How to identify the best mutual funds for investment

identify best mutual fund


In investment space, everyone wants to achieve maximum returns on his/her investment or how rapidly can the invested sum grow. Equity investment or equity-related mutual funds are seen as the primary source to invest to attain those target returns and achieve financial goals.

We have already discussed different types of mutual funds schemes which invest funds in the equity. So the battle is to choose the best mutual fund which can give the maximum returns in the least time.

In general, each mutual fund in good or bad in perspective. It all depends on the various factors which make a mutual fund good or bad over the period of time. Before investing in a mutual fund you should understand some basic details: financial goal and terms and condition that particular mutual fund have, which will help you to judge a fund.

So, we will help with the basic methodology of a mutual fund to understand and factors to judge the best mutual fund for you, that can help you reach your financial goals.

Below are the major factors which can help you in deciding the best mutual fund for you:

Market Conditions:

The current market condition is one of the major factors while investing in a mutual fund. If you are going to invest the money on SIP basis then anytime is a good time to invest in mutual fund scheme, but if you are investing the lump sum amount then you have to consider the market conditions at that time.

Why is it so?

In case of lump sum investment, if the market is in a bullish state then the investors should wait for the first dip of the market to enter. It can also help you out to generate the immediate Returns on your lump sum amount as market reverses from the dip.

Also, it is equally important to compare the benchmark with the mutual fund performance. If you find, that particular mutual fund performance in past is going south as compared to its benchmark then one should avoid that particular fund scheme to invest in.

Below fund graph beating its benchmark index since last 5 years.

Fund Manager:

The fund manager is the person who is responsible for managing your mutual fund scheme. You can imagine the fund manager as the driver of your investment car and have every control of it. If the driver of your investment is good you can reach the destination of your financial goals easily, whereas if your driver is bad then,  not only you won’t reach your financial destination but also can affect your financial health.

So judging the fund manager is an important factor to consider while selecting a particular mutual fund scheme. Anytime, you need to buy a scheme, first, check who is the fund manager of that mutual fund scheme and then check its all funds scheme he/she currently handling and their performance by measuring the returns compared with its benchmark.

So always look for disciplined, experienced Management Team while the selection of mutual fund.

Expense Ratio:

Every mutual fund has its own expenses to manage particular fund schemes, these expenses are in the form of Distribution costs, Administrative fees, auditor fees, operating cost, sales cost, transaction cost, coffee, tissue paper and assets based cost incurred by the mutual fund. These expenses are charged annually from its participating investors.

If any mutual fund schemes having the small fund size, so there are chances to have the greater expense ratio as compared to the schemes having the large fund size.

Tip: It is advisable to invest in those Mutual Funds which have the least expense ratio.

Ample Diversification:

When you look for the mutual funds which deal in the equity investment. One of the most important factor to consider is how diverse is the fund in terms of stock selection. More diverse the fund more chance you have of good return in the long run.

How would that happen?

Suppose, Pharma Industry is not growing or giving negative return then, IT may help you to grow your portfolio. If IT is not working then, Automobiles will help you to grow your portfolio. So in this way, more the diversified a portfolio is more is the return on investment and earlier you reach the goal.

There also different types of funds which do not deal in equity, but can give you good returns for a time period when the stock market is at its low. Funds like liquid funds, gilt funds, gold funds, short-term debt funds etc. will help you to get positive returns until equity market recovers.

Not only diversification in the stocks is important, but also diversification in the funds is also equally important.

Past Returns:

Good past returns boost the confidence of an investor to go with the fund. But we cannot decide that’s going to be a good fund in the future just by checking the positive returns over past years. We first need to check what are the worst and good returns for that particular fund since its inception so it can help us in judging the consistency of the fund.

Periodic checks:

Above factors are the important steps to consider while selecting a mutual fund to invest in. But there is a greater responsibility for an investor i.e. to examine these factors periodically at least once a year. So that you keep a better track record of the mutual fund and you remain invested for good returns to reach your goals.

In our opinion: It’s always good to invest, but it’s better to be an informed investor. Our motto is to make you an informed investor.

Happy investing to you.




Financial Freedom Enthusiast

Spend 6 years in learning Stocks & Mutual funds Investment. A traveler from soul, finance is passion, Investment is hobby.

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