Tips to choose Best Mutual Fund scheme

Today’s investors are increasingly gravitating towards mutual funds as the preferred choice of investments. You too may have taken notice of the increasing attention that this investment option is now receiving. One of the biggest advantages of mutual funds is that they’re for everyone, irrespective of the investor persona. Right from risk-averse investors to risk-aggressive investors and everybody in between, mutual funds offer something for everyone.

But if you’re a beginner, you’re probably not sure of how you should go about choosing the best mutual funds scheme. After all, there are so many alternatives that come with the tag of being the best mutual funds to invest in. And it can be difficult to zero in on what the best choice of funds for your investor persona is. That’s why we’ve compiled a set of useful tips that can help guide you, so you can choose the best mutual funds scheme.

Identify your goals and your risk profile
The best mutual funds to invest in varies from one investor to another. One person may prefer to invest in equity funds while another may prefer index funds. So, to know what’s best for you, you need to first identify your goals and get to know your risk profile. Are you risk-averse or are you okay with taking on some amount of risk? What is the goal of your investment? How much of a return do you want to earn on your capital? Seek to answer these questions first, so you can figure out what the best mutual funds for you are.

Do not focus only on the rating
Mutual funds in the markets are rated, so it’s easier for investors like you to identify the top performing mutual funds in India. However, too often, many investors get caught up on the rating alone and fail to look at the other factors that are important when you’re assessing what the best mutual fund schemes are. Don’t fall into the rating trap. Remember that the rating is important, but it’s not the only thing that matters. There are other factors to look at, like the track record, the expense ratio and the performance.

Look at the assets under management (AUM)
The AUM shows you how the fund has been subscribed. Now, as an investor, you probably assume that a large AUM is the ideal thing. But depending on the kind of mutual fund, a large AUM may not always be the best thing. For instance, when it comes to small cap equity funds, a large AUM may make it tougher for the fund to buy and exit its positions. Conversely, a smaller AUM in liquid funds and short-term debt funds may make them more vulnerable to redemptions. So, take a look at the implication of the AUM before deciding.

Analyze the performance of the mutual fund
Before you decide on the best mutual funds to invest in, it’s also important to look at the performance of the funds you’re considering. Analyze how the funds have performed against the benchmark. After that’s done, study how the funds have performed against other peers in that same category. These kinds of analysis will give you a better idea of how the performance of a fund actually stands. You also need to look into the consistency of performance, so you can identify how the fund will deliver over time.

Pay attention to the expense ratio
Performance alone is not enough to help make your decision. The expense ratio plays a pivotal role in determining how much you get to earn on your investment. There are many expenses that are levied on your mutual fund investment. In fact, some of the top performing mutual funds in India may even have some of the highest expense ratios. This means that you’ll essentially end up eroding your capital in order to meet these expenses. So, keep an eye out for these expenses before you invest.

These are just some of the tips that can help you choose the best mutual fund scheme to invest in. You will also need to look at other factors like the expertise of the fund manager, their experience and the quality of investments. All of these factors come together to make a fund the best option for you.