5 Top Ways to Maximize your Mutual Fund Returns

Mutual fund investment is a good way to earn money without having to analyse and research the factors driving the performance of various financial instruments like equity and debt. But since there are hundreds of mutual funds schemes in India, choosing the best and most rewarding is important. This is possible by checking the reputation of the asset management company, the objective of a mutual fund scheme, its track record and previous performance and your own investment goals.

Apart from choosing the top performing mutual fund for investment, you also need to follow certain investing rules to ensure that your investment in mutual funds yields the desired returns. Here are some ways in which you can boost the returns from your mutual fund investments.

#1 Choose to Invest in Direct Plan Instead of Regular Plan

All mutual fund schemes offer regular and direct plans. While the investment objective, the asset allocation pattern, the risk factors, the facilities, and the investment strategy remain the same in both the options, the costing varies. The expense ratio of a mutual fund scheme includes all the costs incurred by the fund to run the scheme including the commissions paid to the intermediaries. The direct plan comes with a lower expense ratio thereby offering a return that is higher than the regular plan. So, opt for a direct plan and save on the brokerage charges paid to brokers. The difference in the expense ratio of the direct and regular plans generally ranges between 0.5% to 1%.

#2 Go for Investment Via SIP and Not the Lumpsum Route

Mutual fund investments can be done in two ways- lump sum or via a Systematic Investment Plan (SIP) option in which you can invest a very small amount too. SIP offers you the advantage of benefiting from rupee cost averaging which means that you get to invest in the various cycles of the market and your acquisition cost gets average. Using a SIP return calculator is a good option to finalize the amount you need to invest via SIP to achieve a certain corpus.

#3 Choose a Scheme Based on Your Risk Appetite

Several types of mutual fund schemes are available for investment. To ensure that you earn the maximum returns diversify your investments keeping in mind your risk-bearing capacity.

#4 Look for Low Exit Load Funds

Although no mutual fund in India can charge an entry fee from investors, the practice of levying an exit load exists. The exit load refers to the fee charged by a mutual fund when an investor exits a scheme and redeems the units. To ensure that your mutual fund returns do not get reduced substantially due to an exit charge go for a scheme that has a low or no exit charge at all.

#5 Regularly Monitor and Review Your MF Holdings

Merely investing in the top performing mutual funds is not enough. You should review your portfolio from time to time (generally a quarter). But this does not mean that you offload your investment in a mutual fund simply because it has yielded lower than expected results. It means you compare the fund’s performance with the overall industry or segment and other similar funds and then make a decision to exit.