How to Choose Mutual Fund ?

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How to choose mutual fund

The investor always looks for best mutual funds to invest. There are numerous numbers of mutual fund(s) which project themselves as one of the best mutual funds. But choosing the right mutual fund requires a lot of smart decision based on diverse analysis and risk appetite. To find the right mutual funds, every investor needs to look upon certain things. Some of the key things to take into before choosing any mutual fund:

Properly Defined Goals: 

Before investing, any mutual fund investor must have properly defined goals. An investor makes sure that whether the investment, he is likely to make is in the short term or long term.  For example, any mutual fund investor will likely to buy a new car in the future, going for a vacation or buying a new device. So, to invest in a mutual fund, one must have a pre-defined time for investment. A long-term investor can look for long term goals such as retirement plan, children education or buying assets.

Choose a category for mutual fund:  

The mutual fund comes under various categories for the different investor. Each investor can look upon their risk appetite as well as their pre-defined goals to invest. Longer they invest the riskier the fund they can invest in. Here is the list of mutual funds and their expected returns.

Types of Mutual Funds in India
Fund Type  Ideal Duration  Expected Returns 
Short term funds  1-3 years 8- 10%
Income Funds 1- 3 years 8- 10%
Debt oriented balanced fund 2- 3 years 7.5%- 12%
Equity oriented balanced Fund 2-3 years 10-15%
ELSS Funds 3 years (minimum ) 15-20%
Large cap Funds 4+ years 12- 18%
Mid-cap funds 6+years 15-20%
Small cap funds 7 years plus 15-20%
Multi-cap Funds 8 year plus 15-20%
Sector Funds 7+years Variable

Method of Investing 

After choosing a mutual fund, make sure that the investor must look upon the various options to invest. There are basically two ways to invest in mutual funds in India:

  •  Lump-sum: Lumpsum investment is defined as a single amount of money invested in one go. In this type of investment, one invests the money in one time for an indefinite period.
  • Systematic Investment Plan (SIP):  In case of SIP, a fixed amount of investment is done in a mutual fund regularly. That amount will automatically get deducted, once you start the biller.

Choosing a Mutual Fund :  

Investor after choosing the method of investing must select a type of mutual fund for investing. One need to choose one or more funds to invest to diversify their portfolio. Before selecting any mutual funds, make sure to check their ratings.

Most of the investor look for a combination of schemes to make a mutual fund diversification. They choose either small, large and medium fund to fund their scheme. A diversified portfolio can mitigate the risk of loss in one sector. The most important thing to notice while selecting the scheme is to choose a scheme which can match your risk profile.

What one should ask for before choosing a mutual fund?

Before Investing in a mutual fund, the Investor must ask certain things, what are your goals and how are you going to meet your goals? Choice plays a critical role in meeting those goals. Those choices can be based on rationality rather than emotions. The performance of your goals are based on the investment decision is made. Before that, here are some of the question one must ask before deciding the mutual fund investment. 

What are my investing goals?   

The investor should first broadly categorize what are there investing goals? These goals can vary depending upon the investor. Some want to buy a house, some want to buy cars, child education or a vacation. Investing in a mutual fund can be a better choice than saving account for a longer period.

What is going to be the investment time-period?    

Investment time-period plays a critical role. It is advisable the longer you invest, the more risk you can take. In case, if the investment time-period is just a few years then you should probably take some investment risk.

Which type of fund my portfolio should contain it?

The investor should contain various types of the portfolio depending upon their various needs. To decide which fund to invest, the investor must question these things:

  • In case, if the Investor is looking for non-negotiable short-term goals, then they better opt for debt mutual fund.
  • In case, if the investor is looking for non-negotiable long-term goals then the user can begin investing in an equity fund.


*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.

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