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How to Select the Best Mutual Funds Based on Your Investment Goals?

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Mutual funds are one of the most lucrative investment options in the market. They pool money from different investors with a common investment objective. However, selecting the best mutual fund portfolio can be overwhelming, even on the best mutual funds app. You must understand that no specific formula can give you the best mutual fund. It depends on your individual objective, risk appetite, and investment horizon.

How to define your investment goals

The selection of the best mutual fund depends on different factors. A mutual fund best suited for your friend might not be the ideal choice for you. Before selecting a mutual fund, ask yourself these questions.

  • How long do I want to invest for?
  • How much risk am I willing to take?
  • What is my purpose in making this investment?

Your answer to these questions will help you ultimately find the mutual fund app suited to your needs. Suppose your investment horizon is less than three years, and your risk appetite is low. Then, it is better to invest in low-risk funds or debt funds. Similarly, if your investment horizon is more than five years, and you can take a considerable amount of risk, the best mutual funds will be in equity.

What factors should you consider?

Once you have sorted out the funds that match your needs, you can select the mutual fund best suited for your needs on any of the best mutual funds apps available today. Consider these significant factors when choosing the best mutual funds on an investing platform:

  • Consistent returns: Rather than looking for a fund that has given a high return in the last year, look for a fund with consistently high returns over the past few years.
  • Expenses: Every fund charges an annual fee from the investor. The ratio of this fee to the returns derived is known as the expense ratio. Look for funds having an expense ratio of as low as 1.5%.
  • Exit load: In case of premature withdrawal of funds, the investors are charged with a penalty, known as exit load. While selecting the mutual fund best for you, ensure it has a low exit load.
  • Fund manager: The fund manager plays a very crucial role in deciding the performance of the fund. Knowing about their skills and experience is a good practice before selecting the best mutual fund.

Types of mutual funds

To select the best mutual funds, you must also know the different types of funds available for you. These are the different types of mutual funds present in the market.

  • Equity or growth funds: These funds invest in equity stocks. These funds are generally high-risk but also have the potential to provide higher returns. Also called growth funds, these are the best mutual funds for investors with a higher risk appetite and long-term investment horizon who want to grow their wealth.
  • Liquid funds: These are short-term debt funds appropriate for people who have a short investment horizon and want to take lower risks. These funds primarily invest in debt instruments. Hence, they provide a fixed return with less or no risk.
  • Balanced funds: These diversified funds invest in both equity and debt instruments. The diversified portfolio helps reduce the risks while maximizing returns simultaneously. These are the best mutual funds for those looking for better returns than debt mutual funds and willing to take a moderate amount of risk.
  • Hybrid funds: Although they are similar to balanced funds, they invest less in equity and more in debt instruments, making them less risky than balanced funds. They are suitable for people looking for a monthly return yet have a very low risk appetite. These are also known as monthly income plans.
  • Gilt funds: These funds invest only in government securities. Government securities bear no risk and a fixed rate of return which is very low. Gilt funds are best suited for people who do not want to take any risk and can settle for a lower return. These funds are also free from credit risk.

Wrapping up

Selecting the best mutual fund for your needs can be a time-consuming and hectic process. The best mutual funds apps can help you filter and find the right fund tailored to your needs to make this process easy. Even so, knowing your investment goals can give you an edge when investing with the best mutual funds apps out there by sorting out the ideal mutual funds for your portfolio. Consider the consistency of returns, expense ratio, exit load, and the performance record of the fund manager while selecting the best mutual funds.

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