Tips to choose the best mutual funds in India

Last Updated : May 16, 2016, 8:31 a.m.

Have you ever thought about investing for the future? If not, then start doing it. And the best way to do so is by availing the option of mutual fund investment. The reason being the greater risk diversification that mutual fund brings to the fore. The risks get minimised to a greater extent as these funds invest across a gamut of securities such as stocks, bonds, money market instruments. So, the loss made in the investment of one security is compensated with the gains in others. However, a huge section of the population is yet to adopt mutual funds as they are quite content with the traditional savings bank account, offering interest at a rate of 4%-7% per annum by the banks in India. Whereas, returns can go up to as high as 18%-20% if you want to invest in mutual funds for a long-term. However, not every mutual fund can be fruitful for you. So, you are required to choose the right mutual fund offering you a significant return on your investment. Here’s the list of things that you can follow while choosing the best mutual funds in India.

• Select the fund houses that hold an unchallenged goodwill in the market. Strong presence and proven track record of the firm will help in the effective handling and management of your money.
• Check the mutual fund performance for a tenure of say 5-10 years rather than a short-term of 1-2 years. Analysing the performance for a longer period will help you find the schemes that must have performed consistently well throughout the years.In a short term, the mutual fund performance can either go significantly higher or fall down rapidly, thus putting you in a quandry.
• There is a degree of risk involved in almost all the securities, and if returns in proportion to the risk are not the same, then you better avoid making such investments. A good mutual fund is one that offer more returns than others on the equivalent risk. Taking calculated risks will help you maximize your returns on the mutual fund investment.
• Choose the mutual fund based on the investment goal you have set. If you want to ensure savings in the short-term, then debt fund will serve your purpose. For medium-term investors, balanced funds with both equity and debt will be a good option. Equity mutual funds can be chosen by investors looking for a longer tenure.
• Mutual fund companies levy fee on the services provided to investors. The fees, which are divided into exit load and expense ratio, are critical in determining the net return on the investment. Generally, fund houses charge exit load on investments that are redeemed before the stipulated time period. So before you invest in mutual fund, check the time period for which you will have to hold the investment.