Checking
the price of a particular product matters, doesn’t it, especially if you want
to buy it, right? Whether it is for household items, electronics, apparel or
even stocks it is very important to get the best possible deal. Right... or
wrong? This is especially common amongst investors in the Stock Market, before
they purchase mutual funds. They always check the NAV- Net Asset Value of the
fund before purchasing, but does this really matter?
No doubt
that checking the price of products automatically runs in our system. It will
always play on our minds that the lower (lesser) the NAV) is, then the cheaper
the scheme is and vice-versa. However, the NAV of mutual funds is not the only
factor that plays a role in determining the performance of the fund.
There are
many quantitative and qualitative factors that also play a crucial role in
determining the performance of these funds. The NAV is irrelevant when
selecting winning mutual funds for your portfolio.
Although, taking into consideration NAV mutual funds is
important, it is not the only factor to take into consideration. Some of the factors
that you, as an investor should take into consideration (to determine the
success of a scheme) are your own risk profile, the fund house’s management
style and the mutual fund’s performance.
- Risk Profile:
Your risk appetite plays a very crucial role in determining the performance of the funds that you invest in. The risk appetite, in a way dictates how much of a risk you are willing to take, so as to achieve your investment objective. It is very important to select those schemes which align well with your risk appetite. For example, equity funds are known to adhere to the growth style of investment (aggressively managed funds). On the other hand, there are other funds that follow the value style of investment (conservatively managed funds). So, before you select a scheme, ensure that it matches your risk appetite as well.
- Fund Management Style:
The varying fund houses all have their own fund management styles and processes. Some pursue the individualistic style, where the fund manager follows his own style of management. Here, he does not have to rely on a preset investment process that is fixed by the fund house. On the other hand, there are fund houses which are known to pursue the team-based process driven approach of investment. This is known to be a lot more stable, where the investors are not too dependent on an individual.
- Mutual Fund Performance:
There are a wide variety of factors to take into consideration to judge how well a scheme performs, besides the amount of returns. Some of these factors include risk-adjusted returns, the risk of the fund and the experience of the fund manager.
