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What to look for when choosing mutual funds

What to look for when choosing mutual funds

SaxoInvestor
Saxo Be Invested

Saxo Group

Mutual funds are a great way to start investing and are a popular choice for both beginners and experienced investors due to their simplicity and potential for diversification.  Due to the success of mutual funds, an increasing number of asset managers are offering these products, significantly boosting their availability.  

The vast array of mutual funds offered is beneficial but this can also make choosing the right one challenging. Before making your investment, you should consider the following factors:

  1. Investment objectives and strategy: What are the fund’s financial goals, how are the fund’s assets managed, what type of securities can the fund invest in and what strategies can be employed. Do the fund’s objectives match your own investment objectives and financial goals. For example, if you are looking to invest in a Global Equity Fund, you should choose a fund that invest in stocks globally, rather than one that focuses solely on US stocks or bonds.

  2. Risk: Mutual funds invest in different types of asset classes, sectors and currency. Those all have varying level of risks. It’s important to review the fund’s risk level and ensure it matches your personal risk tolerance, namely the level of risk you are willing to take. If you do not want to take a lot of risk, you should opt for funds with lower risk such as bond funds. Conversely, if you are willing to take on more risk, equity funds might be suitable.

  3. Performance: Though past performance is no guarantee of future results, it is important to review a fund’s historical performances to gauge its potential. Looking at past performances will allow you to (i) understand whether the fund’s returns are consistent, (ii) see how the fund has performed under different market conditions and (iii) compare the fund’s performance to its benchmark, is the fund outperforming or underperforming the market. 

  4. Cost: Mutual fund costs are a crucial factor when selecting a fund, as they directly impact its returns. High fees can significantly erode a fund’ s long-term performance, so it’s essential to carefully review and compare the costs and expenses of different funds before making a selection.

You've reached the end of our mutual fund series. We hope you now feel confident about investing in mutual funds and are equipped to make informed decisions.

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