How to Select the Best Mutual Funds to Buy

If you are a mutual fund investor, you must have confronted with the above question. There are thousands of mutual fund schemes in the market and how to select the best mutual funds to buy suiting your requirement. It all depends. Depends on what are your investment goals , your risk appetite, time available for selecting and tracking mutual fund investments and your philosophy on returns on investment.

Let us see now how you can choose best mutual funds to buy.

Best Mutual Funds to buy based on the time frame

As you have short term goals, you need to invest part of your money in debt funds to get a reasonable return to take care of your short term needs. Short term means less than 3 years. You can buy best accrual based debt mutual funds for your short term requirements.

Medium Term is between 3 to 5 years. For medium term goals you need to buy best mutual funds from the categories like medium term debt funds and hybrid funds.

Long term is more than 5 years. For long term needs buying best mutual funds from the diversified equity fund category is advisable.

To select the best mutual funds to buy, the first step is to select the right category of the mutual funds based on the time frame of your investment.

Best Mutual Funds to buy based on the fund performance

You can select the best mutual funds to buy based on the fund performance after finalising the fund category as mentioned in the above step. When looking at the fund performance, you need to consider things like past performance, risk adjusted return and consistency.

Best Mutual Funds to buy based on the Expense Ratio:

Have you ever given a thought how Mutual Funds recover their Expenses? Well, they recover it from you before they declare the NAVs of the respective schemes! The returns you are receiving from your mutual funds investments is the net of expenses incurred by them while managing the funds. And, these expenses are fund management fee, agent commissions, registrar fees, and selling and promoting expenses. Now you know that MFs incur expenses while managing your funds, the next question in your mind could be how much. This leads to the concept of expense ratio.

This ratio helps you to know how much you pay a fund every year to manage your investment. In case you have invested Rs1, 00,000 in a MF, whose expense ratio is 1.8%, you are paying Rs1,800 for an year to manage your investment. That is, if Mutual Fund is earning, say, 15%, your return would be 13.2%. The NAV’s are declared net of expenses, it is therefore important for you to know the expense ratio of a fund.

In addition to the other factors to be considered to buy best mutual funds, you also need to choose mutual funds with lesser expense ratio.

Best Mutual Funds to buy based on the fund management team

In this day of easy access to information, it shouldn’t be hard to find information on your portfolio manager. The ideal situation is a firm that is founded on one or more strong investment analysts / portfolio managers that have built a team of talented and disciplined individuals around them that are slowly moving into the day-to-day responsibilities, ensuring a smooth transition.

You may seek for the answers on the following questions:

Whether the fund manager has delivered results in sync with the market?

What were the fluctuations in the NAV of the Mutual Fund scheme?

Whether the fund manager was selling and buying (higher turnover will result in paying more broking and other expenses, resulting in lower return for the investor) the equities more frequently?

The above information will help you to know whether the fund managers are long term playes are just flight by night operators.

Finally!!!

Investing in mutual fund needs effort, time and energy. Hence you have to do your own analysis of these factors and accordingly then follow the above points for selecting best mutual funds to buy.

Wish you happy returns for all time to come!!!

Choosing a right mutual fund is part of an investment plan. To have a right investment plan, it should sync with your financial plan. To create a sound financial plan, I strongly recommend you to take advantage of

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