Social Media Forums are buzzing with Mutual Funds enthusiasm. Investors are trying their best to keep abreast with the developments in the investment.
Among all the things that they are interested to know, one question has been trending for a while.
“Which is the best mutual fund for me”?
The answer to this question would depend on a number of factors that are unique to an investor and that is why it cannot be replicated. What serves ‘best’ for me can turn out to be an inappropriate choice for you. Best is subjective.
To start with, you should focus on three things - Investment Goals, Risk Appetite and Investment Tenure.
What are you investing for?
The purpose or need for investment is often overlooked but it is the first step towards making the right investment choice. Whether it is a short-term need or planning for a long-term goal like buying a house, child’s education etc., you got to be clear about the goals, you want to achieve from your investments.
How much risk are you willing to take?
Just like Vikram and Betaal, Risk and Reward go hand in hand. The amount of risk you are willing to take will help you set a realistic expectation of the returns. The basic rule of investing says higher risk higher gain.
However, you should pick the fund category based on your risk appetite.
Once your basics are sorted, you can move on to the finer details and compare various funds in the category.
How consistent is the fund’s performance?
The past cannot be held as a mirror for future performance but consistency in performance of the fund indicates its quality. Find out how consistent the fund has performed with respect to risk – risk-adjusted returns and protection of capital are two things you should pay attention at.
A classic mistake here is to judge the fund based on its recent performance. Do not look at short-term performance, rather find out how the fund has performed in various market cycles. If the fund stands the test of time with consistent performance and high-risk management during the market slowdown, it is a quality fund.
You can also compare the funds with its peers in the category to see how well it is positioned among the competition.
Is the fund true to label?
Just like you would feel cheated if a product marketed as health bar contains unhealthy contents. The same way your fund should stand true to label, which means you are getting exactly what is promised when you buy it. Check if the fund has stuck to asset allocation irrespective of short-term market movements. For example, a Large-cap fund should not get tempted to add small-cap to the portfolio during bull market to generate better returns, as those changes will also affect the risk profile of the fund as well.
You can also check things like the size of the fund, pedigree of the fund house and fund manager, the expense ratio of the fund.
Keep these basics in mind and visit 5nance.com to find the best mutual fund for you.