How To Choose Mutual Funds In India?

by Giselle Lobo Writer & Blogger

Mutual fund selection depends on several parameters like return expectation, risk tolerance, investment horizon, etc. You can assess the asset across expense ratio, past performance, fund manager experience, assets under management, etc. You need to conduct thorough research to get a clear idea of your investment objective.

When you think of mutual fund investment, the first idea that strikes your mind is the risks and the scope of decent returns. Every investment involves some risk, which you can regulate with a proper investment strategy. Here are some aspects to consider while choosing mutual funds:

Goals: When you decide to invest in mutual fund, you should have a clear plan regarding the target date, time frame, and return rate. You can have a short-term goal like purchasing utility goods, down payment for a house, or international holiday, or long term like retirement or providing for children’s college education.

Depending on the investment objective, you can select the mutual fund type - debt fund, equity fund, hybrid fund. Some investors’ main investment objective is to gain a capital appreciation of their investments. For others, it may be tax saving. Depending on your investment strategies, your fund selection will vary.
Risk: With advancements in technology, you can now choose an online mutual fund scheme without worrying about physically visiting the company’s branch or office. Remember to analyse the investment’s risk and whether it aligns with your investment objective while browsing mutual fund apps.

Equity mutual funds are subject to volatility, and thus the portfolio might see ups and downs in the short term. Though the returns are sustainably higher, these funds are suitable for aggressive long-term investors. Debt mutual funds are more stable but give lower returns than equity funds. They are ideal for conservative investors.
Investment strategy: Investment strategy, also referred to as the investment approach, is the fund house’s approach to making all the investments and holdings in the scheme. If the fund house’s investment strategy is not in line with your investment philosophy, it creates a conflict of interest leading to you selling out your investments at undesirable prices.
Taxes: Tax consideration is an aspect you should consider while choosing an online mutual fund investment scheme. As an investment vehicle, they are efficient for post-tax returns. While redeeming equity fund units, the generated returns attract taxes according to the period of holding and the applicable tax rate.

For equity funds, long-term capital gains attract taxes 10% over and above the Rs. 1 lakh exemption limit. Short term capital gains attract taxes at 15%. For debt funds, indexation benefit is available for capital gains realised. So, consider the tax aspects of the fund category you are looking to invest in before you take a call.