How to choose the right mutual fund - Five Essential Tips

Posted by Shaheen Shaikh on April 28th, 2018

Today, everyone is investing in mutual funds, as it has been one of the most popular investment options. This investment is not only prudent but also easy along with offering quick liquidity. However, before you decide on investing in the mutual funds, it is necessary to consider a few things for your benefits only. There are around 5,500 mutual funds so selecting the right mutual fund is not an easy task.

Here are a few tips, which will be useful for you to shortlist the best mutual fund plans for you.

  1. Be clear in your investment objective-

The first and most important thing to do is to identify the motive behind your investment in mutual fund.  You should be able to define your goals such as; do you want it for buying a car or a house, or saving for the future? Or if you are looking for a steady and regular flow of income then you can go for the monthly income plan. If you aim to save tax then ELSS can be the best option. Setting goals helps you to be on the right track and makes your way easy to reach your desired goal or the target. You should also understand the direct and indirect investment.  It is very important to have a clear objective because on that basis you can select the plan, which suits you the best.  

  1. Risk assessment-

The mutual fund investment runs on share market conditions so, you need to be ready to bear risk as well. Every investment in a mutual fund comes with a risk. So, the returns are also not guaranteed. Before investing, it is mandatory to do risk profiling for understanding. You will come to know that how much risk you can handle. You must know your risk appetite is it, low, moderate or high. Always invest considering your risk appetite.

  1. Make sure that you know everything about the fund house-

When we decide to invest money, we give all the rights to the fund house to manage your invested money on your behalf. We expect that the fund house will take proper care of our investment. This is because, whatever decisions taken by the fund house will be taking us to our goal. If the fund house doesn’t meet our expectations and fails in managing it, then we will lose everything. So, knowing your fund house thoroughly is very important. You also need to ask a few questions to the fund house to clarify all your doubts.  

  1. Fund manager’s tenure and his experience-

Remember that fund manager plays a vital role in the fund’s performance. The fund manager is the ultimate decision maker so his experience and views matter a lot. You need to know what his records are.

  1. Tax rebate-

Mutual fund tax liabilities are usually based on short and long term capital gains just like stocks and bonds. You should consider some important aspects such as is the invested amount tax-free, are the returns tax exempted? In some cases you cannot withdraw your money before 3 years which comes under 80C. So, know the lock-in period too before you invest.

It is important to introspect, analyze and then decide before you put your hard-earned money in any investment.  These tips will help you in choosing the right and the best mutual fund for you.

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Shaheen Shaikh

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Shaheen Shaikh
Joined: April 28th, 2018
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