How to Choose The Best Mutual Funds in India?

Nov 24th 2023
Mutual Fund

How to Choose The Best Mutual Funds in India? Investing is a skill that is unique to each person. Investment decisions vary depending on objectives and risk tolerance, much as each person's taste and influences determine their artistic tendency. Novice investors often favour safer assets, such as conventional savings vehicles, although diversity is necessary for a well-balanced portfolio. Even while equity investments can yield respectable returns, not every investor may have the necessary time or skills to make stock market investments. Mutual funds come into play here.

How to choose the best mutual funds in India is a common question among investors. Choosing a mutual fund hinges on various factors, encompassing return expectations, risk tolerance, and investment horizon. The selection process involves considering key parameters such as the expense ratio, past performance, the experience of the fund manager, and assets under management.


Before picking the right mutual fund, it's important to know the different types out there. Understanding these types sets the stage for making smarter investment choices.

Types of Mutual funds

The market offers a wide variety of mutual fund options. It is crucial for novice investors to comprehend the differences between them. The structure, asset class, risk tolerance, investment objectives, time horizons, and fund specialisation of each fund vary.

1. Equity mutual funds, for example, make investments in business stocks. These funds provide comparatively higher returns than others, but there's a chance that they carry greater risk.

2. Debt mutual funds offer lower returns, but they are more stable since they invest in fixed-income securities.

3. Hybrid mutual funds engage in both debt and equity assets in an effort to provide investors the best of both markets.

Additionally, mutual funds can reduce taxes. Section 80C of the Income Tax Act of 1961 allows for tax deductions on equity-linked savings plans or ELSS funds. They do have a three-year lock-in term, though.

Selecting the best mutual fund to invest in might be aided by your understanding of the distinctions between different fund kinds.

How To Choose The Right Mutual Fund

When it comes to choosing from the best mutual funds in 2023, there are numerous factors one should keep in mind.

1. Investment Objective

Determine your overall investing aim as a first step before placing any investments. Determine your financial objectives and the time frame within which you must accomplish them. Your investing plan will be determined by your ultimate financial aim. Do you invest in mutual funds to reduce your tax liability or to cover an immediate financial need? In order to provide the groundwork for your investment, these issues must be addressed.

For instance, if you want to save taxes while also achieving capital appreciation, ELSS funds are a great option for you. If saving for retirement is your aim, you have additional options and could think about equity-oriented funds. But if protecting your cash is your first goal and you don't want to take many risks, index funds or debt funds can be a better fit. When you are aware of your ultimate objectives, you will find it easier to navigate the world of mutual funds.

2. Investment Strategy

Choosing an investment method is a critical first step in selecting the best mutual fund. Recognize the fund house's investing approach for the mutual fund you want to invest in.

Verify if AMC's investment approach aligns with your investing goals and philosophy. To be aware of what you are getting into, it is crucial to make sure your investing objectives align with the mutual fund's.

3. Time Horizon

What is the duration for which you may remain invested in the plan is a crucial factor to take into account while looking for information on how to choose mutual funds. The sort of mutual fund you invest in will vary depending on your time horizon.

For example, a short term liquid fund can be taken into consideration if you are intending to invest for a little amount of time. You can choose a market capitalization-focused fund for long-term objectives, since it can be able to yield larger returns over time.

4. Fund Returns

In addition to the fund's overall performance, investors need to look at the mutual fund's track record of consistent returns over time. A fund that has performed very well over a brief period of time may be highlighted or recommended. Still, there's a chance that the fund's strong performance was an isolated incident! It is also true in the other way.

It's possible that a fund's subpar performance over a specific time period was caused by a downturn in the market. Analysing the return consistency will show how well the fund is able to provide outcomes that are less influenced by the state of the market.

5. Fund Manager

The daily operations and performance of the fund are within the purview of fund managers. The fund manager is in charge of making all of the major choices, including choosing the stocks for the fund and allocating and investing the money. They are in charge of the fund's overall effectiveness.

The performance of a mutual fund essentially indicates the skill of the fund management. Therefore, while narrowing down the top mutual fund for your portfolio, the fund manager's history and expertise in the industry may be a crucial consideration.

6. Entry and Exit Load

Fund houses charge investors an entry load when they first invest in a mutual fund. Likewise, exit load refers to the costs investors pay fund houses when they leave a mutual fund scheme before a set amount of time. It's only a little amount, but it can nevertheless affect your profits by making your investment more expensive.

7. AUM

The entire value of the assets that a fund company handles is known as assets under management, or AUM. AUM shows the cash available to a fund management for future investments as well as the returns a fund has received on existing investments. AUM growth is frequently regarded as a favourable indicator. It is crucial to remember, nevertheless, that when selecting the best mutual fund, AUM shouldn't be taken into account alone. It must be taken into account in conjunction with all of the previously listed factors.


Question 1. What Is The Ideal Number of Mutual Funds For My Portfolio?

Answer: Your financial goals and objectives should guide your decision on the number of mutual funds you should add to your portfolio. For most investors, a diverse portfolio of ten to twenty mutual funds is suitable.

Question 2. What Risks Are Associated With Mutual Funds Investment?

Answer: Risks are always there when making an investment. However, by spreading your portfolio over a variety of securities, investing in mutual funds can help reduce some risks. In addition, the majority of mutual funds are overseen by professionals who aim to minimise risk and maximise return potential.

Question 3. How Should a Decent Mutual Fund Be Evaluated?

Answer: Assessing the performance of a mutual fund scheme involves comparing its returns to that of its benchmark. Through benchmarking, you may assess how your mutual fund scheme is doing in relation to its rivals in the market, regardless of their investing objectives.

The Conclusion

There are a lot of things to take into account when it comes to selecting mutual funds, but if you do your homework and consult with a financial counsellor, you ought to be able to locate the ideal fund. Think about the risk level, performance, and fees before making any decisions. Furthermore, always keep in mind that there is no one-size-fits-all approach to investing; what works for one person may not work for you.


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