Select a Suitable Indian Mutual Fund

Mutual funds are the best option to invest for investors today due to their great benefits like real returns, risk management through diversification, professional management, and transparency. Investors should select mutual funds considering the following process. However, as an investor, one must remember that each and every fund is different and not for everyone. Selecting a suitable mutual fund is a combination of art and science. An investor should follow the process to select a suitable Indian mutual fund in this dynamic economy.

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Investors must remember that all funds are different and not for everyone, and should follow the process to select a suitable Indian mutual fund in this dynamic economy.  Selecting a suitable mutual fund investor has to follow the following process in two steps.

1. Select a suitable Category
   Step – 1 Select a suitable Category – Who are you – To check the type of risk tolerance. The investor has to identify his/her type considering safety, returns, and liquidity. They have to find out three things in this step Why, what, and how considering their risk appetite. This will identify the type of aggressive, moderate, or conservative investor. Here we will finalize the category of the fund in which investors can invest which is called asset allocation.
2. Select a Suitable Scheme
   Step – 2 Select a Suitable Scheme – After deciding about the type of investor in Step 1 and finalizing the category of the funds now investor shall select a suitable scheme as per the category.
3. Why – Objective – Investors must have an answer to why they want to invest, The objective, and the expectations of the investments. “One shoe does not fit all” The fund which is the right fit for you is not necessarily the right for another investor. That is why choosing a mutual fund for investing your money, it is necessary to determine your investment objective.
4. What – Time – The investor must answer the period or tenure of the investments before selecting a fund. What will be the duration they want liquidity? Short and Long tenure make a difference in selecting a fund. The longer the duration risk taking capacity increases. For short-term low-risk funds are suitable. Equity funds should ideally be chosen if the investment horizon is more than 5 years.
5. How – Risk and Return – Risk Tolerance must be clear about how much risk and return the investor is expecting. Higher the return expectation higher will be the risk. There are 6 types of risk mentioned in the riskometer.
6. If you expect high returns then you have to take high risk. For low returns low-risk funds are suitable.

Factors for Selecting a Suitable Mutual Fund Scheme:

1. AMC’s Track Records – One needs to analyse the track records of the asset management company. Their reputation, performance delivery, key persons, fund management system, risk management system, and news. Also, check fund manager experience and track records.
2. Compare with Benchmark Returns – Past performance of existing funds is important. The fund should always at least own TRI benchmark. Generally, the benchmark for equity mutual funds is Nifty Fifty Index or BSE Sensex.
   Comparison with benchmark shall be done at least once a year.
3. Compare with Peer Category – Peer-to-peer comparison means comparing within the category. E.g., Comparing a large-cap fund then comparing with other large caps. The fund we select must be consistently in at least the top 10 of the list for 3 years CAGR.
4. Consistency – The fund we select must be consistently performing. It should be within the top 10 with consistent performance. It should not be volatile and abrupt. So always check the long-term consistency of the fund before selection.
5. Expense Ratio – Check out the expense ratio compared with peer schemes. The fund expense ratio should be as low as possible. Lower the expense and higher the fund return.
6. Study Factsheet – Always study fact sheets at regular intervals. Through the factsheet, you can study the quality of the portfolio, rating of securities, performance comparison, fund manager’s details, and NAV growth.
7. Others – Lastly while selecting a mutual fund check taxation liability out of investments, analyse the ratios of the fund, news of the market, and any big event in the market.
   So, Investors should select mutual funds considering the two steps 1. Select a suitable Category 2. Select a Suitable Scheme. Always review the investment at regular intervals. Risk appetite, Asse Allocation, fund selection, and review are processes of mutual fund investments.

Note: – This information is only for educational purposes. The investments discussed here are not recommendatory. Always invest through scheme-related documents and investments are subject to market risk.

Disclaimer: – Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of the future performance of the schemes. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax, and financial implications of the investment/participation in the scheme.