Mutual Funds are investment vehicles which help you invest into equity, debt, commodities and other asset classes. Depending on the type of mutual fund scheme that you pick, the return-risk trade-off you avail varies. While you cannot completely eliminate the risk when you’ve invested in instruments that are market-linked, investing through mutual funds offers the following benefits:
a) Diversification: Mutual funds are a basket of instruments. Such diversification reduces the overall volatility in an investor’s portfolio.
b) Professional Management: Fund management teams who monitor mutual fund portfolios ensure that the scheme’s return-risk metrics remain optimised.
c) Tax Hedge: Investing in equity and debt instruments through mutual funds offers increased control over taxes incurred.
How do you choose the right mutual funds to invest in?
With many mutual fund schemes available in the market and new fund offers every second day, choosing schemes that are poised to be winners in their peer groups can be difficult. Ranking mutual fund schemes across historical returns, volatility, expense ratio, portfolio concentration, fund size, credit quality etc is imperative to picking the right schemes. For instance, at PeakAlpha, we use PeakFilter, our in-house ranking tool to pick the best equity mutual fund schemes.
By Aparna M
Wealth Advisor, PeakAlpha Investments