Choosing the Right Mutual Fund for Investors in 2024; Know How?
A mutual fund is a corporation that pools funds from multiple investors and invests them in securities such as stocks, bonds, and short-term loans. The mutual fund’s portfolio includes all of its holdings. Investors buy mutual fund shares.
1. What is the “Right” Mutual Fund for You?
We all want to get the best returns on our investments. So, when investing, we hunt for the ‘best’ mutual funds. Now the question is, what does best mean for you? For most investors, the best mutual funds are those that provide the ‘best’ returns. When investing, you should consider more than just your returns. There are more criteria to consider while selecting the ‘best’ mutual funds.
2. The Myth of the ‘Best’ Mutual Fund
Many are taught to believe in the concept of the “best” mutual fund. This is nothing but a myth. Again, past performance has no relation to present success. A fund that has performed extremely well in the recent past may well continue to do so only for a short period of time. Market conditions can change, and even the best of funds can suffer losses.
3. No One-Size-Fits-All in Mutual Funds
As every investor has his or her specific goal, a mutual fund that works for one person might not work for another. Success means aligning your investment with personal financial goals and risk tolerance. This tailored approach will help you invest wisely in the future.
4. How Do You Choose the Right Mutual Fund for You?
To choose the appropriate mutual fund, begin by answering these two critical questions:
- Time horizon: How long are you planning to invest?
- Risk appetite: Do you want to take very high risks for really big potential returns, or are you prepared to take a safer bet?
5. Matching the Mutual Funds to Your Investment Strategy
You would then select a category of a mutual fund suitable to your investment strategy after knowing your time horizon and risk tolerance. If you are investing money for less than three years, debt funds are the safest. If you invest money for more than eight to ten years, the stronger returns can come from equity mutual funds. For you, the choice can be large-cap, mid-cap or small-cap funds depending upon risk preference.
Hybrid funds could be good for a medium-term investment of three to five years.
6. Mutual Fund Investment Key Considerations
There are two things in choosing a mutual fund:
- Loss reduction: Choose funds that have minimized losses well in previous market downturns. Avoid funds with extremely negative returns, although they may have had good historical returns. Seek a history of sustained returns over time.
- Fund Manager’s experience and expertise: The fund manager’s general experience and level of expertise can be quite crucial. Research into this area, know his background, investment strategy, and how long he has been managing the fund. It might help you get a knowledgeable manager who will guide your investments through rising and falling markets.
