Do due diligence before investing in MFs

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Mutual funds are proving to be a great option for investment. But those who have a good understanding about these schemes, only they can get attractive returns from it. Those who do not have a close understanding about mutual funds, their returns are very less. Sometimes this return is also negative. If you want to get attractive returns from mutual funds, then before investing you have to understand about its finer points.

Investment strategy First of all, you need to create a goal-based investment strategy as per your financial goals and objectives. When it comes to choosing from multiple funds, assess what is your risk-taking limit.  If you do not understand any new fund, then do not invest in it.  Compare the performance of a fund with that of other funds in the same category. Check if the funds have overlapping shares. If there are different types of shares in different schemes, then your returns can be better. If your portfolio is overdiversified with multiple schemes, you should take the help of a financial planner to understand which strategy should be adopted as per your goal and risk appetite.

How to choose scheme? There is no fixed limit on the number of schemes in your portfolio. An appropriate approach should be adopted as per your priority and financial goals. You should keep only those funds in your portfolio which you are confident that you can monitor. Make sure that your asset allocation is in line with your investment goal. For example, if you have 10 to 20 different types of funds, then you will have to keep checking the decreasing and increasing value of investment in them continuously. If you have limited time then it is easier for you to monitor less funds and also get better returns. So build a strong long term portfolio with a clear investment objective, low cost, with the help of a strong-stable fund house. If you are facing loss in any fund, then it is better to stop your loss and invest in some other better scheme. The best strategy to avoid over-diversification or too many mutual fund schemes is to take the help of a reputed financial advisor. A financial advisor can give you the right advice on diversification as per your goals and risk appetite. You will have to spend some money for this service but you can earn big money in return.