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Tips For Choosing The Best Mutual Fund Schemes And Company

Investors are investing in mutual funds to get lucrative gains and create a diversified portfolio. Here, the expert fund managers invest in different financial instruments depending on the type of mutual fund. These days so many options and schemes are available and finding the top mutual fund companies can be a daunting task. There is no single scheme that is perfect for all investors, but some basic tips can be kept in mind for making this choice. The following are the tips to be considered while choosing the top scheme and company.

Consider your goals and risk tolerance

Before choosing the mutual funds to invest in, it is important to set your goals. Have clarity about your financial objectives and the period for which you want to invest. Are your goals long-term? Or do you want immediate returns?

For example, if you want to invest for short tenures, liquid funds may be a more suitable option than equity funds. Generally, high returns are associated with high risks. So if your risk appetite is low and you tend to pull out money every time things get rough, investing in high-risk funds will do you more harm than good. In that case, refrain from investing aggressively. Your risk tolerance depends on your present financial standing, age and other factors. For example, a retired person would not want to invest in equity funds that come under the high-risk investment type because the requirement is to have a stable source of income. So debt funds are more suitable in that scenario. On the other hand, a young person wants to focus on growing money and might be willing to take high/moderate risks.

Different types of funds

It is important to understand different types of mutual funds and make an informed decision. Equity mutual funds mean investing in stocks for capital appreciation. Debt funds can be investment in government bonds and are more appropriate and safer if you want financial stability. Another type may be the hybrid fund, where the investment is more diversified, and the risk associated is moderate and generates good returns plus stable income. The type of fund you choose will also depend on your investment time frame. If you can invest for longer periods then equity type is preferred over debt type. Check how these funds satisfy your goals. What are the risks or Returns associated? Other things to check are tax efficiency and liquidity.

Consider past performance

Always look at the past performance of the particular mutual fund before investing. Good past performance doesn’t guarantee future success but still is a good measure. Consider a fund that has been performing consistently well over the last few years even in volatile market conditions and has outperformed its benchmark. It may be worth investing in. Consistent good performance means all the investment strategies were thorough and well-researched. You can also look at the performance of the similar type of funds and compare them for a more holistic understanding. Outcomes depend on the skills and competencies of the fund manager or his team.

Look at the years of experience of the manager, the past or current funds under him, and performance and track records. Some decisions may be made at the management level so it becomes vital to check the track record of the asset management company as well. For this, you can use various websites or mobile applications that automatically measure the performance of a particular mutual fund and compare it to other options to share a reliable report. Keep an eye on business publications that make reports and regularly review different funds or ask your advisors for some guidance.


Some beginners tend to ignore the fees factor, but it greatly impacts the overall profitability. It is mostly calculated in terms of expense ratio which depends on the fund’s total assets and not your individual invested value or profits earned. For example, two funds are generating the same returns. But one has a higher expense ratio than the other. Though the difference may be just 1% which is a significantly small percentage, your net profits will be severely impacted. Also, consider the entry and exit loads. Exit loads are a kind of preventive measure to stop investors from pulling out funds before time. Liquid funds work well because they do not levy any entry or exit load fees if investors decide to withdraw after a short duration. If a major event happens in your life and you want a stable income source, refrain from investing in high-risk mutual funds.

Size of funds

Some people believe the larger the assets managed by a company, the better it is. But this belief has no real basis. It is seen that certain companies managing a very limited amount of money may perform well as compared to others. The marketing of a scheme may be the reason behind so many investors lining up for investing in that particular fund. If the company’s’ assets become too difficult to manage, it will have to change its strategies as it can no longer invest in small and mid-cap stocks. But this shift can affect the overall profits as compared to the times when the company had fewer assets under its name.

Reviewing and monitoring

Your work doesn’t end after investing in a fund. You need to monitor and check its performance regularly. 

Summing up

Mutual fund investment comes with the benefit of your investment being managed by experts who have considerable market knowledge and experience. There are so many options available for investing. It is difficult to pinpoint a strategy or investment option that works for all. But with some research and consultation with a financial advisor, one can make a wise choice. Consider your goals and investment timeline and choose the type of fund more suitable for you. For choosing the right company, look at its fee structure, past records and even the total assets managed by it. If it has been performing well over different market cycles, it certainly is a good choice.

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