Invest Smarter, Here's how to achieve Your Dreams 80% Faster - Let’s Get Started!Trusted by 3 Crore+ Indians
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
credit-cards

How To Select The Best Mutual Funds In 2023

mutual-fund-image
Jun 17, 2024
8 Mins

We all want our investments to give good returns and grow fast. And in this endeavor, we tend to look for the best mutual funds while investing. And for most people, the best mutual fund is equivalent to the returns the funds have generated. But investing with only returns in mind can be counterproductive and you can lose money. In this blog, we will talk about how to select the right mutual fund as per your investment objectives.

Best Mutual Fund – A Myth

The concept of best mutual funds is a myth as the best mutual funds do not exist. This is solely because the mutual fund which is performing well today does not come with the guarantee that it will continue to perform in the same manner, or would generate great returns in the future.

Similarly, today’s worst-performing mutual fund might become the best-performing mutual fund tomorrow. Many retail investors have realized big losses chasing the illusion of the best mutual funds. And while chasing this illusion, they missed the chance to fulfill their financial and investment objectives.

Normally it has been observed that a retail investor looks at the returns of all the funds for the last one to three years, and invests in the fund that has provided the best returns during this period. However, this is not the right way to invest in mutual funds. The popular saying goes – that one shoe does not fit all. The fund that might be the right fit for you is not necessarily the right option for another investor. So when investing in mutual funds, it is necessary to determine your investment objective

The right way to invest- Find the mutual fund that will help you meet your investment goals

Now, the way to go about investing is to find a fund that is in sync with your investment goals. And you can find that by answering 2 questions:

How much risk are you willing to take?

Once you answer these questions, you can understand which mutual fund category is the right fit as per your investment objective. For example, if your investment horizon is only one to three years, then you should invest in debt funds. For such a short time horizon, you should never invest in small or mid-cap funds. You can consider investing in small or mid-cap funds only when your investment horizon is more than seven years. Meanwhile, if your investment horizon is about three to five years, then you should invest in hybrid funds.

Selecting mutual funds as per investment horizon

  • Investment horizon

  • Mutual fund category

  • One to three years

  • Debt funds

  • Three to five years

  • Hybrid funds

  • More than seven years

Equity Funds

Experts often suggest you should invest in equity mutual funds only when your investment horizon is more than five years.

Now after you have already selected the mutual fund category as per your investment horizon and risk appetite, here you might ponder how do I choose the fund that is suitable for your investment?

Here are the 3 things to check while selecting a mutual fund

#Number 1:

Downside protection: For this, the first thing that you need to check is the fund’s downside protection. For example, let’s suppose that returns for a particular fund are 25 percent in the first year. But, in the second year, its returns are -30 percent. So, this fund is not suitable for investment as it does not have the downside protection.

#Number 2:

Return consistency: Second, check whether the fund’s returns are consistent or not. For example, the return for a particular fund in the first year is 9 percent. In the second year, it’s 9.5 percent. And in the third year, the returns are 10 percent.

Meanwhile, for another fund, the first-year returns were 12 percent, and the second year’s return was 1 percent. And for the third year, it provided a return of 5.5 percent. Among the two funds, the first fund is better than the second, as its return consistency is better.

#Number 3:

Fund Manager: Third, check which fund manager responsible for the particular fund is. A good fund manager can turn the worst-performing mutual fund into the best-performing fund.

The fund manager plays a key role in how your mutual fund is performing, as he/she is the point person to decide on which stocks or securities to invest and how to distribute the money for a particular mutual fund.

If the fund manager is good, then that particular fund will do well. However, if the fund manager is not that efficient, then the fund might not perform that well in the future.

If you exercise these cautions while selecting a mutual fund, the funds that are the right fit for you will be easier to select, and you call them the best mutual funds for you.

Bottom line:

Instead of chasing the illusion of the best mutual fund, the right investment approach is to look for the right fund as per your investment requirement. And if we revolve our research around the fact that has been discussed above, then selecting the right fund is not a tedious task at all.

Now that you know all about this effective investment tool, download the ETMONEY app to start investing in mutual funds as per your investment objective.

