Things You Should Know About The Fund Before Investing

Reading is not every person’s strong suit. As a matter of fact, at a time when everything that you want to say can be said in 280 characters, who would want to read a document with reams of pages. However, when it comes to making investment decisions, it is wise to know as much as you can about the background of the funds that you are investing in than to get a nasty shock later on. 

All mutual funds release an Offer Document (OD) that details the investment objectives and strategies of a particular fund or group of funds, as well as, the finer points of the fund's past performance, managers and financial information. If you do now wish to go through the entire document, here are the key things that you should focus on in the document.

1. Date of issue – ensure that you have the latest copy of the OD.

2. Minimum investments - mutual funds differ both in the minimum initial investment required, and the minimum for subsequent investments. 

3. Investment objectives – the investment goal of each fund is clearly spelled out in the OD. Pay special attention to this as you must ensure that the funds objects are aligned with your objectives. 

4. Investment policies – this will share information on the type of strategy the fund manager will adopt and the different kinds to investments to which he will provide exposure.

5. Risk factors – along with the investment objective, this is the most important factor that every investor must pay attention to. The risk metric tells you the overall risk levels of the fund. Some funds are highly aggressive while others might be moderate to low risk. Since investors themselves have varying levels of risk tolerance basis their ability and willingness to absorb risk, this becomes a very important metric.

6. Past Performance data – while past performance is never an indication of future performance, it can nonetheless be instructive and shed light on the skills of the fund manager.

7. Fees and expenses – there are various expenses associated with mutual fund investments. These could range from entry loads, exit loads, switching charges to management fees and investors servicing costs. The OD lists the limits on these fees and also shows the impact these have had on the fund investment historically.

8. Know your fund managers – this section shares the details of the fund manager with respect to his or her educational qualification, work experience and years in the business. This will give you a good idea about the pedigree and expertise of the fund manager.

9. Tax benefits information – investments in mutual funds can provide investors with significant tax benefits. However, not all such investments provide tax benefits. The OD will have details of the same.

The above sections of the OD will provide investors with good insights about the fund and help them determine whether an investment in that particular fund is well suited for them.