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As Don Connelly rightly quotes, “The challenge is not to pick the best investment, the challenge is to pick the right investment”. So here is the question, how to choose mutual fund for investment in India?
Just like everyone cannot be the same, similarly, the investment choices and the goal behind those choices are different for everyone.
Therefore, if one thing is right for you, there is no certainty that it will be right for others as well. With different new-age investment options, mutual funds also gained some popularity and it is, therefore, important to pick not just the best mutual funds to invest in but also the right one according to your preference.
In this article, we will talk about the 5 things that you should consider when you want to choose mutual fund in India.
Best Mutual Funds in India
The world came to a halt when the pandemic first stuck. There was a lot of chaos, and unfortunately, a lot of people lost their earning sources along the way. Nonetheless, this definitely taught individuals to save and invest their money and moreover, invest it in a suitable space.
Traditionally, a majority of the people around us only understood the process of a fixed deposit or investing in age-old popular products like real estate, gold, etc. But is it the most beneficial choice for you? Does it give you the returns that you expect?
Maybe, maybe not. As the world has advanced, the options to choose from have also increased. Mutual funds have always been a popular choice among investors. But since ‘mutual funds are subject to market risks,’ people often get scared and confused about choosing one from the plethora of options.
So, before jumping to the list of best available mutual funds in India, let us have a look at some criteria that you should look at before you choose mutual fund in India.
1. Know your Objectives and Work for them
Whenever you go out grocery shopping, doesn’t it get convenient to have a list of items that you need to purchase? Because then, you don’t waste your time wandering around in the supermart and pick the right things. The list is like setting a target and then sticking to it.
Similarly, setting your financial goals before investing your hard-earned money is very important to hit the bulls-eye every time. Every individual has different plans and therefore it is essential that you pick yours.
Ask yourself questions like, ‘why are you investing your money in a mutual fund?’, ‘Is it for long-term goals like post-retirement plans?, ‘Is it just to buy a new gadget or a car, or to buy some other utility goods?’, ‘do you want to pay your college fees?’ etc.
When you have a clear answer for why you are investing, it will be easier for you to select the type of mutual fund you are looking for.
Along with your goals, you also need to figure out your risk potential. Like every individual has different financial goals and capital to invest in, they also have different risk appetites.
Don’t compare your risk potential to others and figure out your own. Once you have successfully considered all the factors and figured out your risk potential, it will become more convenient to pick the best mutual funds that fit your criteria perfectly.
2. Lock-in A Type of Fund
Having a spectrum of options to choose from can leave an investor in oblivion.
But once you have figured out a goal and understood your risk appetite; you can easily select a type of mutual fund to suit your requirements perfectly.
For example, if you have long-term investment plans like retirement, you can opt-in your equity mutual funds. Equity mutual funds have better volatility and, therefore, are capable to generate higher returns. If done correctly, it can also generate good returns for short-term investors, but it is a better option for long-term investors.
You can opt for debt mutual funds for medium risk and your short-term goals. These are a little stable and can be used if you want an emergency fund. However, since the volatility and risk are less, the returns are also lesser than the equity mutual funds.
Now, if you are looking for good returns but can bear only moderate risks, you can also opt for a balanced advantage fund.
These hybrid funds help you in asset allocation by investing both in equities and debt. They keep on changing the pattern of the investments based on the market valuations. These can also generate good returns while keeping your risk in check.
For example- ICICI Pru Regular (G), a balanced mutual fund was able to generate around 10.138% returns in a span of three years. *
*This information can be updated according to your requirements.
Apart from this, you can also consider the ways of investing, whether you want to invest in lump-sum (investing all the amount at once) or SIP (systematic Investment Plan). Once you have decided this, you can filter out the mutual funds accordingly and invest in them.
So, before figuring out the best mutual fund to invest in, you should also be aware of the type of mutual fund that will fulfil all the requirements.
