Mutual fund investors are not exactly a pampered lot today. If you approach an agent for a mutual fund, he will either offer you an excuse or a Ulip or both. This is the sad truth for the mutual fund industry after the scrapping of entry loads—the bread and butter for many advisers.
Could you lose money if you invest in mutual funds?
Yes, most mutual fund products (except capital guaranteed funds) have underlying assets (Equities, Bonds etc.) that fluctuate on a daily basis. Hence capital loss due to lower prices of the underlying assets or default on bonds is possible. Investing according to an asset allocation plan, having enough exposure to other capital guaranteed investment such as FDs, Government Guaranteed bonds etc., can to a large extent mitigate these.
Selecting a mutual fund for investing is a very important step indeed. It is not just important it is crucial. However it is the second step, not the first.
It is surprising at the number of people I meet or hear from - they all have same questions. So when they ask me 'How do we select a mutual fund?' for me it is an amusing question. So like all self respecting advisors I start with the dreaded line - "Well, it depends..."