Mutual funds have steadily turned into one of the safest investment options which can help people tide over the rough terrains of a volatile stock market. It thus comes as no surprise that a lot of investors are increasingly choosing mutual funds as their preferred form of investment destination.
However, considering the sheer number of mutual funds available in the market today, it becomes extremely difficult to pick the one which harbours the capability of meeting all your specific needs and requirements in an optimal way. Should you choose a fund which promises high returns or would a fund with manageable risk profile be a better alternative? Should capital accumulation be the sole criteria for purchasing a fund or would monetary growth be an ideal goal to pursue?
As an investor, if you too have been grappling with such insurmountable dilemmas, here are seven ways to help you identify the best mutual funds:
Investment Objective
To begin with, you should be aware of what your particular investment objective is. Are you buying a fund merely for capital growth or do you want to sponsor your child’s education with it? Once this is clear, you will come across a variety of fund houses which sell different funds catering to distinct and predefined objectives. Pick the one which carries minimum risk while being in line with your intended aim.
Economic Outlook
Based on the current economic outlook, you can make a macro selection of the fund class you want to invest in. For instance, equity funds are known to produce high returns, but they are greatly impacted by the market conditions. Similarly, debt funds are considered to be safe, however, they only tend to provide moderate returns. Therefore, choosing a large cap, a mid-cap, or a small cap fund should entirely depend upon their economic viability.
Fund Rankings
Identifying mutual funds on the basis of their rankings is the most common way to judge their overall potential. Fund rankings provide a detailed and transparent breakup of the various fund characteristics which enable an investor to arrive at a cautious and well-informed decision. Nevertheless, you must ensure that the rankings are coming from a trustworthy source that uses competent and reliable ranking algorithms.
SourceAssets Under Management
The assets under management (AUM) of a mutual fund help depict its market credibility. The higher a fund’s AUM, the greater is the amount of trust which investors impose on that specific fund. By going through the AUMs of different funds, you can zero-in on those particular plans which have maintained a lasting presence overtime and have attracted a diverse set of investments.
Exit Load
Ins simple terms, exit load is the amount of money which is deducted from your total corpus if you withdraw it before the maturity period is over. For some funds, the exit loads are hefty and the withdrawal criteria are stringent. This is why you must compare the exit loads of all the mutual funds and then identify the one which provides a certain level of flexibility and resilience.
Expense Ratio
Most people tend to identify the best mutual funds on the basis of their expected returns. Nevertheless, yield should never be the only measurement yardstick. This is especially so because the expense ratio of the fund eats into the returns and limits them over a longer run. Therefore, when you select a mutual fund, choose the one with a maximum expense ratio of up to 1.5%. Anything beyond that can prove disastrous.
Market Performance
Last but not least, the historical market performance of the mutual funds should be a major factor of consideration while picking out the most competent ones. Do not just check their performance over the last one year. Instead, examine how they have fared in the last three to five years. This will give you a fairer idea of their consistency and their ability to overcome market fluctuations.
Mutual funds, after all, do not only provide the benefits of diversification and professional management, but they also ensure that your short-term and long-term investment outcomes remain productive and profitable.
You can always refer to online platforms like OroWealth which offer best direct mutual funds to help you with your investments.
