How to Select Mutual Funds?

While Selecting a Mutual Fund scheme for making an Investment, an Investor needs to consider following parameters as mentioned below-

I. While selecting a category of Mutual Funds, you must take into account –

  • Your Purpose of Investment

Investment goals you are targeting at?

It can be anything as mentioned in below

  • Your Risk Appetite –
Factors which
Affect Risk
Moderate Risk Appetite Low Risk Appetite
Young – 18 to 35 Mature – 36 to 55 Senior – 56 to 100
Current Income
Future Income
Expectation &
Low- Easily Achievable goals with Little Hard work
  • Investment Time Horizon

It is how long, can you hold the investment without withdrawing the funds invested?

How soon you want to reach to your Investment Goals?

Combination of Investment Goals & Horizon, determines the Risk Appetite. And in turn the category of Mutual Fund, an Investor opts for making an Investment.

To Select which category of Mutual Fund ?

There are various categories of mutual fund schemes, which suits as per each Investors Investment Goal, Risk Appetite and Investment Horizon

FOR EXAMPLE.                   

II. Historic Return:

The Mutual Funds Historic Return over a 10 year,5 year, 3 year period reinforces the consistent performance of the fund house and fund manager’s over the past period. The similar performance can be anticipated to be duplicated in future, combined with other parameters.

III. Ratio Analysis:

Analysis of various ratios like Sharpe, Sortino, Beta, Alpha gives an indication of Risk-Adjusted return of the Mutual Funds towards market risk, stocks specific risk & downside risk.


IV. Exit Loads:

Different Categories of Mutual Funds have different Exit loads which need to be taken into account before investing into the Mutual Fund. Equity Funds usually have 1% exit loads, Debt funds have exit roads ranging from 0% to 3% depending upon various types.

V. Diversification:

While Investing in Mutual Funds, it is important to Diversify your Investment in different mutual funds to reduce the risk related to Fund manager – Experience, Category of fund selection – Large Cap, Mid Cap, Sector Allocations etc.

VI. Expense Ratio:

There are variety of expenses incurred by Fund houses – Fund management fee, marketing expenses, fees paid to the registrar and transfer agent, etc. In a category, Funds with Higher expense ratio have to give higher returns on Investments made in comparison with Funds with Lower Expense ratio in same category to remain best performing fund. Only Few Funds are able to maintain the High expense ratio with best performance.

NOT A THUMB RULE – But In majority cases, Lower expense ratio, results in better fund performance.

VII. Size of AUM :

Assets under Management (AUM) indicates the Trust shown by the investors in the Fund till date & also reflects flow of cash & thereby reduces expense ratio of the fund.

Generally, Higher the AUM better it is for the Investor.

VIII. Dividend / Growth Option:

The Mutual Fund has two options – To either PAY Dividend regularly or REINVEST them for Future Growth.

IX. Experience & Qualifications of Fund Manager:

The Educational Qualifications & Experience of the Fund Manager plays a vital role in selection of the Mutual Fund. The Fund Manager past track record, details of other funds managed by Fund Manager also helps us to evaluate them.


While Selecting the Best Mutual Fund – it is important to analyze the parameters mentioned above. Even after making an investment, an Investor needs to review the parameters quarterly to keep track of the fund performance.

In case, if the Investor is not able to find time to analyze the mutual funds, then they should consult a financial advisor for the same.

As Financial advisor, analyzes the mutual fund from the parameters described above keeping in mind the Investor’s Investment Goals & Time Horizon thereby taking into account their Risk Appetite. And also reviews them at regular intervals to keep the Fund performance under check.

It is often suggested to consult a Financial advisor for Selecting the Best Mutual Fund when Investor is not able to find time to analyze themselves.


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