How to select a Mutual Fund plan: Grow your money with these rich tips

How to select a Mutual Fund plan: A lesser tracking error is better and a mutual fund investor must look at this statistic while choosing a mutual fund policy for investment.

How to select a Mutual Fund plan: Investors must understand the difference between a mutual fund portfolio and benchmark index. Photo: Reuters

How to select a Mutual Fund plan: Mutual fund investors are advised to check the track record of the mutual fund policy they are planning to invest and the brand value of the mutual fund house, which is offering that plan. However, there are some more factors that a mutual fund investor should look at while checking the investment viability in a mutual fund plan. These are tracking error and chances of continuance when the fund manager leaves the mutual fund house for any reason.

Speaking on the tips related to tracking error while choosing a mutual fund plan, Jitendra Solanki, a SEBI registered tax and investment expert said, "A mutual fund investor must understand the difference between mutual fund portfolio and benchmark index. One who knows this difference needs to know the tracking error involved with a mutual fund plan. Generally, tracking error is the difference in returns between mutual fund portfolio and benchmark index. Lesser tracking error means the mutual fund plan is following the benchmark index. If the tracking error is high, then it reflects that the fund is not following the mutual fund benchmark index. Lesser tracking error is better and a mutual fund investor must look at it while selecting a mutual fund policy for investment."

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Solanki also advised keeping a track on the fund managers involved with the mutual fund he or she is selecting. One should keep on checking whether the fund managers involved with the mutual fund policy is continuing with the policy or not. If they found that the fund managers have left the mutual fund house, they should not exit the plan in a hurry. Mutual fund investors should put that mutual fund plan under check and keep on checking the returns coming from the policy after the exit of the fund managers. If they find there is a drastic fall in return from the policy after the exit of fund managers, only then they should exit the policy.

"Generally, a fund manager has a big role to play in outperforming the markets. However, a mutual fund house is as dependent on the fund managers as a mutual fund investor believes. Asset management companies keep a team of fund managers who manage their investor's fund and outperform the market performance. So, the exit of a fund manager should not be the criteria for leaving the mutual fund plan," said Solanki.

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