How to choose best mutual funds schemes

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mutual fund

 With a plethora of  Mutual Fund schemes to choose from, arriving at a decision of ‘which one to pick’ can seem to be difficult. However, after having decided to invest in Mutual Funds, selecting the funds is just a case of conducting your own due diligence, which is reasonably easy to do if you follow a structured approach.

Ideally, you should be aware of your risk tolerance and also your goals, objectives and the duration  within which you would want to reach your goals in.

 

Time Frame Mutual Fund  Type
Up to 1 Year Liquid & Ultra Short duration Funds
2-3 years Short duration funds
3-5 years Hybrid Funds
5 years & above Equity Funds

 

Mutual Funds offer a ‘complete investment package’ to the investors. The benefits include diversification, flexibility, ease of investment, liquidity and professional management.

  1. Goal or Objective

Any investment should start with the objective in mind. The goal or objective makes the investment journey easier for an investor. The goal should be divided into very short term, short term and long term as per the fund requirement. Also, a risk assessment should include the answer to questions related to  an investor’s capacity to see through market volatility.

For conservative investors, preservation of capital and a moderate return can be the objective.

An investor can have a multitude of goals:

  • Buying a car
  • Funding higher education of children
  • Foreign Holiday
  • Down payment or even purchase of the house
  1. Expense Ratio

Also called Total Expense Ratio (TER), is the cost that an investor is charged for the running of Mutual Fund. It is charged to the Mutual fund investment and the returns are reduced proportionately. For example, if Equity Fund ABC gives a return of 11% this year and its TER is 1.50%, the effective rate of return id 9.5%.

Expense ratio can make a marked difference in the long term and thus a fund with a low expense ratio should definitely be preferred, especially while choosing funds from the same category.

3 .Fund House & management team

There are 44 Fund Houses or Asset Management companies in India offering thousands of best mutual fund schemes to invest in. Thus it becomes imperative for an investor to check the credibility, pedigree and background of the AMC before entrusting it with the management of his/her money.

A Fund Manager or a Fund Management team plays an important role in the success or failure of a Mutual Fund scheme. In case a mutual fund  scheme is being managed by a particular Fund Manager and s/he quits, there can be a change in the style and philosophy of the new Fund Manager which can bring about a material change.

4.Performance

Although past performance is no guarantee for continuous future returns, however it gives you a perspective. Past performance can be used for comparing best mutual fund schemes within the same category and not for different schemes across categories.

Also, if a scheme is appearing as a ‘top performer’ basis its 1 year performance, investors should look for its 3,5 and 10 year performance as well. Newly launched schemes may not make much sense for new investors as they would not be able to analyse them.

5.Portfolio

Understanding the portfolio composition is important and it is not difficult to decipher either. A portfolio tells an investor where is the money being invested. The investor should make a note of the companies, industries with their weightage in the portfolio of the scheme.

Even in the case of Debt funds, there is a need to go through the portfolio composition as there is always a credit risk and interest rate risk.

As recent events in the debt funds markets have shown, investors need to be extra cautious and should invest in funds which invest in highest rated papers only.

With Security and Exchange Board of India (SEBI) issuing guidelines on scheme categorisation it has become simpler and easier for investors to assess mutual funds to suit their requirements.

Some of the best Mutual funds which investors can choose from are listed here:

Now once you have understood about the factors to consider while selecting mutual funds,  you can choose appropriate funds from the best performing funds to invest in, for instance, from  Axis Mutual fund you can choose  Axis Long term equity fund if you are looking for ELSS funds to save tax or select Reliance Liquid Fund from Reliance mutual fund if you are looking for short term investments in a liquid fund. Below is a list of best performing mutual funds in India, based on past performance, that you can choose to invest in.

Best Mutual Fund to invest in

 

Fund Name Category NAV AUM (Cr) Expense Ratio 3 Year 5 Year
Axis Long Term Equity Fund ELSS (Tax Saver) Large Cap 31.12 ₹ 5,745 0.84 13.81% 11.14%
SBI Blue Chip Fund Large Cap 40.106 ₹ 21484` 1.89 7.35% 10.30%
Axis Midcap – Direct Fund Mid Cap 38 ₹ 2819 2.17 12.27% 11.90%
Kotak Emerging Equity Mid Cap 38.14 ₹ 4470 2.04 6.73% 12.96%
HDFC – Small Cap Small Cap 39.206 ₹ 8209 2.10 8.32% 11.33%
L&T emerging business Small Cap 22.72 ₹ 5639 2.02 7.88% 12.78%
Mirae Asset Hybrid Fund Hybrid 14.84 ₹ 2429 2.01 10.04%
SBI Equity Hybrid Fund Hybrid 139.89 ₹ 29354 1.65 9.66% 11.06%
ICICI Prudential Saving Debt 373.55 ₹ 19925 0.5 7.67% 8.24%
SBI Saving Debt 31.285 ₹ 9496 0.23 7.79% 8.36%

 

Disclaimer: This is just a list of well-performing funds based on past performance and not a recommendation. Please invest according to your risk profile and investment objective.