Mutual funds provide investment solutions for almost every type of investor with varying risk profiles and goals. With the wide variety of mutual funds available, choosing the best mutual funds could get challenging. There are various parameters to consider while choosing a mutual fund such as fund type, investing style, past performance, consistency, fund manager’s track record, expense ratio, and tax implication, etc. The suitability of the fund types relies on your individual goal and risk profile. Let’s see how to choose some of the best mutual funds to invest in, in India that can help you achieve your investment objectives.
Tips to choose the best mutual fund to invest in India:
1. Define your goals and assess your risk profile
The first thing in investing is knowing your goals. You need to define your goals first. Are you saving for retirement which is decades away or are you saving to pay your children’s school fees for the next year? Once you know what you are saving for, whether it is for short-term, long-term, or medium-term, this makes your selection process easy. If you are saving for the long term, you can choose to go with the equity asset class and debt for short-term needs. Similarly, you need to also assess your risk tolerance. Once you know your risk profile, you can choose the funds that go with your risk profile. For example, if you can take moderate to aggressive risk, you can choose to go with equity-oriented funds.
2. Choose the right fund type
Once you know your goals, risk, and asset allocation, you can go for fund selection. In each main category of funds (equity funds, hybrid funds, and debt funds), there are many subcategories. Investing style and the fund objective of each subcategory vary. Equity funds are available in many subcategories such as large-cap funds, mid-cap funds, small-cap funds, ELSS funds, sectoral funds, and thematic funds, etc. Risk profile and suitability of each fund type vary such as thematic funds follow particular investment theme and sectoral funds invest only invest in a particular sector which makes them aggressive funds. Large-cap funds invest in stocks of a well-known company and are thus considered to provide consistent returns along with offering stability. ELSS funds offer diversification and tax benefits to investors. Similarly, if you wish to invest in debt funds there are various types such as liquid funds, short-term funds, dynamic bond funds, and banking & PSU funds, etc. time frame and the suitability varies accordingly. You need to choose the right fund category that matches your investment objective, time limit, and risk profile.
3. Evaluate the performance track record
Once you are sure of which fund category to go with, you can start evaluating the various funds available in the category based on their past performance. Though past performance is not the pure indication of the future, you can evaluate the fund based on its consistency and the way of performance in different market situations. While choosing the best mutual funds to invest in, in India, you need to also consider the track record of the fund manager, whose expert decisions have a direct impact on your investment.
4. Know the cost
Along with the performance of the fund, you need to also consider the cost associated with the fund. This includes expense ratio and exit load etc. The cost of the fund will have a significant impact on the returns of the fund.
There are various things to consider while selecting the best mutual funds such as your preferred asset allocation, liquidity requirements, tax implication of each category of funds and underlying securities in the fund’s portfolio, etc. ETMoney is one of the best platforms that can help you select the best mutual funds based on various parameters conveniently. You can choose the best mutual fund that serves your purpose with the help of recommendations based on your need.
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