How to find the Best Mutual Fund?

In India financial literacy is increasing with time. So, due to that people are getting aware about investing and SIP in Mutual Funds. But some people not able to start only due to the reason that they don’t know how to select the best mutual fund. So, let’s solve this problem in next 5 minutes.

Table of Content :

• What is Mutual Funds
• What to know before starting Mutual Funds Investment.
• How to select the best Mutual Funds.
• How to invest (SIP or Lumpsum)
• Points to keep in mind
• Conclusion

What are Mutual Funds :

Mutual Fund is an investment method in which money is pooled from several investors and that whole money is invested in different stocks selected by the fund manager of the fund. It is the option by which an investor is able to invest in multiple stocks even with the smaller amount, in units with the expertise of a professional.

What to know before Investing in Mutual Funds :

1. Objective :-

This is one of the most important points to keep in mind before investing in Mutual Funds that you should know your financial goal for which you are investing. Investment done in Mutual Funds without any purpose can cost you because you can redeem that in fear. But if your investment is purpose driven then you can stay invested in that till the goal is achieved.

2. Risk Appetite :-

In the Mutual Fund industry there are many funds available. Every fund has its own risk. So, before starting investment in Mutual Funds you should definitely know your risk appetite that how much risk you can take on your investments. Not knowing risk ability is like driving without the knowledge of vehicles which can lead to accidents.

3. Time Horizon :-

In the stock market or anywhere else when you invest you should definitely know the time for which you are investing. In the same way when we start investing in Mutual Funds we should know that for how much time we are investing. Because every fund has its time horizon and objective according to which they are investing.

How to select the best Mutual Fund :

1. Consistency of Fund :-

When we start in Mutual Funds we see the last 1 or 5 years returns or just see a rank that is looking on top and get attracted to that. But we should check its past performance of at least 10 years that how it performed. Is it consistent or not. And in rank we don’t need No.1 because some day it will loose its rank, so we need the fund which is consistently in Top 25 in last 10 years.

2. Fund Manager :-

How many times we see that fund’s past performance is looking good but still it not perform in future. And the reason for that is just change in management staff. If the performance of a fund is good but its management has changed recently so it is not reliable. So for finding good funds the Fund Manager should be the same and old.

3. AUM :-

AUM (Asset Under Management) of the fund which we are selecting should not be very big and also not to be increased suddenly. This is because if sudden increase in AUM then fund manager have to buy the stocks at higher prices because a fund house can’t keep cash in hand after a certain limit. Whereas low size means that the manager has the time to think and invest with time.

4. Risk vs Return :-

This is the very important parameter we should check. Some funds make high returns but with high risk by investing in low quality stocks. So, we need a fund which has good returns with low risk. To find that we can take help of some ratios like Beta, Sharpe, or Sortino.

5. Expense Ratio :-

Expense ratio plays a crucial role in selecting the funds. This is the part which fund houses charges from us as fees for managing funds. This should be lower. As low as is better. So, if two or more funds are placed better then we should go with the fund which has a lower expense ratio.

6. Exit Load :-

It is charged when an investor takes exit from the fund before the pre-defined period. This should be low because in Emergency if you need money then at least you should not need to pay big charges. But if you are a less disciplined investor then it should be high because only high charges can make you stay invested in funds.

How to invest:

Now the question comes about how we should invest. Whether we should go with SIP or Lumpsum investment.

Well this first depends on occupation. If you are a salaried person or a regular employee then definitely you should go with SIP because here you do not need to time or study the market to invest. On the other hand Lumpsum is only good in a crash which comes in many years once. Even if your income is not regular then also you should save each month as per SIP.

Points to keep in mind :

• Mutual Fund is not good for those who want guaranteed returns.
• Mutual Fund is not good for short term (Equity MFs) say less than 5 years.
• Stay away from Balanced Funds.
• Small Cap funds are more risky.
• Stay away from sector or thematic funds.

Conclusion :

If we come to conclude that topic and Mutual Funds then even if you invest in the worst fund then also you can beat inflation with a huge margin if you are a consistent investor. Even most bad schemes have given returns of 10–11% in the long term as per analysis.

So you just need to stay invested in the long term and just select the best scheme that suits you with the help of the above points. This will help you create wealth in the future.

Learn More :

Thank you for reading Buffett Money’s guide on how to find the Best Mutual Fund. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Penny Stock
• High Growth Stocks
• Dividend Yield Stocks
• False Breakout Stocks
• Fundamentally strong stocks
• AI impact on Algo Trading
• 5 Best Stocks
• Averaging Down Strategy
• Methods of Stock Market Prediction

Mutual Funds Investments are subject to market risks. Read all scheme related documents carefully.

Thank You

Happy Investing