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How to select the right mutual fund scheme

Mutual funds are a great way to invest your money and earn good returns in the future. But at the same time, you also know that mutual funds are subject to market risks. It is possible to lose money when you invest in mutual funds. Every advertisement on TV regarding mutual fund performance mentions this. So, how can you select the right mutual funds for your portfolio to achieve investment success?

Well, let’s find out some of the factors you need to keep in mind before selecting a mutual fund

1) Fund performance
Imagine you have a long-term financial goal like buying a house. You know that you want to invest in equity funds. You may be interested in a particular fund. But is that the right choice for you?
One of the first steps is to look at the mutual fund performance ranking. Look at the past reports of the fund to get a better idea of its performance. However, don’t look only at the recent performance. You need to analyse the fund’s performance over a significant period -so that you have adequate information to aid in decision making. This activity helps you get a snapshot of its past performance but it is important to remember that best mutual fund scheme performance is not the sole criterion to select a fund.

2) Experience level of the fund manager
The fund manager’s role is to ensure a mutual fund meets its financial goals at the right time. And to achieve this goal, a fund manager has to move funds accordingly, between different investing instruments. The fund manager has a very important role in the overall performance of the fund. So, as the investor, you need to take a look at the fund manager’s experience and past performance. You can also take a look at some of the other funds under his control. See how these funds have performed to get a better idea of the best mutual fund scheme to invest.

3) Expense ratio
Expense ratio is the annual fee that is charged on mutual funds. This fee can vary between different kinds of funds. This depends on various factors such as the size of the fund and the category of investment. In addition, the investment strategy can also determine the expense ratio of a fund. For example, passive index funds which require limited investment strategy have lower expense ratios. Expense ratio is an important factor to look at because it can have an impact on your profits. Higher the expense ratio, lower will be your returns.

4) Exit load
Exit load is a fee that is collected by the fund house when an investor leaves the mutual fund scheme. This cost is generally deducted as a fraction of your Net Asset Value (NAV). Compare different fund houses and identify which of them offer lower exit loads. This can help you retain a significant portion of your earnings at the time you leave the fund.

The last word

There are thousands of mutual funds in the market. Identifying the right fund for your portfolio is an important task in order to select the best mutual fund scheme for sip. By looking at the above factors, you can select any or a number of the best 10 mutual fund scheme that can help you maximize your returns in the long run.

A number of useful resources are available that can help you to choose the right mutual fund. If you need in-depth guidance and assistance in selecting the right fund according to your risk appetite, you can opt for the expert services of a financial advisor. It is crucial to be restrained, reasonable and stay away from being influenced by short-term price fluctuations in the market. At the end of the day, it is essential to remember your financial objectives and the ultimate goal to build wealth in the end.

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.