How To Select Best Mutual Funds For Investment In India

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How To Choose Best Mutual Funds
How To Choose Best Mutual Funds

Indian stock market is on leap as PM Narendra Modi government has shown significant growth in business world. Selecting a mutual fund for SIP is very crucial point of investment as if you start investing in bad mutual funds then they might not produce sufficient results.

My friend invested in “ABC” stock 15 years back and now he made over crore, So how can mutual funds make me rich? Such questions are very common for those who turn their head towards stock and mutual funds investment for the first time.

Both direct stock investment through online broker and mutual funds investment are complete different things. Stocks represent individual companies growth while mutual fund is portfolio of such company stocks and trade them in group volume.

People tend to understand that mutual funds will make them rich but that’s not the case here. According to me, MF should be your security for any sort of financial requirements you might face in future.

How To Select Top Mutual Fund?

1. Does Mutual Fund Performance matter?

“It all depends on performance”, this is what you will here from mutual fund agents. They always tend to sell you their best performing funds in current market. Take a step back and rethink the process.

The funds they are talking about has shown potential performance no doubt, but will they continue to do so?

Old Performing Mutual Funds Business Model
Old Performing Mutual Funds Business Model

A good investor always tends to analyse all aspects of investments. Pick the mutual funds who have high value business stocks in their inventory.

Sound lots of work, yeah it is, but when you are planning to have financially secured future then why you think that it will come easy. Educate your self to be more informed and valued investor.

An investor must give enough time to analyse any mutual funds, because it does not matter if they are performing from last 10 years or 15 years, you never know how they will perform in coming 10 to 15 years.

So stop chasing old performing mutual funds.

2. Debt Free Stock Portfolio

Now you know that MF is group of stocks, which can be from different financial domains. So how to target best portfolio mutual fund?

Mutual funds are subject of market risk, as if market is performing, your funds will also perform and same goes for downward trends.

Debt Free Company Stocks
Debt Free Company Stocks

It is very important for you to focus on business not on just current performing stocks.

Choose those mutual funds whose portfolio is filled with booming business with very less to zero debt ratio. As the debt ratio is low or absolute zero, company will have more money in hand and pocket.

It’s very sad to watch profound names of financial world apply “pump and dump” theory to make themselves rich. What is pump and dump? lets take an example.

Consider Nirman(hypothetical name), is very big investor and has influence over millions of people. If Nirman will say buy Reliance(just for example) Stocks then millions of people will buy it blindly.

So say Nirman bought Reliance Shares 5 years back and made good money but now he sees weak growth and wants out, but no one is buying Reliance any more, then Nirman uses his influence to sell those shares.

Nirman announces that Reliance share are going to be multi-bagger in next few years, buy it ASAP, then those followers tend to buy it. While his followers and retail investors are buying the shares or mutual funds, Nirman is selling it out. So stay away from such stock tips or mutual fund tips.

Try to pick mutual funds whose stocks are of more debt free companies. 

3. Pick Mutual Funds According To Your Risk Appetite

Mutual funds are subject to market risk, which means that you can loose money also. If you pick bad mutual funds for investment then you might not make any money, instead end up losing your principle amount also.

Investment Risk Meter
Investment Risk Meter

What kind of investor you are? this is the first question you should ask before starting investment. No matter where you invest mutual funds, bonds, direct stocks, or real estate, your returns will always depend on your risk profile.

Analyzing your risk profile will help you in big ways, all mutual funds will state their risk ratio, which will help you to decide which mutual fund to pick.

From above image, if you think your risk appetite is moderately high then you should understand that the chances or ratio of loss will always match the wins.

High risk mutual funds will yield exponential return on investment(ROI) such as 25% to 35% per year, but it can also struck you with -10% annual compounding loss.

This process helps you in deciding how much you can afford to lose. Some person might be cool if they lose 1 lac in any investment but for some it might be their target. So always invest around your risk profile.

Here are top 10 mutual funds to buy in 2017 (India)

Top 10 Indian Mutual Funds (Diversified Equity) For Last 1 Year

Diversified Equity

NAV
(Rs./Unit)

1 yr Return
(%)

Birla Sun Life Equity Fund (G)

640.15

33.3

Birla SL Equity Fund -Direct (G)

664.23

34.5

Birla SL India GenNext (G)

69.33

27.5

Birla SL India GenNext-Direct (G)

72.23

29.1

Principal Emerging Bluechip(G)

93.73

37.9

Principal Emer-Bluechip -Direct (G)

97.17

39.3

Sundaram Rural India Fund (G)

38.95

36.2

Sundaram Rural India -Direct (G)

39.88

37.4

Tata Equity P/E Fund – Direct (G)

125.71

46.8

Tata Equity P/E Fund (G)

122.36

45.7

Above listed mutual funds shows 1 years return. Investing in mutual funds or stock is not rocket science, but not easy as A,B,C…

You need to understand that the decision you will make while investing, is going to effect your future returns. Returns which can be so huge that it might help you retire early. One should not hesitate in gathering information about investment. Informed investors make much more money than any casual investor as they focus on business not on small fluctuations.