Here's How You choose Mutual Funds in India

Here's How You choose Mutual Funds in India

The selection of mutual funds can be based on many parameters such as return expectation, risk tolerance, investment time horizon, and others. The investor's side. An asset can be mapped using parameters such as past performance, expense ratio, fund manager experience, assets under administration, etc. Once you're done with your research, it will be clear where you want to invest.

These are the main considerations when choosing the right mutual fund for you to invest in.

Your Goals Regarding Mutual Funds

Your goal should be to invest in mutual funds. This includes your target date, time frame, and expected return. Without a clear goal, it is easy to forget about your investment and decide to exit, stop, or exit.

You can set short-term goals like buying utility goods, making a down payment on a house, or taking a vacation abroad. Or you can set long-term goals like saving for retirement or paying for a college education.

You will be able to choose the right mutual fund type based on your reasons for investing in the mutual fund. This could be debt mutual funds, equity mutual funds, or hybrid mutual funds. Some investors may want to increase capital appreciation, while others might be looking for tax savings. Your fund selection will depend on what you want and may vary depending on your goals.

It is possible to separate your short-term and long-term goals, and then choose the right funds based upon the time horizon for you to make a call.

The Risk Involved In Mutual Funds

Uncertainty about what you're getting into can lead to risk. The investor must evaluate the risks associated with mutual funds before deciding on one.

The volatility of equity mutual fund investments can cause portfolio fluctuations. The returns are often higher than those of other types funds, however. These funds might be suitable for aggressive investors who have a long-term view.

Debt mutual funds, however, are more stable but offer lower returns than equity funds. These funds might be more suitable for those investors who are conservative in Nature. To determine which category you fall within based on your time horizon, risk profile and to help you choose the right mutual fund for you, please refer to the table below.

The Liquidity

An investor must be able to determine when the corpus is needed.

It is best to not invest in equity mutual funds if the money will be needed soon.

Only invest in equity mutual funds if you have the money available to put aside for a reasonable amount of time and not worry about market fluctuations. This is important as compounding works best if money is not left alone for a long time. If you need to raise money quickly, liquid funds are the best option.

The Strategy of Investment 

This is a critical aspect of investing in mutual fund funds that most investors overlook. However, it plays a vital role in your investment portfolio's success. The fund house's investment strategy, also known as the "investment approach", is the way they make all investments and hold all of the holdings. If the fund house's investment strategy is not consistent with your investment philosophy, then there will be a conflict of interests that could result in you having to sell your investments at unfavorable prices.

The Performance Of Funds

Performance of funds is important, but not in a short-term view of six to twelve months or one or two years. You should consider it for a reasonable period of time. This is to ensure consistent returns and market cycles have passed through the fund investments. If the benchmark has not been met over the past three, five, seven or ten years, it's reasonable to suspect that the fund may not be a good investment for the future. It is crucial to review the performance details of the fund manager and the fund management team when evaluating a fund’s performance. Investors would benefit from a stable, reliable, and experienced Fund Management Team with a track record of success and a reasonable tenure.

The Ratio of expenses

The expense ratio refers to the amount of commission or fee that investors pay for investment management. This is the fee paid by fund managers to ensure that investors make a profit on their investments. Investors should target mutual funds with a lower expense ratio. Although the percentage may seem small, when added up across your entire investment portfolio it can have a significant impact. The expense ratio is a derivative from Assets Under Management. It is thought that the AUM is related to the expense ratio.

The Entry and exit Loads 

Fund houses charge investors an entry load to allow them to invest in their mutual funds. Exit load is the fee that fund houses charge investors to exit a mutual fund scheme. Most fund houses have removed the entry load, but the exit load is still there. Although exit load may be subject to certain conditions, it will only be charged if an investor withdraws from a mutual scheme prior to a specified limit.

You should look for mutual funds that have minimal entry or exit fees as an investor.


Before investing in mutual funds, investors need to be aware of tax considerations. Mutual funds can be a very efficient investment vehicle in terms of post-tax returns. The returns generated by equity fund units when they are redeemed are subject to tax based on the period of their holdings and the applicable tax rate.

Long Term Capital Gains is a good option for equity funds Taxes on a holding period of 12 months or more are subject to 10% tax, over and beyond the exemption limit of 1 Lakh.

Short-term capital gains (holding period less than 12 months) are subject to 15% tax.

Indexation benefits are available for capital gains in Debt funds.

These funds are considered long-term if they have a 36 month or longer holding period. A holding period of less than 36 months will be considered short-term and the income of investors is added to it for tax calculation. Before you make a call, be sure to consider the tax implications of the fund category that you are interested in investing in.

The Direct Plans

A mutual fund scheme can have either a regular or direct plan. There are two types of mutual fund plans: regular and direct. In the former, investors can buy the required NAV units directly from the asset management company, while in the latter case the units must be purchased through a broker or commissioner. The main difference between regular and direct Mutual Funds is the higher returns that direct Mutual Funds usually generate. There are no brokerage fees.

The commission ranges from 1-1.25% depending on the brokerage firm and asset management company. For regular Mutual Funds, the Asset Management Company (AMC), pays commission to the brokerage company for growing their clientele. This reduces the principal investment amount and reduces total returns. It is obvious that the expense ratios for direct mutual funds are lower than regular funds. This is because direct mutual funds don't have brokerage costs.

In India, mutual funds were only introduced earlier in the year. It was difficult to go the regular route due to the lack of information on the subject. There are now many platforms that provide the resources you need to make your own investment decisions.

To Summerize

The selection of a mutual fund is critical to the success of your investment portfolio. It also helps you achieve set goals and objectives. There are so many options available, it's easy to get lost and end up in a confusing situation. It is important to keep all relevant factors in your mind and map the target investment across them before you make the final decision.

Best wishes for Investing and Good Luck for the Future!

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