Mutual funds are a popular investment destination. However, the mutual fund industry has the problem of having several players. So an investor usually gets confused as to which fund house and which scheme to select. Many fund houses offer the same type of mutual fund scheme (for example, based on the size of companies or sector where the scheme invests). However, not all mutual fund schemes give you the same type of return. Therefore, it becomes critical to choose the right player to invest your monies. Here are some things you should check before selecting a mutual fund house:
Sponsor of the Fund House:
Every mutual fund house is backed by a sponsor, who is in effect the promoter of the fund house. Securities and Exchange Board of India (SEBI), which regulates the mutual fund industry looks into the credentials of the promoter (which is usually a financial institution) before granting permission to start a fund house. Nevertheless, as an investor, you must make sure that the sponsor is a trustworthy entity. Some institutions do not have a great reputation in financial markets. It is better to stay away from such fund houses.
Experience of the team:
In addition to being convinced about the sponsor, you must more importantly be convinced about the management team at the mutual fund house. Every mutual fund scheme is managed by a fund manager. He is the one who makes the purchase and sale decision of the underlying securities, the timing of such purchase and sale, etc. These factors determine the returns generated by the mutual fund scheme to a large extent. A fund manager should have had the experience of seeing through different business cycles to understand how markets behave. Some fund managers are very popular. However, it does not mean that you should invest in a scheme simply because the fund manager is popular. You should also look at the experience of other members in the team and if the team is stable. This is very important, as the fund’s activities should be managed even if the fund manager decides to leave the fund house.
Service Levels:
Some mutual fund houses are extremely customer friendly, while in some cases, it becomes a nightmare to deal with the fund house. Service levels become very important when you want to update your contact details, transact your mutual fund units or need a clarification. You are investing your money in the mutual fund scheme and are therefore expected to receive the best service levels. Nowadays, more and more investors prefer to transact online, rather than through a broker. If you are particular about this facility, then it is better to choose a fund house which allows you to do this. Choose a fund house which enables you to transact effortlessly and also helps you when you have a problem or clarification about your investment.
Disclosure Levels:
Another important parameter to check is the extent of transparency in the fund house. SEBI makes disclosure of some details mandatory. However, over and above this, it is up to the fund house to disclose details. Logically, the more transparent a fund house is, the better it is for the investor. A good way to ascertain this is to look at the website of the mutual fund house. You should also see if they follow best practices. Investor education programme is something which most fund houses undertake. Evaluate if this is really useful or is it just eyewash. Ask yourself if you get the confidence to invest by looking at the disclosures or do things look suspicious.
Investment philosophy of the fund house:
Every fund house has a different investment philosophy. While what is best for an investor varies from case to case, a few patterns can signify that it is better to stay away from such fund houses. For example, if you see that a fund house launches schemes simply to take advantage of the investment cycle and not to differentiate, then you know that this is a means of only increasing income and no value creation. Similarly, if you see that a particular fund manager of a mutual fund house is managing several schemes, then you can be sure he will not do justice to the scheme you plan to invest in. These factors are clear signs that the particular fund house will not be the best choice for you.
Selecting a fund house goes hand in hand while selecting a mutual fund scheme you wish to invest in. Remember to do your homework before investing your hard earned money in any investment avenue.