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Mutual funds are one of the best investment instruments to grow your wealth in the long run.
One of the most important metrics to keep in mind while choosing a mutual fund (MF) is to look at its historic performance. Past performance is not an indicator of the future, but it gives an insight into how consistently the fund performs.
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Even if a mutual fund has grown immensely in the past, it’s vital to look at the fluctuations in the fund’s price. If there are multiple up and down swings, it means the fund is unstable and you should rather opt for one that has consistent growth.
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You should choose mutual funds based on your financial goals. For example, if you want your investments to remain liquid, consider investing in liquid debt funds so that you can sell them off when needed.
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While high-risk mutual funds can give high returns, they can also go down in value just as fast. Before choosing a MF, understand the risk profile of the fund and whether it matches your personal risk appetite.
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If you choose to invest in a MF through a fund manager, make sure you take a look at how consistently the fund manager has delivered good results. It is unwise to go with a fund manager who has a history of unprofitable returns.
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You should not just forget about your mutual funds after you invest. It is important to periodically revisit them to assess their performance and rebalance your investments if the funds are performing poorly.
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It is also important to ensure that you do not put all of your investment into a single mutual fund. Consider investing in two or more mutual funds, along with other investment instruments to mitigate the risk of losses.
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