As an investor, you are most likely to look for options that will provide you with good returns and faster growth. Hence, it is essential to look for top-performing mutual funds at the time of investing. Usually, people make the mistake of picking funds that only provide good returns. But in practice funds that provide good returns are not always the safe option. It can eventually cause you to lose money on your investments.
Systematic investment plans offer a smart and hassle-free mode for investing in small amounts. It allows the investor to purchase small units according to their risk appetite and investment capacity. Here one can invest in a predetermined amount at regular intervals. Investing in top performing mutual funds in India 2020 through SIP schemes also helps in developing a disciplined investment habit for the future. Most importantly mutual fund investors get to leverage on rupee cost averaging and wealth compounding.
The idea of finding the best performing mutual funds India does not hold in real-world circumstances. This is primarily because high-performing mutual funds do not guarantee high returns in the long run. In a similar fashion low performing funds might shoot up due to the changing dynamics of the market. Retail investors often incur huge losses in the process of picking high-performance funds. It also prevents them from achieving their financial objectives.
Usually, retail investors look for high returns from their investments within three years. They also plan their investments accordingly to ensure maximum profits within the period. However, this approach is not always beneficial for investing in top performing mutual funds in India 2021. While dealing in mutual funds there is no one size fits all solution. You must always pick funds according to your financial objective and investment horizon.
How to select the right fund as per your investment objective
It is always important to find funds that perfectly fit your financial goals. Here are the two most important factors are the duration of investment and your risk appetite.
Once you are aware of these two factors you will be able to pick mutual fund categories that fit perfectly with your objective. If you plan to invest for the next 3 years then you must invest in debt funds. For shorter durations avoid investing in midcap or small-cap funds. Investing in small-cap funds is suitable only when your investment duration is longer than 7. Similarly, if you wish to invest for 5 years then it is best to go with hybrid funds.
According to expert recommendations equity mutual funds are suitable for those with a 5 year investment period. Always choose a mutual fund as per your investment period and risk appetite. Avoid opting for plans that lack variety as it increases the chances of losing your capital investment.
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List of Things to Check at the Time of Choosing a Mutual Fund
- Return Consistency
Always check whether the returns from the fund are consistent before investing. For example, if a particular fund is offering a return of 7% in the first year, 7.5% in the second year, and 9% in the third year. Another fund may offer an 11% return in the first year, 1% in the second year, and 5.5 % in the third year. The first fund offers better consistency than the second.
- Downside Protection
Downside protection is another important aspect of fund selection. Let us consider a fund that offers a 24% return in the first year. But in the second year, the return falls to -30%. Such type of funds is not suitable for investment as it does not have downside protection.
If you are conscious of these factors at you will be able to invest in high-performing funds that perfectly fit your requirements. These will be the best-suited mutual fund for your financial objective.
Avoid looking for the best mutual funds simply based on the returns. Try and develop the right investment strategy as per your needs and investment goals. If follow the above-mentioned factors the task of selecting the right fund will not be much of a hassle.
- Fees and Additional Charges
Mutual fund agencies charge investors a fee for offering their services. It is crucial to be aware of the charges associated with mutual fund transactions. The sales fee for purchasing a fund is defined as load. Investors require paying a load while purchasing or selling a fund. It also restricts investors from frequent buying and selling of assets. Usually the load is charged at 3-6% of the total investment. The fees vary depending on the type of fund or broker. The annual fee deducted from the holdings is termed a level-load fee. As an investor, you must be aware of the various charges to calculate the returns at the end of the year.
- Fund Manager
Always keep an eye on the fund manager behind a particular fund. top 10 mutual fund advisor in India can turn even the worst-performing fund into a profitable proposition. They are responsible for determining the performance of a specific security. He or she will help you in distributing your money across different stocks and sectors. Experienced fund managers can predict the performance of a stock over a period. If the fund manager is not efficient then your funds might not give you significant returns in the future.
Over time investors have realized that mutual funds offer considerably higher returns in comparison to traditional investment tools. Now investors are aware of the fact that diversification, strict regulations, professional management, and tax efficiency are crucial for success in the mutual fund market. It also helps in protecting against sudden market fluctuations.
Investors must prepare themselves before investing in mutual funds. Knowledge of investment objectives, investment period, and risk-bearing ability is necessary. Factors like age, annual income, commitments influence the risk appetite of an individual. Aggressive investors continue to keep the assets invested in the market without bothering about the fluctuations. They can stay in the market for a long and eventually make substantial profits on their investments. Similarly, young salaried individuals with minimal financial commitments are prominent examples of aggressive investors. Moderate investors are aware of the marketplace but still invest in long-term schemes. Conservative investors always look for money-making opportunities without the risk of losing the principal investment. Currently, the market is filled with a host of schemes and models that allow investors to create a diversified portfolio.
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