As a mutual fund investor, you want to put your money in top-performing funds. But, how do you pick the schemes that deliver returns over the long term? This guide will help you go beyond short-term performers. Follow these tips to spot the right top performers for your unique portfolio and to draw maximum returns from your chosen fund mix.
1. Start by assessing your investment goals
Your returns are dependent upon the amount of clarity you have regarding your financial goals. Are you investing for a comfortable post-retirement life? Then, your investment horizon is long-term (7 to 10 years). Since equity funds generate high returns in the long run, your top mutual funds should belong to this asset class. If your investment goals are short-term, top-trending debt funds should dominate your portfolio.
Additional Read: How to Choose Mutual Funds for Beginners?
2. Map your investments to your risk profile
Now, if your risk profile is low and your investment horizon is short-term, you can easily direct your attention towards top-trending debt funds. However, what if you want to invest long-term with a low-risk profile? In such a case, don’t quit investing in equity funds! Instead, what you can do is diversify the risk among further classifications under equity funds. For instance – large-cap and multi-cap equity funds carry lower risk when compared to small-cap funds.
3. Check the fund’s return consistency
Yes, you need to check the fund’s past performance against its market benchmark; however, return consistency is key. For example, a fund that has generated 9% profit in the first year, followed by 10% and 12% in consecutive years, is worth investing in. On the other hand, a fund generating 15% profit in the first year, then down to 5% in the second and again 12% in the third, is a red flag.
4. Know the total cost of investing in a fund
The fund you’ve chosen may be top-trending but is it really within your budget? This can only be found by calculating all charges associated with an MF scheme – transaction fees, and exit loads (if applicable), etc.
Additional Read: What Are the Types of Mutual Funds?
5. Fund manager
A good fund manager can supercharge the fund’s performance. Since this person plays a key role in picking the securities for a fund, it’s important that they be experienced with an excellent track record. If the fund manager is inefficient, the fund’s performance will suffer.
Lastly, know about the tax implications of investing in mutual funds. Depending on the type of scheme and holding period, investments attract different tax slabs.
Ready to pick top-trending mutual funds that are also ideal for your investment needs? Start your search on Tata Capital’s Moneyfy app! You can compare fund features and invest in those that match your risk profile, investment horizon, etc. However, if you’re confused, ask for personalised recommendations based on your investment goals. Plus, browse through the top picks of the day to stay on top of the MF market. So, what are you waiting for? Download Moneyfy today!