Finance

How to Identify the Best Mutual Funds to Invest in?

One of the most preferred choices among current investors is Mutual Funds owing to their lucrative returns and diversified portfolio. However, it is essential to know that no single scheme or set of schemes is suitable for everyone, and the one that suits an individual’s investment objective and risk appetite is the best mutual funds scheme.Β 

Known as one the most effective methods for long-term wealth creation, it is very important to know the best performing mutual funds. But to know this, there are certain factors one needs to identify before investing hard-earned money.

Here are the top four factors on how to identify the best mutual funds to invest in – 

Identify your goals

The first and foremost step you need to figure out is to jot down all your financial goals. Next, don’t forget to calculate the real value of your goals. The real value of goals can mean their current rate plus inflation over the investing period. Further finally, you can then categorize or divide your goals into short, medium and long-term goals. 

Identify your risk

Different mutual funds come with different degrees of risk. Therefore, notably, your risk appetite can largely influence your mutual fund investment choices. So, when you search for the ‘best mutual fund to invest today‘ on your search engine, ensure you do the proper research and accurately assess your risk appetite to arrive at the correct asset allocation for your portfolio. To simply understand, it means the risk you can take as an investor.

The right asset allocation

Another important factor before opting for the best performing mutual funds is asset allocation. This basically means how much of your hard-earned money you can allocate to which types of mutual funds to meet your financial goals, duly considering your risk appetite. 

Performance of fund

Fund performance matters and should be considered for a reasonable time frame. So, it is essential to know that if the fund has not been able to beat its benchmark over three, five, or, say, ten years, it is reasonable to understand that it might not be a good investment. 

Taxes

The returns from your investment are taxable as per the Income Tax Act. When you redeem the equity funds, the returns are taxable as per the holding period. 

  • Equity funds – Long Term Capital Gains (holding one year and above) are taxed at 10% over and above the exemption limit of Rs 1 Lakh. Short Term Capital Gains (holding less than one year) are taxed at 15%.
  • Debt funds – Indexation benefit is available for capital gains realized.
  • Financial Advice

Don’t be afraid to seek advice from professional financial advisors. For example, when I was also planning to invest in the best mutual funds, I first talked to one of my friends in the same profession. Not only do they help you choose funds that are suitable for your financial goals, but they also analyze every factor. 

When mutual funds were introduced in India, there was a lack of awareness, following which people walked on the regular route. However, several platforms now provide the necessary resources and even the option to invest in the best performing mutual funds

In my case, I had invested in mutual funds for my elder daughter’s higher education. I planned it in such a manner that I got my returns (which luckily were positive) just before one month of her college so that I could plan it accordingly. 

So, remember, mutual funds are one of the best investments to create long term wealth but it is very important to keep certain factors in mind to identify which fund you should choose. 

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