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A Step-by-Step Guide to Select the Right Mutual Fund Investment.

Updated: May 9, 2023

On your way to becoming an investment ninja? Get these points for choosing the best mutual fund!

Mutual fund Investment

So, you like Mutual Funds. You know they are the best risk-managed path to wealth. You get a host of goodies on Mutual Funds that you can't get with other products, like professional management, rupee-cost averaging through the SIP route, and transparency. That's great but with over 5000 Mutual Funds staring at you in the face, what the few that you should select, and how? Let’s look at some filters that you can apply to choose a fund that matches your needs:

1. What is the fund trying to achieve?

You are side-car investors with the fund. Every fund has its own unique investment style. Choosing a fund with a similar objective as yours, makes your investment reach its goal faster and better.

2. Comparing Returns, a wise choice?

While it's easy to look at past returns, what matters is if the fund has performed better than its peers and has beaten the benchmark. The asset allocation of a benchmark index should match the investment objective of the scheme. The fund's past performance will also help you to understand how consistently the fund has generated returns over the years and not just a quartile.

3. Whats the fund house been up to? All clean and green? How has the manager performed? Any risky pieces there?

Fund houses with a good track record generally deliver better risk-adjusted returns. Next, look at the Fund Manager, the team, their investment style, and the skill sets that they bring with them. Fund performance is largely impacted by the Fund Manager’s expertise and tenure, also, you have to be sure about who you are trusting with your hard-earned money.

4. Getting in the physics. Alpha. Beta. Delta.

Mutual fund Investments are subject to market risks but how much and for how long? These metrics will help you find your answers

  1. Alpha: It is nothing but excess return delivered over the benchmark. So funds with the better alpha value among the category should be the pick

  2. Beta: It basically indicates how volatile the fund is compared to that of a benchmark. The higher the beta value, the more volatile the fund is expected to be

  3. Standard Deviation: This will give you an idea of how much the fund fluctuates from the average

The ratios are easily available on the fund factsheet and before investing in the fund one should go through it. Applying the above metrics is a good starting point to choose the right fund that matches your goals.


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