Mutual fund investors' ALERT! These money tips will help you become rich

Mutual Fund Investments: Choosing the best mutual fund plan is not an easy task. Investors need to check various performance variables of a mutual fund plan while picking one for investment. Even mutual fund experts are of the opinion that investors should have some basic idea about how to check a mutual fund plan's suitability for their portfolio. According to them, investors do not have to experts, but a the same time he or she should be able to judge the advise being given by investment advisors. For that one needs to understand what is alpha, beta and last few years' performance of the plan they are looking at investing in. An investor should also know that what is his or her investment goal, what should be the time horizon required to meet that investment goal.

How to select the mutual fund category
Speaking on the importance of knowing one's investment goal and the time horizon required while choosing a mutual fund plan for one's investment portfolio, Balwant Jain, a Mumbai-based tax and investment expert, said, "Knowing the investment goal helps an investor to decide the time-horizon and on the basis of that it becomes easier to decide which category of the mutual fund is suitable for one's investment." 

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Jain said that for 10 years or above time-horizon, one can choose a small-cap or mid-cap mutual fund, while for 7-10 years investment large-cap mutual fund is better suited for a mutual fund investor. For an investor who wants to invest for around 5-7 years balanced funds or aggressive hybrid funds are more suitable for the investor.

Role of alpha
On how to select a fund after choosing the category of the mutual fund, Abhinav Angirish, Founder at Investonline.in said, "Assessment of the last 3-5 years performance of a mutual fund plan helps an investor to know some basic facts like alpha, beta and it's performance during various phases of the markets. For example, knowing the alpha helps an investor know by what percentage the mutual fund has outperformed the market - means, if the market has grown 10 per cent and the mutual fund plan has grown 12 per cent then the alpha of the mutual fund is 2 per cent. More the value of alpha, better suited the mutual fund plan is for an investor."

Role of beta
Similarly, elaborating upon the importance of beta, Abhinav said, "Beta value of a mutual fund helps you decide how much returns it gave when the market was volatile and how much it got impacted in the volatile market. Suppose, the fund has gained 10 per cent in small-cap and 10.5 per cent in mid-cap then it's beta is 0.5 per cent. Lesser number of beta means better chances of return in the mutual fund." Abhinav also added that while assessing the last 3-5 year performance of the mutual fund, an investor should become well acquainted with the alpha and beta number of the fund under scrutiny and he or she also should come to know about its performance when the market was going downward, which is very important.

Put together, this knowledge will go a long way in achieving your financial goals and thereby, becoming rich.