Equity funds are best suited for achieving your goals with a long investment plan, and debt funds are best suited for short- to medium-term goals.
For investors of all ages, mutual funds provide an investment solution for a range of investment requirements. You can invest in them to generate wealth and achieve various life-stage objectives, such as retirement planning, funding the children’s higher education, vacation planning, property purchase, or establishing a source of retirement income. However, before you begin investing, the most crucial question is: How do you select mutual funds that might satisfy your investment goals?
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How To Select A Desired Mutual Funds?
Investment horizon: How long it takes you to achieve your financial objectives will determine this. Equity funds are best suited for achieving your goals with a long investment plan, and debt funds are best suited for short-to medium-term goals if you know how to choose the right mutual fund. Funds like overnight funds, liquid funds, ultra-short duration funds, and others are appropriate for very brief investment tenures (less than one year).
Investment goal: You must be aware of your investment goal before attempting to learn how to choose the best mutual fund. Do you prefer salary stability or growth? Long-term financial appreciation is best achieved with equity funds, while regular income is best achieved with debt funds.
Risk profile: If you are aware of your risk tolerance, selecting the ideal mutual fund will be a breeze! Bond or debt funds are appropriate for investors with low to moderate-risk appetites whereas equity funds are ideal for those with a moderately high to high-risk appetite.
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Taxation: It is one of the most crucial factors to consider when determining how to pick a decent mutual fund because you must first understand the tax implications of your investments. For instance, long-term capital gains (held for more than 12 months) are tax-exempt up to Rs 1 lakh and are then subject to a 10% rate of tax. Short-term capital gains (held for less than 12 months) in equity funds are taxable at 15%.
If you know how to choose the best mutual fund, you should determine whether you can participate in a lump sum or through a systematic investment plan (SIP). You can take advantage of rupee cost averaging and the force of compounding by investing through SIPs.
Track record of the fund manager and the fund house: Before investing, you should look into the long-term track record of the plan, the fund manager, and the fund house.
The ratio of costs: For some investment categories, such as exchange-traded funds or index funds, the expense ratio is crucial. (ETFs). Higher expense ratios in carefully managed funds may be offset by the fund manager’s capacity to produce high alphas.
