How to choose a Mutual Fund

How to choose a Mutual Fund

Based on the investment plan, the category of funds should be chosen from debt, equity or hybrid category. Within a category the right scheme can be selected based on criteria such as past performance of the scheme, comparison with peer set and benchmark, volatility measures and risk adjusted performance of the scheme, scheme size, expense ratio of the scheme etc.
There are some vital parameters for choose a Mutual Fund are mentioned below:
Consistency is key
Risk-return trade-off
Portfolio diversification
Don't just judge a fund by its NAV only
Expense ratio
Suggestions


Never put all your eggs in one basket, to avoid losing them all at a time. That is why it is important to adopt diversification in an investment wealth building strategy to reduce any likely risk that can negatively affect your investments.

One should diversify the investments between a few funds (the actual number depends entirely on the amount of investment). This strategy ensures that the portfolio is not dependent on the performance of one single fund. However, one needs to avoid over-diversification as that would achieve nothing.

Investor can also plan like one mutual fund of diversified equity plan, second mutual fund of balanced type and third one you can plan of debt type etc. In this manner the money will get diversified, risk is reduced and the investor will get excellent profit. For Example: Rs 20,000 per month, it would be wise to opt for a maximum of three funds. Consider well rated large-cap funds, midcap funds and a balanced fund. The latter would provide the debt component and reduce the portfolio's downside risk.

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