A practical guide to choose the ‘right’ mutual fund


In the intricate tapestry of India’s mutual fund market, choosing the best mutual fund might feel like navigating a maze. Amid the myriad of options available, Amit is determined to select the ideal mutual fund tailored to his financial goals.


Equipped with a clear understanding of his investment objectives, risk appetite, and time horizon, Amit opts to use the ‘Fund Selector’ on the homepage of ‘Value Research Online’ to identify the right fund.


So, let’s join Amit on this exciting expedition.


Select the right category of mutual funds

Amit wants to build wealth for retirement, and recognizes the need for a reliable and relatively-safe type of mutual fund.


After thorough research and introspection, he decides to focus on the large-cap fund category. Why? Because he prefers stability, lower volatility, and consistent returns – something that large-cap funds typically offer.


What you should know

In the vast expanse of India’s mutual fund landscape, selecting the right category is crucial. Investors encounter a variety of equity funds, each with a unique approach. Choices span from large-cap to small-cap, multi-cap, sector-specific, and thematic funds.


The challenge lies in identifying the category that matches your financial goals, risk appetite, and investment horizon. For instance, let’s assume you were looking for a more aggressive option and had a five-year investment horizon, we’d suggest looking at a flexi-cap fund.


Check the star rating of the mutual funds

Amit discovers there are approximately 152 large-cap funds available in the ‘direct’ category. (For the uninitiated, if you are buying funds on your own, opt for direct plans. Here’s why).


Coming back to Amit, he is clearly frustrated. For good reason too. It’s not easy to choose a fund when there are multiple options.


This is where ‘Value Research Ratings’ comes to his rescue. (By now, you must be smiling at our blatant pitch, but it’s true. In fact, our mutual fund ratings are used by leading media outlets and fintechs).


Amit uses the ‘VR Ratings’ to remove all funds that are rated 2 stars and below. By doing this, he narrows down his options to a more manageable 42 funds.


Also, by eliminating the poor funds, he now has access to funds with a proven track record of strong performance, solid management, and robust portfolio composition.


What you should know

‘Value Research Ratings’ evaluates funds based on quantitative factors.


Compare returns of funds

Having successfully narrowed down his large-cap fund options to 42 high-rated contenders, Amit compares their returns to make an informed investment decision. As a long-term investor, he is keen to know which funds are more consistent in the long run.


To accomplish this, Amit selects ‘Long-term’ in the ‘Returns’ tab, focusing on the five-year performance of each fund.


With the five-year returns data at his disposal, Amit makes a list of the ten best large-cap funds!


What you should know

Past performance is not a guaranteed indicator of future results. But it does tell you each fund’s long-term track record, which is important.


Check expense ratio and exit load

Amit, now armed with a shortlist of 10 promising mutual funds, delves deeper into the ‘Fees and Details’ section to examine the expense ratio and exit load. This is a smart move because why should he pay unnecessary fees to a mutual fund.


What you should know

Expense ratio and exit loads are fees charged by a mutual fund for various reasons. Hence, the lower the better.


But please remember that though this is an important factor, you should not base your fund-selection decision on this criterion alone.


Final check

To complete his selection process, Amit refers to the ‘VR Opinion’ available in the ‘Snapshot’ tab.


These opinions, provided by Value Research’s analysts, assess mutual funds based on several parameters, including risk-adjusted performance, portfolio diversification, and fund manager’s track record.


Backed by expert insights, he finds The One large-cap fund that suits him best!


By following these four steps on our platform, Amit has laid a solid foundation for his investment journey, increasing the likelihood of achieving his long-term financial goals.


The last word

Selecting the right mutual fund is no rocket science, as you just saw for yourself.


All you need to do is explore our platform to find the right fund for you. You can Get Started now.


Source – Valueresearchonline


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