Mutual Fund investing basics

Mutual funds provide investors with a multitude of investment opportunities. However, as an investor, you need to be aware of crucial facets of mutual funds before beginning your investment journey.

• Align investment objectives: Every mutual fund scheme, across different categories and sub-categories has an underlying investment objective. This investment objective is the compass that steers strategies and investment styles. Investors should ensure that the objective of the scheme aligns with their own financial goals for better return prospects. For example, if the objective is retirement in the next 20 years, equity funds could work better since they typically require longer periods of investments to unlock their potential for wealth creation.
• Returns are not guaranteed: Mutual funds do not guarantee capital protection nor are the returns fixed. This possibility is not limited only to equity funds but also other categories of mutual funds. The aim of investing in mutual funds like equity-oriented schemes is largely to get inflation beating returns. To achieve this, funds need to get exposure to various markets that have their own rules and dynamics. All of this requires assuming a certain kind of risk. The underlying risk being loss of returns and /or capital.
• Costs matter: Expense ratio and exit loads need to be kept in mind while investing in mutual funds. Exit load is the charge levied when you sell your units of a mutual fund within a particular tenure. As exit load is a fraction of the NAV, it eats into your investment value. Thus, it is important that you invest in a fund with a low or nil exit load. Expense ratio is the fee charged for proper management of investments. As an investor, it’s important to seek a mutual fund that comes with a lower expense ratio since the expense ratio is calculated across the investor’s total portfolio and will have a significant impact on your returns over the long term.
• Past performance is not a guarantee of future returns: If the fulfilment of your financial goals hinges on the historical performance of a mutual fund scheme, you’re in for trouble. While selecting a fund, don’t just base your decision on past performance. Look at other qualities of a fund while searching for a good fit. There is no guarantee that a mutual fund will replicate past returns. Once you have made your decision, periodically scrutinize the performance of your funds. Make tactical adjustments when fund returns continually diverge from your financial goals.

This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The material is prepared for general communication and should not be treated as research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable.

While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Statutory Disclaimer: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.