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How To Choose The Best Mutual Fund?

Mr. C.S. Sudheer | Posted On Thursday, October 20,2016, 06:53 PM

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How To Choose The Best Mutual Fund?



"Mutual funds were created to make investing easy, so consumers wouldn't have to be burdened with picking individual stocks."                                                                            --  Scott Cook

I want to be the best at all I do….I want to be Number 1 …..I want to have the best…..This is your motto in life.

Why should mutual funds be any different? You want the best mutual fund for yourself. But is the best mutual fund, the best thing for you? Should you not be selecting the RIGHT mutual funds? You need to select the RIGHT mutual funds, which BEST suit your needs.


  • Select a mutual fund, which helps you achieve your financial goals.
  • A mutual fund which you are comfortable investing. (you can easily handle the risk of investing in the mutual fund).
  • A mutual fund which is very good, vis-a-vis its peer group.

But there’s a temptation….Why not close your eyes and blindly pick up a mutual fund, with a good star rating? Why not pick up a mutual fund, which has been a good performer, recently?  Do this and you might have to regret your decision. Want help in choosing the best mutual fund? Just leave a missed call on financial education helpline 02261816111, or just post a request on website. Stop taking Financial Advice from Sellers! Speak to for Unbiased Advice on Loans, Tax planning, Insurance and Mutual Funds.

Choose mutual funds based on investment objectives

Take time out and answer this question. Why do you invest your hard earned money? You have financial goals, which you badly want to achieve. A financial goal is an objective (something you want), expressed in money and time.

  • You want INR 2 lakhs to go on a trip abroad, within a year.
  • You want INR 5 lakhs to buy a car, three years from now.
  • You want a crore at retirement, 15 years from now.

How do you achieve your financial goals? You save money daily. You need to invest this money wisely, to achieve financial goals. You need to invest, depending on the time you have, to achieve your financial goals.

  • Invest in a debt mutual fund, if you want to achieve financial goals, in a short time. (Short term financial goals are 1-3 years). A debt mutual fund invests your money in Government and Corporate Bonds and Money market instruments, called fixed income securities.
  • Invest in a balanced mutual fund, if you want to achieve financial goals, in the medium term. (Medium term financial goals are 3-5 years). A balanced mutual fund also called hybrid fund, invests your money in a mix of debt and equity.
  • Invest in an equity diversified mutual fund, if you want to achieve financial goals, with a long term outlook of 5 years or more. Equity diversified mutual funds, give good returns over the long term. Over a long time, equity diversified mutual fund are quite safe and are an excellent investment for retirement.

See Also: How Mutual Funds Help Meet Financial Goals?

Choose mutual funds after assessing risk appetite

Mutual funds are market-linked products. They come with a disclaimer…..“Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing.” Invest in a mutual fund, only if it matches both, investment objectives and your risk appetite. Risk appetite is your ability and willingness, to handle risk. Your investment in equity mutual funds, gives you high returns, but also at high risk. Are you comfortable with high risk?  

Many youth in India, love to take risk in their investments. Many unmarried youth, with no family responsibilities, can try investing in equity mutual funds. Youth in India, can also invest in Equity linked saving schemes, popularly known as ELSS. You get both higher returns and tax benefits.

If you are not comfortable with high risk, try investing in debt mutual funds. The risk is low, but be prepared for lesser returns.

Check the reputation of the fund management team

You live in the digital age. This should not be a difficult job. Your mutual fund should be handled, not only by a reputed fund manager, but he should also be helped, by a talented and disciplined team. Check the mutual fund portfolio, to know where your hard earned money is going. If you are investing in an equity mutual fund, take a look at the stocks, where the fund manager invests. If you are investing in a debt mutual fund, take a look at the bonds, where the fund manager invests.

Choose a reputed mutual fund house, with a very good fund manager, who has vast experience and an excellent team, to back your hard earned money.

See Also: How To Make your First Mutual Fund Investment?

Choose mutual fund after checking expense ratio

Mutual funds have running costs and have to manage their expenses. Mutual funds have fund management and advisory fees, commissions paid to agents and even selling, marketing and promotion expenses. This is where you need to take a look, at the total expense ratio (TER). This is nothing but how much money you pay to the mutual fund, to manage your money.

Equity mutual funds have a maximum expense ratio of 2.5%. This means 2.5% of your investment, goes towards expenses of the mutual fund. Debt mutual funds have an expense ratio, about 0.25% lower than equity funds. Mutual funds also charge an exit load, when you redeem your investment (Fee on exiting the mutual fund).

Choosing the best mutual fund is picking up the right mutual fund. You have to do your research and study the mutual fund, before investing your hard earned money. Then all you do is sit back….relax….watch your money grow. Be Wise. Get Rich.

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