Mutual funds have seen stupendous growth in last few years, both in terms of Assets under management as well as the number of different funds and schemes that have hit the market. As per latest data, there are more than 1500 different funds and schemes available in Indian market. Below graph plots the growth of Assets under Management for mutual funds in India (all figures in crores), Source: AMFI
With an aggressive distribution of Mutual funds penetration of mutual funds is increasing every day and one question investors ask is how to select a mutual fund. While I will be writing another post on selection guide, here are 10 ways not to chose a mutual fund.
- Look at the Crisil/Morningstar/Value search rating and pick up one of the 5 stars rated fund and invest in it.
- Talk to your friendly bank distributor who brings a new fund about to hit the market and talks great about it and you are like cool let’s invest
- Look at the last year returns and pick the one with the highest return
- Discuss investments on lunch table and post lunch go and invest in the fund your friend suggested
- Read up on great tips from a star advisor and invest based on his tips
- See a big advertisement on television from XYZ fund and next day go and invest in the same
- Cute Assumption that debt funds are risk-free and hence no need to worry
- I must have a lot of funds to mitigate risks in my portfolio
- Invest money in equity funds with a time horizon of fewer than 3 years, there is high probability you will lose money.
- Invest in funds you do not understand fully.
If you enjoyed these tips you can read my post on How to select a mutual fund