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Which is the Best Mutual Fund?
People who are new to mutual fund investments world usually ask- “Please tell me best 2 or 3 Mutual Funds for SIP or Lumpsum Investment for so & so time duration”.
That is a complicated question to answer in a moment. As without knowing your demand and requirements how can we decide which fund is best for you?
Fund flexibility depends upon your demands. The best scheme may vary from person to person. Let’s take an example to make this understand more clear. Think you to a car showroom to buy a new car. You will simply ask the salesperson which is the best car. He will ask about your budget, your requirement features like Front and Rear Power Windows, Driver, Central Locking etc, usage for long drives or not and many more. So this sums up that various factors will decide which is the best car for you. The same situation applies to a mutual fund, which mutual fund is best for you will depend on your requirements.
4 factors which will define investors requirements
These factors are the perfect answer to for every investor who asked: “TELL ME BEST FUND”
Time Horizon
Time horizon is the greatest factor that can normally decide the investor’s requirements. Mutual fund investors usually invest in short-term period or long period. Mutual funds schemes are created on the basis of the time periods for example for short term investments the Debt Funds are the best investment option and if a long-term investment the Equity Mutual Funds are the best option.
This implies for how many years you can stay invested in the fund or after how many years you will need the fund that you are investing today. If you will need that money for an account within 3 years, then you must leave out an option of equity mutual funds. This is because equity market investment can turn out to be unfit for the short term.
So, you should spend in equity mutual funds and spend only that amount which you can stay invested for a least of 4 years.
If you can stay invested for 5-6 years, then only you must pick mid-cap funds. This is because mid-caps are more changeable and risky. So, you will require to increase your time horizon if you want to invest in mid-cap funds.
Age Profile
Age factor also connects to mutual fund how? The simple answers at every age your demand changes and differ. At the 20s, people want education-related plans, at 30s they want plans for their children at 60s people to think of retirement plans and that’s how the cycle goes.
- If you are under 40, then you can invest in mid-caps. This is because a long career is ahead of you, you will remain to get a regular income for several more years. Thus you can stay invested for a longer time horizon and decrease the risk.
- But if you fall in the age of 40–55, then you may not be willing to take such risk. In such a state, you move yourself to large-cap fund and multi-cap funds.
If you are 55+ then you should essentially focus on fixed income instruments. But even then if you want to spend in equity mutual funds, then you must only select the category large caps funds.
Investment Goals
Ask yourself why are you spending in mutual funds? What are your investment and financial goals? What amount to invest in which place?
Planning of investment goals all depends on the budget you have as an investor. Some people have surplus money. They want to protect the value of their money and reasonable returns will make them happy. Security of capital is their priority. So, these people should not turn towards mutual funds. Fixed income instruments are enough for them. If you want to make a balance between growth and protection, then you must place a part of your money in FD. Invest the dwelling in mutual funds. If you need rapid growth, then only you must invest in aggressive funds like mid-caps and multi-cap funds.
Psychology/ Mindset
Every investor has a different mindset and psychology, its totally on them what they learned or understand from goals. So ask yourselves these questions. The higher you live invested, the higher the risk you can take. The younger you are, the higher risk you can manage. What is your mindset? Do you feel stress as soon as your fund gives negative returns? Or do you know that a little risk can make higher returns? The answers to all these questions will determine the best mutual fund for you.
Let’s understand with an example:
Suppose you have 2 options. The initial option is to invest in such a fund where invested Rs 200 can either shrink to Rs 195 or grow to Rs 215 ie either you will make 5% loss or 15% profit. The second option is investing in a fund where you will either experience a loss of 40% or gain 60%. Which fund will you choose?
- If you pick the initial option then you are a risk-averse person and focus on security. In such a place, you should either spend in large caps or multi caps funds.
- The other option is for aggressive investors. They must invest in mid-caps and multi caps funds.
I see several people’s portfolio and get confused. They invest in 2 small-cap funds and also invest in 2 balanced funds.
Small-cap funds are very unsafe and Balanced funds are light risky as claimed by fund managers.
After examining these portfolios. They have 2 high-risk funds and 2 low-risk funds. So, all over their portfolio’s risk is moderate. If they needed moderate risks, rather of 4 funds they must have selected 2 multi-cap funds.
Conclusion
Do not keep on adding new funds every year. For moderate investors, 1 large-cap and one 1-cap are enough. For average investors, 2 multi caps are okay. Aggressive investors can have 1 mid-cap and 1 multi-cap will assist their goal.
Keep your portfolio easy and simple to understand. If you have made a choice to enter mutual funds in your investment strategy but don’t know how to get started, it’s pretty easy with just a bit of due care on your part. Getting clear on your investment objectives. Picking prevailing mutual funds includes choosing those that give good returns at a low cost, but funds are even bigger victors when they strategically intensify your portfolio and investing objectives.
Visit our website WealthBucket to know about the mutual fund services at worthy cost. Our experts will help investors to receive benefits numerous mutual fund schemes. Like equity fund investment, Debt mutual fund, Large Cap mutual fund or Multi-Cap mutual fund. You can easily call on +91 8750005655 or just simply email at contact@wealthbucket.in.We render the best quality of services.
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