How to evaluate the funds you want to invest in?



How to evaluate the funds you want to invest in?

 First of all, you need to assess your risk profile which can be judged by your age, the urgency of the funds and investment objective. I classify the risk profile of investors as follows: your age plays an important role as your responsibilities grow as you age and you would require more funds for children's education, marriage, and health care facilities. A person who is close to retirement will prefer to invest more in debt funds and less in equity as equity is volatile.


  • Aggressive: An aggressive investor will aim to take the highest risk possible for the highest returns. Their age is usually between 20-35 years (considering you are not already filthy rich). They don't need funds in the immediate future and so can keep their money invested for a longer period of time. Since early investment leads to higher corpus amount in the future, they can use it to buy a house or a luxurious car. A growth investor may invest in small caps or sector-specific funds.
  • Growth: A growth-oriented investor usually aims at substantial growth in his/her corpus but is not willing to take a very high risk like an aggressive investor. The growth investor usually aims for mid caps as they provide good returns and also are less riskier than small-cap funds. A growth investor would look for an above average growth by investing in an actively managed fund.
  • Conservative: A conservative investor fears about losing his money and therefore try not to invest much in equity funds. He is comfortable with getting returns above the bank FD's or equivalent to it and therefore invest in either large-cap funds or fixed rate funds like the reliance liquid fund.
  • Low risk: This is the most risk-averse investor and therefore doesn't want any risk at all. A low-risk investor would invest in debt funds or liquid funds. He might have urgency of the funds or might be close to his retirement and therefore in utter need of stable income from his retirement corpus. A low-risk portfolio would involve funds with bonds, treasury bills and marketable securities.
Other Considerations:

You should aim to look at the historical track record of the fund. The historical track record will help you to know the ability of the fund to give consistent returns and also the percentage of returns. If you are more intuitive you could look at the management of the fund, whether it is actively managed or passively managed(index funds). Last but not least don't forget to consider the expense ratio of the funds as the higher the expense ratio the more is the return generated spent on operational activities.

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Thanks for reading!
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