3. Evaluate the Performance of the Fund
If you want to purchase a new mobile, what will your assessment points be? You will consider its past performance, after-sale services, customer reviews, and unique features.
When you evaluate all these details before choosing a gadget, why not apply the same to your investment plans?
Once you have figured out your goals choose a type of fund, the next step is to evaluate it based on some points.
- Look for the past performance of the fund. It cannot be considered the only criteria, as it is not important that a fund that has performed well in the past will perform great in the future. But it serves as a benchmark for your expectations. For example, if a mutual fund has performed decently in a time of economic crisis as well, then you can consider it to perform well in the future as well. This is a difficult aspect to cover with a new mutual fund as there is no past data.
- Do a comparative analysis. Comparing the mutual funds to their peers will give you a better idea of the best mutual funds to invest in. For example, you can analyze the percentage of the return each one has given and then draw a comparison between all. This will give you a fair idea of how the funds have performed when compared to others.
- Look for the funds that have performed well. One way to choose the right mutual fund is to check the top-performing funds and look at their potential to generate returns in the future as well.
4. Watch out for Expenses
Whenever you enrol in a scheme or start a new subscription, you have to bear some cost for not just being a part of it, but also for its proper maintenance and functioning. Similarly, mutual fund companies charge some fees from the investors so that they can be part of the fund.
Therefore, when you are looking to invest in the best mutual funds, you should also compare and analyze the different funds and then come to a conclusion. The different types of charges or fees that you should look out for are as follows.
- Entry Load – Just like you have to sometimes pay entry fees when you visit an amusement park or open an account, similarly, the entry load is the fees that the fund house charges the investors when they enter a mutual fund. A lot of mutual fund companies have now removed the entry load.
- Exit Load- Whenever you exit a mutual fund scheme, you will be charged some fees. This is known as the exit load. The exit load is usually charged when the investors leave the mutual fund scheme after a short time. This fee is levied so that the people don’t make unwanted exists in the scheme.
- Expense ratio – The expense ratio is the money that is given to the fund manager for the maintenance of the mutual funds. The expense ratio can vary according to the actively-managed mutual fund you opt for. So, according to the money that you want to invest in, you can choose the type of fund.
- Taxes- All the money that you raise by investing in a mutual fund scheme is taxable according to the income tax slabs in India. The taxes also depend on the time of your investment. If you have invested in the equity funds and have long-term capital gains, then after the limit of ₹1 lakhs, you will be charged according to the 10% income tax slab. Whereas when you are looking for short-term capital gains, you will be taxed 15%.
So, when you are choosing a mutual fund, it is very important to keep a close watch not only on the returns that you will generate but also on the expenses that you will spend.
5. Choose the Right Fund Manager
We always check the ratings from booking a cab, a salon service, a hotel, or even a table at a restaurant. It helps us in determining the quality of the services so that we can vest our trust in that service.
When we do such a proper analysis for everything, then is it not necessary to carefully choose your fund manager before you invest your money in a mutual fund scheme?
It is well known that the area of investment and your money is in the hands of your fund manager in the case of a mutual fund. Therefore have a look at the past records of the chosen fund manager to check the success rate and also the percentage of returns that they were able to generate through the mutual funds.
Also, consider the overall experience as this makes it easier to trust someone with your money when choosing mutual fund.
Make sure that your fund manager is in line with your financial goals. This will help you to invest in the best mutual funds in India.
Conclusion
Initially, people were a little hesitant to move away from the traditional methods of investment but lately, a lot of people have realized that the way to choose the mutual fund that have the capacity to generate great returns and also beat inflation.
Therefore, a lot of people are now looking for an investment opportunity in the same. Therefore when selecting the best mutual funds to invest in, an investor should analyze properly so that they can later relax and earn good profits simultaneously. To make sure that your research is always backed up by great results, you can rely on partners like ICICI DIRECT.
The broker has 25+ years of experience and is known for its award-winning research team, that analyze your requirements and risk to recommend you the best mutual fund schemes that fit best with your portfolio.
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