Buying mutual funds is walk in the park-but selecting the right mutual fund for your targets can change everything.
If you’re saving for your child’s education, a dream home or retirement, selecting a fund with the right financial goal, risk level and time horizon is crucial.
Here’s a step-by-step guide to help you make the right call.
1. Identify Your Financial Goals
Before you invest, ask yourself:
- What am I investing for?
- How much do I need?
- When do I need it?
Examples:
- Short-term goal (1 to 3 years): Purchase a bike, or go on a trip
- Mid-term goal (3-5 years): Stash some bucks for college or university
- Long-term, over 10+ years: Retirement or wealth building
Each goal calls for a different mutual fund.
2. Understand Your Risk Tolerance
Mutual funds are not the same, and they don’t all involve the same risks and consequences.
- Low Risk: Debt funds
- Medium Risk: Hybrid funds
- High Risk: Equity funds
If you find it difficult to tolerate market movement so can’t opt for equity, you could consider a balanced or debt fund. If you have the capacity to shoulder short-term volatility for higher gains, equity funds are what suit you best.
3. Match Fund Type to Your Goal
| Goal Type | Suggested Fund Type | Ideal Duration |
|---|---|---|
| Short-term (1–3 years) | Debt or Liquid Funds | 1–3 years |
| Medium-term (3–5 years) | Hybrid Funds | 3–5 years |
| Long-term (5+ years) | Equity or Flexi Cap Funds | 5+ years |
4. Check Fund Performance
Consider a fund’s 3–5 year returns, but don’t use them as the only barometer.
Seek consistency – not a flashy dip up top.
Websites such as Moneycontrol, Groww or Value Research Online can make comparing funds easy.
5. Check the Expense Ratio and the Fund Manager
The expense ratio reflects how much you are paying to the fund house for managing your investment. Lower is better.
And make sure the fund manager has a good track record — consistent results are more important than short-term gains.
6. Begin with a systematic investment plan (SIP)
If you’re a novice invest, begin with a small SIP — as little as ₹500 a month.
SIPs help you:
- Invest regularly
- Beat market volatility
- Benefit from compounding
Example:
For instance, if you are putting ₹2,000 every month into an equity mutual fund whose average annual return is 12 per cent?
In 20 years, you might have almost ₹20 lakh – just from being disciplined while investing!
FAQs:
Q1: Multiple mutual funds Should I invest in multiple mutual funds.
Yes, but 3-4 good funds is enough for some diversity.
Q2: How can you tell if a fund is any good?
Compare its performance with the benchmark index (such as Nifty 50) and its peers.
Q3: How often should I revisit my mutual funds?
Six to 12 months between performance tracking is sufficient.
Q4: What if my priorities evolve over the years?
You can always pivot or rebalance your portfolio to new goals.