Every new stock market investor is told by the experts to invest in mutual funds and not to invest in individual stocks because of the risk. According to the experts stock picking is a difficult and risky proposition and investor could loose his money. Good stock picks require extensive research and knowledge of the future trends in the stock market and economy.

Mutual fund investing is made to sound very simple by everyone but in reality it is not so. We hear everyday that mutual funds are managed by experts and their investments are spread over various sectors so they are a safe and lucrative investment. But is it really that simple?

The answer is a big “NO”. As an investor when you actually begin looking for the right mutual fund to invest in according to your needs and aspirations you are faced with a plethora of choices and it is difficult to choose the right scheme according to one's risk return profile.

 Some mutual funds invest in equities, some in gold, while other choices can be as wide a range as capital protection, arbitrage or even commodities. Even those mutual funds which invest in shares and stocks further can be classified according to which sector they invest in e.g. real estate, infrastructure, power, index funds etc. Then there are mutual funds which invest in small cap, mid cap or large cap stocks of listed companies.

The above classifications of mutual funds can go on and on with funds like close ended or open ended funds, debt or equity funds etc. Point is how do you decide what meets your investment requirement?

Mutual funds one of the best investment options

One thing is that is certain is that there is a mutual fund out there that meets your particular investment needs and goals. With so many asset classes and vastly differing schemes, in each asset class, you need to be careful and invest intelligently. Choices apart, mutual funds are one of the best investment options to achieve your financial goals as they come in various shapes and sizes to suit your differing needs.

Investing logic

Many investors invest in mutual funds for all the wrong reasons. Past performance of the mutual fund is one. A mutual fund's past performance does not indicate its future performance as trends and sectors in preference keep changing in stock market. Though past performance is important it is just one of the factors that must be considered while investing in a mutual fund.

Other factors like management of the fund, their investment philosophy, processes, ethics, and performance across market phases - especially during the downturns - should also be kept in mind