shriram Asset Management Co. Ltd.|
|16. IDFC Asset Management Company Limited||38. SREI Mutual Fund Asset Management Pvt. Ltd.|
|17. IIFCL Asset Management Co. Ltd.||39. Sundaram Asset Management Company Limited|
|18. IIFL Asset Management Ltd.||40. Tata Asset Management Limited|
|19. IL&FS Infra Asset Management Limited||41. Taurus Asset Management Company Limited|
|20. Indiabulls Asset Management Company Ltd.||42. Union Asset Management Company Private Limited|
|21. Invesco Asset Management (India) Private Limited||43. UTI Asset Management Company Ltd.|
|22. ITI Asset Management Limited||44. YES Asset Management (India) Ltd.|
To check a complete list of mutual schemes from these AMCs you can check here.
Now that you are aware of multitude of choices available, you can stick to these 5 simple things to check for choosing a mutual fund –
1. Age of the mutual fund
The AMC that you choose must have existed for at-least 10 years with a proven track record. This is simply because newly established funds are considered more risky as compared to a fund which has successfully grown investor’s wealth over a long period of time.
For e.g. SBI asset Management Company is the oldest in India, established around 1987. Axis AMC, Canara Robeco & Franklin Templeton etc. are other funds which have been in existence for more than 10 years.
As a once time exercise you may quickly visit the website of these AMCs and check their year of establishment.
2. Fund Manager
While selecting a fund, you must opt for a fund where the track record of the fund manager is excellent.Those funds which are managed by same fund manager over a longer duration have a higher probability for future growth.
You may avoid AMCs where the fund manager has been changed frequently.
Also there should not be more than 10 mutual fund schemes being handled by a fund manager.
A fund manager with expertise in finance, credible background & ethical history is an ideal candidate for managing your money.
3. Asset under Management (AUM)
Though there is no direct relation between AUM and return on investment, but a higher AUM in an indicator of confidence from investors. It is an also an indicator that more number of people have invested in that particular fund.
For example – the total AUM handled by mutual fund industry is close to INR 25.4 lac crore as of May 2019. HDFC Bank, SBI & Axis Bank AMCs handle the highest AUMs in India. You may also check the detailed list here.
4. Investment Allocation
You must check the investment allocation of the mutual fund scheme. Is it only equity, debt + equity or only debt? After establishing the mix you should also check the actual holdings of the mutual fund scheme. If the investment allocation of mutual fund scheme remains stable while generating decent returns, then it indicated a good investment choice.
For e.g. here is a snapshot of Axis Bluechip Fund taken from moneycontrol.com –
This mutual fund scheme is focused on equity with close to 84% investment in equities, 5% F&O holdings & no debt investment. Total numbers of stocks in the portfolio are 26, out of which, 75% holding is into large caps.
5. Historical Performance
Though past performance is not a measure of future gains, but it does give confidence for investment. A mutual fund with consistent performance in various business cycles is better choice with funds ranking on top without consistency. For example – one fund ranks 7/50 and 6/50, other fund ranks 1/50 & 9/50 in the same period, then you would be better off by being with the first fund. Also for comparison purpose you should be looking at long term (like 3,5,7,10,15 years) for equity mutual funds.
These 5 simple things to check for a choosing a mutual fund will definitely help you to park money with confidence while earning better return on investments.