Available on both IOS and AndroidTry Pluto Money Today 👇
Author
Team Pluto
Have a question?
Digital GoldInvest in 24K Gold with Zero making ChargesLearn More
Digital SilverInvest in silver with Zero making ChargesLearn More
Pluto FixedEarn from 11% to 14% Returns annually in a fixed lock-in periodLearn More
Invest Smarter, Here's how to achieve Your Dreams 80% Faster - Let’s Get Started!Trusted by 3 Crore+ Indians
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
credit-cards

How To Select The Best Mutual Funds In 2023

mutual-fund-image
Jun 17, 2024
8 Mins

We all want our investments to give good returns and grow fast. And in this endeavor, we tend to look for the best mutual funds while investing. And for most people, the best mutual fund is equivalent to the returns the funds have generated. But investing with only returns in mind can be counterproductive and you can lose money. In this blog, we will talk about how to select the right mutual fund as per your investment objectives.

Best Mutual Fund – A Myth

The concept of best mutual funds is a myth as the best mutual funds do not exist. This is solely because the mutual fund which is performing well today does not come with the guarantee that it will continue to perform in the same manner, or would generate great returns in the future.

Similarly, today’s worst-performing mutual fund might become the best-performing mutual fund tomorrow. Many retail investors have realized big losses chasing the illusion of the best mutual funds. And while chasing this illusion, they missed the chance to fulfill their financial and investment objectives.

Normally it has been observed that a retail investor looks at the returns of all the funds for the last one to three years, and invests in the fund that has provided the best returns during this period. However, this is not the right way to invest in mutual funds. The popular saying goes – that one shoe does not fit all. The fund that might be the right fit for you is not necessarily the right option for another investor. So when investing in mutual funds, it is necessary to determine your investment objective

The right way to invest- Find the mutual fund that will help you meet your investment goals

Now, the way to go about investing is to find a fund that is in sync with your investment goals. And you can find that by answering 2 questions:

How much risk are you willing to take?

Once you answer these questions, you can understand which mutual fund category is the right fit as per your investment objective. For example, if your investment horizon is only one to three years, then you should invest in debt funds. For such a short time horizon, you should never invest in small or mid-cap funds. You can consider investing in small or mid-cap funds only when your investment horizon is more than seven years. Meanwhile, if your investment horizon is about three to five years, then you should invest in hybrid funds.

Selecting mutual funds as per investment horizon

  • Investment horizon

  • Mutual fund category

  • One to three years

  • Debt funds

  • Three to five years

  • Hybrid funds

  • More than seven years

Equity Funds

Experts often suggest you should invest in equity mutual funds only when your investment horizon is more than five years.

Now after you have already selected the mutual fund category as per your investment horizon and risk appetite, here you might ponder how do I choose the fund that is suitable for your investment?

Here are the 3 things to check while selecting a mutual fund

#Number 1:

Downside protection: For this, the first thing that you need to check is the fund’s downside protection. For example, let’s suppose that returns for a particular fund are 25 percent in the first year. But, in the second year, its returns are -30 percent. So, this fund is not suitable for investment as it does not have the downside protection.

#Number 2:

Return consistency: Second, check whether the fund’s returns are consistent or not. For example, the return for a particular fund in the first year is 9 percent. In the second year, it’s 9.5 percent. And in the third year, the returns are 10 percent.

Meanwhile, for another fund, the first-year returns were 12 percent, and the second year’s return was 1 percent. And for the third year, it provided a return of 5.5 percent. Among the two funds, the first fund is better than the second, as its return consistency is better.

#Number 3:

Fund Manager: Third, check which fund manager responsible for the particular fund is. A good fund manager can turn the worst-performing mutual fund into the best-performing fund.

The fund manager plays a key role in how your mutual fund is performing, as he/she is the point person to decide on which stocks or securities to invest and how to distribute the money for a particular mutual fund.

If the fund manager is good, then that particular fund will do well. However, if the fund manager is not that efficient, then the fund might not perform that well in the future.

If you exercise these cautions while selecting a mutual fund, the funds that are the right fit for you will be easier to select, and you call them the best mutual funds for you.

Bottom line:

Instead of chasing the illusion of the best mutual fund, the right investment approach is to look for the right fund as per your investment requirement. And if we revolve our research around the fact that has been discussed above, then selecting the right fund is not a tedious task at all.

Now that you know all about this effective investment tool, download the ETMONEY app to start investing in mutual funds as per your investment objective.

Available on both IOS and AndroidTry Pluto Money Today 👇
Author
Team Pluto
Have a question?
Digital GoldInvest in 24K Gold with Zero making ChargesLearn More
Digital SilverInvest in silver with Zero making ChargesLearn More
Pluto FixedEarn from 11% to 14% Returns annually in a fixed lock-in periodLearn More