Things to consider before investing in mutual funds

Though mutual funds are one of the popular investment options, from quite some time it is witnessing a slow down with respect to inflows. So, why people have turned sceptical about investing in MFs, off late. Generally, all things tone down to lack of understanding. People are looking for such an avenue which is not risky but also gives them high returns which is almost impossible.
 
To earn high returns, you are bound to take high risk. For instance, you buy a debt MF with the intention of safety but also provide high returns. However, the problem here is not about your intention, but about your expectation. You expect to take less risk but on the other hand, expect that debt MFs provide you with high returns. Debt MFs that provide you exceptional returns, but you need to also check in which securities they are investing in.
 
Many people ignore the importance of assessing their own risk profile. They find it very tiresome and boring and they think it is not at all important or even sometimes they say that they know what their risk profile is and thus need not assess it. It is always advisable to assess your risk. Here you need to decide, whether you want high returns, which you can’t expect with conservative risk profile, along with sleepless nights or accept low returns with bearable risk and good night sleeps.
 
People often relate the past performance of mutual funds to their future performance, which actually is a bad idea. Past performance is not a right way of investment. Though it must be one of the parameters, it must not be the only parameter. So, consider risk metrics, fund manager's track record, the portfolio of the fund, apart from past performance, before investing in MFs.