At the very start of your career – you would mostly be thinking about investing or saving your money as it is crucial to have your hard-earned money put to good use. But, what are the ways that you have been thinking about investing? You would be investing in fixed deposits, gold schemes, real estate, and more. But have you been investing in the stock market?
We know the major hesitations when it comes to investing in the stock market; are the risks. As there is a large number of risks associated with investments in the stock market, you would fear thinking about investing in the stock market. But what if there was a better way? Mutual funds are also a way that you can invest in the stock market – but with lesser risks and more benefits. Let’s see how.
Table of Contents
What is a Mutual Fund, and How Does it Work?
A mutual fund is a kind of investment vehicle that combines money from multiple investors and invests it in stock market-linked financial assets like stocks and bonds to create returns. The portfolio of the fund means the fund’s total holdings.
When you invest in a mutual fund, your money is pooled with that of other investors. You invest in a mutual fund by purchasing its units or shares. The fund issues fresh units or shares when more people invest.
A portfolio manager oversees the investments in a mutual fund. On a daily basis, they manage the fund, selecting whether to buy and sell investments in accordance with the fund’s investment objectives. If you are wondering how to find your mutual fund returns, that is what we are going to talk about next.
Now, you may be thinking that if mutual funds are safe, how much returns you might be getting through them, you can always check that through an online calculator of each mutual fund. Those online calculators will show the estimations of the future returns, and you can be sure of how much you would make through the investment in the mutual fund.
Why is it Crucial to Look at the Historical Performance of a Mutual Fund?
There are quite a lot of things that you can state just from looking at the past performance of a mutual fund, and they are:
a) You can make estimations:
When a mutual fund has been showing you sudden ups or either sudden downs, it is some risky business. Even just sudden ups are not a very good approach. You might want to think of it as unstable performance. When you are in it for the long term, you need to make sure that the mutual fund is stable and is performing consistently in the market.
b) You can be ready for the future:
The past of a mutual fund can tell you a lot about your future with it. In the past, you saw the mutual fund was much lower, and it has gradually increased. It is a good factor in your investment. This means your investment would rise too.
c) It can tell you about the company:
Knowing the history of the mutual fund can tell you how the company will be performing in the long run and how it would benefit you.
d) It will tell you about the fund manager:
When you know how the mutual fund has been performing well or has been managed well in the past, you can be sure that the fund manager will manage it quite well, and you can have peace of mind.
Other (Other than the Historical Data) Factors to Consider While Investing in Mutual Funds
Here are some other things that you need to know, along with the history of the company:
Risk: You need to know the risk factor of the mutual fund. Does it have a higher risk associated with it, or is it a low-risk fund? If you can afford to lose some amount of money, then you can invest in high-risk mutual funds, and if you do not have that risk appetite, you can invest in the other extreme.
Portfolio Turnover: How much turnover has the mutual fund portfolio been giving to its investors? You will have to know that before you can start investing in it.
Expense Ratio: Every mutual fund house would have some added charges to it, and you will have to know how much those charges are. If the charges are too high, then you can choose to invest in another fund house.
Comparisons: You can start comparing the competitive mutual funds and find the pros and cons of both of them. This will help you to find out which one would be the better one for you and which one you can start investing in instantly.
The Bottom Line
It is important to know the history of the mutual fund that you want to invest in, but at the same time, you would also have to consider several other factors. That is because history is in the past, and history might not repeat itself; moreover, the future is full of uncertainties. So, the best thing that you would have to do is – be prepared for the future.
