Parameters to be considered for selecting a mutual fund scheme
Best mutual fund varies among investors as it depends on your risk profile and financial goals. The fund with high returns may not be the best fund for you. Most of the investors select mutual funds based only on past performance or the ratings given by various research agencies. There are many other factors which need to be considered before selecting a mutual fund scheme:
As you have an investment objective to meet financial goals, in the same way every scheme has an investment objective. Depending on the objective, duration of investment can be decided. You can now select the type of fund you want to invest in.
E.g. Equity funds for long term, Debt funds for less risk and better returns, Liquid funds for short term, etc.
The funds are sub-categorized as Diversified, ELSS, Large cap, Sector funds, etc. You need to assess the market performance of next 12 months and invest in those funds which might give high returns. No one is 100% right regarding this, but, an advisor would have better idea than you.
The ranking varies between different research sites. You should choose any 2 sites and consider the 4 or 5 rated mutual funds. When you compare list from both sites, the common funds can be considered. Most of them consider CRISIL and Value Research Online for this purpose.
Asset Under Management (AMU)
The net assets of a scheme give an idea to the investor. The funds are managed by a Fund manager and his/her experience matters a lot. The performance of other funds managed by him/her also should be taken into consideration.
The exit load ranges from 0.5% to 3%. If you want to withdraw money before the investment horizon you will be charged which impact the actual returns earned. It is advisable to select a scheme with low exit load.
They are the annual expenses incurred by a fund. High expense ratio will affect the returns earned. Low expense ratio benefits you in long run. Expense ratio of up to 1.50% can be considered.
For mutual fund analysis you should not consider only 1 year performance. Fund performance in the last 3 years & 5 years also should be considered while selecting a mutual fund scheme.
You can select the right mutual fund which suits your investment objective by considering above parameters. This involves lot of research and hard work, instead you can consult an advisor who is well versed with the mutual funds.