Building a mutual funds (MF) portfolio is a lot like building a house. There is no one way to do it. Every investor in the market will have their unique investment goals, approach, and strategies to arrive at the right mix. And yet, certain common factors can help determine the right portfolio composition for investors of all profiles.

To select the best schemes that meet your objectives, consider the following parameters.

1. Investment goal

Perhaps this is the most important factor to consider when choosing the best MF schemes. Ask yourself why you’re investing in a fund at all. Is it to build a healthy post-retirement corpus? Is it to fund your wedding some years down the line? Or do you want to be able to afford your dream home’s down payment? Having clarity on your investment goals is the first step towards picking the right mutual fund schemes.

2. Time horizon

Depending upon your investment goal(s), you will need to stay invested for certain duration. For instance, an overseas trip planned in the next two years is a short-term goal, whereas retirement planning is a long-term goal. Determine the right investment horizon to choose the top mutual fund investments that will help you meet your goals. In the above example, equity funds would promise higher returns over the long term while a debt-heavy fund would be able to meet your short-term needs better.

Additional Read: What is the Best Time to Invest in Mutual Funds?

3. Risk tolerance

Your risk profile is as much about the amount of risk you’re willing to take as it is about the previous two factors. If your investment goal, for instance, is retirement planning, which is a long-term goal, you may not be able to generate high returns if you play it safe with debt funds. At the other end of the spectrum, if you push your luck by aggressively investing in equity funds for a short-term goal, you risk losing money to market turbulence. Thus, your risk appetite is an important factor to consider for choosing the bestmutual fundsto invest in.

4. Tax optimisation

As per Indian tax laws, all gains on mutual funds are taxable. The applicable tax rate depends upon the holding period of the fund. For tax planning, consider investing in Equity Linked Savings Schemes (ELSS), where investors are tax-exempt for investments up to Rs. 1.5 lakhs, as prescribed under Section 80 C of the 1961 Income Tax Act.

5. Consistency of fund performance

Regardless of your investment goals, time frame, risk profile, and tax considerations, you must monitor fund performance over the long term. Monitor if the fund has been consistently outperforming the benchmark. Moreover, you cannot assess a fund in isolation. Shortlist a few peer funds and then run a comparison. Ebbs and flows are inherent to the market, but look for consistency over the long term to make the right choice.

Additional Read: What is the Best Time to Invest in Mutual Funds?

Bottom line

If you need help choosing the best mutual funds online to build a rewarding portfolio, get Tata Capital’s Moneyfy app! Since goals are where you must start, the app offers you the feature of goal-based investing. Simply choose your goal and enter the goal value along with the expected time period, and you can instantly view the SIP or the lump sum amount you need to invest.

Start building your MF portfolio with Tata Capital Moneyfy today!

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