How to select the best Mutual Fund?

Mutual fund is a type of investment product where the investors money is pooled into an investment product. Then the fund is used for investing in a group of assets to reach the funds investment goal. There is a wide range of mutual fund schemes available to invest according to the your financial goals.

If you are a beginner in mutual fund investing, you should consider the under mentioned points while selecting best mutual fund scheme.

1- Identifying your Goals

The most important thing while investing in mutual fund schemes is to identify your goals. It could be a long term goal like retirement planning/buying your dream home or short term goals like going for a  short vacation/buying a car. Identifying a goal is the most essential step while selecting a scheme.

2 - Risk Tolerance

While selecting a mutual fund scheme you should consider your risk tolerance, whether you are a conservative investor or an aggressive investor. Usually equity investing involves a lot of ups and downs, but while investing for a longer horizon you may earn a very good return. And fixed income instruments provide a fixed return which are less volatile in nature. According to your risk tolerance you can select your mutual fund scheme.

3 - Time Horizon

How long would you like to hold your investment? According to your goal it could be short term or long term. Short term goal could be a short vacation or could be buying a car where the time horizon is usually less then 3 years ,you can go for liquid or debt funds, if it is long term ie. children's education or retirement planning ie. more than 5 years you can prefer equity schemes. Time horizon plays a major role in your rate of return.

4 - Liquidity

While investing in mutual fund schemes you should consider the liquidity of the scheme. If your goal is long term, you can go for equity schemes,  if you have short term goals like buying a car or going for a vacation, you can choose from debt schemes.

5 - Expense Ratio

It is the fee charged from the investor by the AMC for the proper management of their Investment. It is seen that a fund having higher AUM have less expense ratio. Accordingly you can select your mutual fund scheme.

6- Entry load and Exit load

 Entry load is the charge you have to pay to the AMC while investing in mutual fund schemes, and the exit load is the charge paid to the AMC while selling your mutual fund scheme. Now a days entry load have been removed and only exit load is charged from investors. You can select mutual fund schemes having less expense ratio to get the maximum return from the scheme.

7 - Fund Performance

This is one of the important point while selecting mutual fund schemes is the fund performance. It can be measured by comparing its performance with it's benchmark. In case the fund has not been able to beat the benchmark over 3,5,7 or 10 years. It is believed that the fund performance is not good. 

While selecting mutual fund schemes you also need to know the past Performance of the fund manager. Which fund he was managing earlier and how was their performance? The role of a  Fund Manager in the fund is very important, hence while selecting any fund you should check the fund manager's past performance.

So before selecting any mutual fund scheme you should consider the above points.

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Disclaimer :- Mutual fund investments are subject to market risks, read all scheme related documents carefully.