How To?

How to choose the best mutual fund to invest in 2022

Personal Finance

There are multiple types of the mutual fundMutual funds can be differentiated based on their underlying assets. So, there are equity mutual funds, debt mutual funds, and hybrid funds. Every mutual fund has a different risk profile and investment objective. But no one can be the best mutual fund to invest in for everyone. The selection of the best mutual fund is dependent on your risk profile, investment objectives, and financial goals. There are multiple sub-categories within every mutual fund. These can be small-cap, mid-cap, or large-cap funds. You could have more than one financial goal that you can meet by investing in mutual funds. Equity mutual funds are more volatile but riskier as well. In comparison, debt mutual funds are less volatile but may not be ideal in terms of substantial corpus growth.

Let us learn about the best mutual funds to invest in. 

How To Select The Best Mutual Funds To Invest? 

You may be interested in knowing about the best mutual funds to invest in. In this section, we will discover some of the factors that are useful in determining the right options. 

Your Investment Objectives 

An investment must be made in line with your financial goals. Investing in a mutual fund should be done after considering your life goals. You may want to grow your wealth by investing in mutual funds. Or, you may want to purchase an asset or meet a life goal. For long-term wealth creation, an equity mutual fund may be best. Equity mutual funds can generate higher returns as compared to debt mutual funds. It is best to make a meaningful selection of mutual funds. You should do so after studying its asset allocation and growth prospects. 

History of the Fund 

The history of a mutual fund helps to understand its performance over time. You can understand the times during which it rises and undergoes correction. You can check the resilience of the fund during times of market volatility. A mutual fund that was launched recently does not have a track record. So, it can be difficult to predict its returns and performance at different times in different market cycles. The best mutual funds to invest in are those with a long track record. It helps to understand whether they offer consistent returns over time. Checking such fund histories also gives proof of investment strategies. 

Expense Ratio 

A fund management house charges various fees for managing an asset. It is collectively known as the expense ratio. It is represented as a percentage of the fund’s assets. As an investor, your net return is defined as returns less expense ratio. If the expense ratio is too high, the net returns to an investor will be quite low. So it is best to look for a scheme that does not involve a high expense ratio. You must compare multiple options to check which is the best among the peers in a different class of mutual funds. 

Performance Of Fund Manager 

The real mind behind mutual funds is fund managers. They are the people responsible for managing the performance of a mutual fund. To select the best mutual funds to invest in, you must check the track record of the fund manager. It is very important to check the performance of the fund manager at the time of a rise or a correction in the market. You can also check the performance of different schemes that are managed by the same fund manager. 

Consistency of the fund

Some of the best types of mutual funds in India have a proven track record of good performance. In general, they consistently outperform the market in the long run. This could be a time frame between three and five years. If you check their peers, you will discover that the best ones outperform them. It is best to check the performance of these types of mutual funds across multiple business cycles. Also, check the performance of the fund during market downturns. Usually, a typical market fluctuation will have a less-than-average impact on the performance of a well-performing fund. But remember that the past performance of a fund is not always a guarantee of its future performance.

Check The Financial Ratios 

Several financial ratios, such as alpha and beta, help identify the best types of the mutual fund. There is always a link between the returns of a mutual fund and the associated risks. If there is an increase in the overall value of the corpus invested in a mutual fund, then you can expect to draw a return from the fund. Risk is the uncertainty that surrounds a mutual fund. It refers to the possibility that you may not be able to draw any returns from an investment in a mutual fund. Or you could also expect negative returns from your investments. So, it is essential to study the risk and return potential of mutual funds. Financial ratios are an essential tool for conducting such an analysisFor this purpose, Sharpe and alpha ratios are used widely. 

In Conclusion 

There are multiple types of mutual funds that you can invest in. Each day, the available options for investing in mutual funds are expanding. However, before placing your hard-earned money in any mutual fund, it is essential to check whether it is worthy of investment. The factors listed above should provide a checklist for assessing the best mutual funds. For more information about the best mutual funds, check out Piramal Finance. It is a leading platform where you can get all the financial information that you require to assess a mutual fund. Further, you can also use the information to make an informed decision about your investments.