Before investing, you should look at the long term track record of the scheme, fund manager and fund house.
Equity funds are best suited for achieving your goals with a long term investment plan, and debt funds are best suited for short to medium term goals.
For investors of all ages, mutual funds offer an investment solution for a range of investment needs. You can invest in them to generate wealth and achieve various life-stage objectives, such as retirement planning, funding children’s higher education, vacation planning, purchase of property, or establishing a source of retirement income. However, before you start investing, the most important question is: How do you choose a mutual fund that can meet your investment goals?
How to select the desired mutual fund?
Investment horizon: This will determine the length of time it will take you to achieve your financial goals. Equity funds are best suited for achieving your goals with a long term investment plan, and debt funds are best suited for short- to medium-term goals if you know how to choose the right mutual fund. Funds like Overnight Funds, Liquid Funds, Ultra-Short Duration Funds and others are suitable for very short investment horizons (less than a year).
Investment Goal: Before trying to figure out how to choose the best mutual fund, you must be aware of your investment goal. Do you prefer salary stability or growth? Long-term financial appreciation is best achieved with equity funds, while regular income is best achieved with debt funds.
Risk Profile: If you know your risk tolerance, choosing the ideal mutual fund would be easier! Bond or debt funds are suitable for investors who have a low to moderate risk appetite, while equity funds are ideal for those with a moderately high to high risk appetite.
Taxation: This is one of the most important factors to be considered while determining how to choose a good mutual fund as you must first understand the tax implications of your investment. For example, long-term capital gains (held for more than 12 months) are tax-free up to Rs 1 lakh and are then subject to a 10% tax rate. Short term capital gains (held for less than 12 months) in equity funds are taxable at 15%.
If you want to know how to choose the best mutual fund, you must determine whether you can participate in a lump sum amount or through a Systematic Investment Plan (SIP). You can take advantage of the power of rupee cost averaging and compounding by investing through SIP.
Track record of the fund manager and fund house: Before investing, you should look at the long-term track record of the scheme, fund manager and fund house.
Expense Ratio: For some investment categories, such as exchange-traded funds or index funds, the expense ratio is important. (ETF). The higher expense ratio in a carefully managed fund can be offset by the fund manager’s ability to generate higher alpha.
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