There’s no one-fits-all solution when it comes to mutual funds, and you must choose the most suitable one depending on your objective, risk appetite, and time horizon.

To avoid falling into a bad choice trap, here are some key factors to consider before choosing a mutual fund:

Investment Objective

What are you hoping to achieve through this investment? Do you wish to purchase a new house or a car? Are you saving for a vacation abroad or your child’s education?

Clarity on your end goal can help you make an informed choice. It will also keep you motivated to stay invested till you achieve those goals.

Time Horizon

Time horizon refers to the amount of time you wish to keep your money invested in a fund scheme.

It could be as short as a day or as long as ten years. Different schemes work best for different time horizons. An ideal time horizon to earn profits is three to five years as the markets can be volatile in the short term.

Risk Factor

As with all other investments, mutual funds come with their risks. Before choosing a scheme or a category, analyze the associated risk and see if you can afford to take that risk on your investment.

The riskier a fund, the more is its potential for higher returns. However, this is just a simplified view and not a comprehensive measure of profit. If a fund can justify the risk and give you the kind of returns you desire, it is suitable for you.

Performance Consistency

Check the fund’s downside protection and performance consistency. For instance, a particular fund may provide a +25 percent return in the first year and a -30 percent return in the year after. It’s not recommended to invest in such funds as there’s no downside protection.

Similarly, a particular fund may provide a 10 percent return in the first year, 2 percent in the second, and 6 percent in the third year, which is not consistent. A good mutual fund is the one that can consistently generate decent returns both in good and bad markets.

Fund Manager

Check the performance of the fund manager responsible before investing. Take their experience into consideration. A good fund manager is the one who can transform a bad-performing mutual fund into one that offers good returns consistently.

They play a crucial role in fund performance as they are the ones who take the call on which instruments to invest in, along with important decisions on fund allocations.

Expense Ratio

An expense ratio refers to the fee charged by an AMC (Asset Management Company) or the fund house to manage your investments.

As an investor, you need to target funds with a lower expense ratio to improve your returns. A percentage separately can seem like a small detail, but it can put a sizable dent in your profitability when calculated over your complete investment portfolio.

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It can be overwhelming given the available options to invest in mutual funds. However, with the right kind of research, it can be simplified and hassle-free.

Download the My Money App and start investing in mutual funds and ace your financial planning today!