There is no ‘one size fits all’ when it comes to mutual funds. A mutual fund that is best for you may not be the right fit for others. It is a thumb rule that you must remember while going for your mutual fund investments.
We all want our mutual fund investments to give good returns and proliferate. And in this endeavour, we try to look for the most suited mutual funds while investing. Choosing the right mutual funds investment plans is like selecting the right partner that agrees best to your financial ambitions.
Whether it is selecting a mutual fund plan for your kid’s higher education, medical treatment, or wedding expenses, you must make sure to pick the right mutual fund plan that meets the investment goals that you have fixed for yourself.
So, let’s find out how you can select the best mutual fund investment plan in 2020 –
Identify the Financial Goal
For selecting the right mutual fund, it is quite helpful to be sure about the duration of your investment. There are more than 1,500 mutual funds available in the market. So, before investing your money, it is essential to know your financial goal. The different kinds of mutual funds can fulfil different needs. For example, an investor with retirement goals would prefer to invest in a long-term plan. And, an investor who wants to buy any property should invest in a short-term project.
Total Expense Ratio
Keeping track of the total expense ratio is essential as it is the charge which investors need to shell out as a payment initiated towards the administration of the particular mutual fund investment plan—the maximum expense ratio ranges from 2% to 2.25%. So, you must choose your funds wisely.
When you want to invest in a mutual funds plan, it’s necessary to have some expert management. Some mutual funds are managed actively, and some are managed passively. But before finalising a plan, it’s essential to determine how you will manage your fund. While forming a good portfolio, many managers do a critical research procedure to evaluate and analyse various sectors, economic trends, and companies. The fund manager should have a deep understanding of the market movements to obtain sufficient returns.
It’s essential to check the fund’s downside protection. For example, let’s suppose that returns for a particular mutual fund are 25% in the first year. But, its returns are -30% in the second year. So, this mutual fund is not fit for investment as it does not have the downside security.
Annualised performance of the scheme
Annualised performance of 1-year, 3-year and 5-years can help you in tracking your actual returns irrespective of the market volatility conditions. So, it’s suggested to always go for a consistent performer that will assist you in generating regular returns.
Performance Rankings of Mutual Fund
It is quite challenging for an investor to choose the right mutual fund plan based on performance rankings. Generally, mutual funds are listed based on various factors with the highest weightage to low weightage in returns. Do thorough research and check the orders of CRISIL before you settle for a mutual funds investment plan. You can also analyse your chosen funds with its peers in the same category. The rankings of your chosen funds can also be tracked using the factsheets of your selected mutual fund company.
It is essential to check whether the fund’s returns are consistent or not. For example, the return for a particular mutual fund in the first year is 9%, in the second year, it’s 9.5%, and in the third year, it’s 10%. Meanwhile, for another mutual fund, the first-year returns are 12%, the second year’s return is 1%, and in the third year, it’s 5.5%. So, among the two funds, the first fund is better than the second one, as its return consistency is more beneficial.
The points discussed above will be helpful for you in settling for the best mutual fund. So, please read it carefully before picking the right mutual fund scheme for yourself. Also, keep a consistent track record of your chosen mutual fund plan and do thorough research before deciding on the right mutual fund.