How to Choose the Best Mutual Fund?

If you are planning to invest in mutual funds, learn that the first few things you need to have are patience, risk appetite, and efforts. Also remember that as important as it may be for you to invest in mutual funds if you do not put serious effort in choosing the best mutual fund scheme, you may not get the benefits you expect. To make the process easy for you, here is a list of the key factors to consider that will help in making your mutual fund selection worthwhile. 

How to Choose the Best Mutual Fund Scheme?

Keep the following aspects in mind to choose the best mutual fund scheme:

1. Purpose of Investment

Before making the actual investment, it would be a must for you to know its purpose. Make sure you determine your financial goals, investment duration, and risk appetite first. Remember, the limit to which you are ready to bear will determine your returns. Being clear about the purpose of investment will help you with the macro-level selection of the types of mutual funds. 

2. Performance Consistency 

A fund’s performance consistency in previous years is one of the key aspects to keep in mind. Make sure you check how long the fund has managed to be on top and delivered great & consistent returns irrespective of the benchmark and market cycles faced. Remember to check the fund's 3 and 5-year returns before concluding its consistency. 

3. Economic Conditions

Economic factors have a massive impact on the market, both national and worldwide, which may affect the portfolio, thereby affecting the fund performance. Here, it is the fund manager who plays a significant role in making the prime decisions and choosing the stocks.

4. Asset Under Management 

Asset Under Management or AUM is the fund size. It is the AUM that shows the potential of the fund that makes it more investment-friendly. This enhances the fund exposure, thereby increasing the overall risk. The most proficient fund managers manage the flagship mutual fund schemes with high assets under management in general cases.

5. Expense Ratio 

The expense ratio represents the charges levied by the fund in the form of percentage on an annual basis for investment portfolio management. Industry standards suggest that an expense ratio of 1.5% is a good deal. Remember, the higher the AUM, the less the expense ratio will be. 

6. Exit Load 

Exit load is the fee charged by mutual fund houses in the case of investors, whether fully or partially, exiting a scheme within a specific duration from the date of investment. Since mutual fund schemes are time-based, an investor planning an early withdrawal before the maturity period may be required to pay the exit load.

Final Words

It is always advised to avoid investment in mutual fund schemes with a stringent exit load so that the returns do not get impacted. One must always keep in mind that their financial needs may vary with time and a withdrawal may be required any time in case of emergencies. 

Make it a point to keep the above-mentioned parameters and criteria in mind for choosing the best mutual fund schemes. Always keep in mind to take your decision to construct a balanced portfolio. 

Also read - I am Married. Should I Consider Purchasing a Joint Term Insurance Plan?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.