How to find the best mutual fund?

Suggest the best scheme for one year and want a return nearly 12 per cent CAGR, suggest best fund - Imrath Suthar

With such a wide range of mutual funds available, it can be tough for investors to choose the right one for them. However, it's important to remember that returns should not be the only aspect to take into account when making investment choices.

Here's how you can find the right mutual fund for you.

Establish your investment objective
Before investing in any fund, you must first identify your goals for the investment. Your investment objective will guide you to the appropriate asset allocation and the type of fund. For example, if your goal is long-term wealth creation, you would want to focus on equity funds. But if regular income is more important to you, then income-generating funds, such as debt funds, should be your centre of attention.

How much risk can you take?
You should also take your personal risk tolerance into account. Are you okay with the value of your portfolio going up and down a lot? Or would you prefer a more conservative investment? Keep in mind that the higher the potential return, the higher the risk (usually). So you need to find the right balance between what you're willing to risk and what kind of return you're hoping to get from your investment.

Liquidity and time-period of your investment
Lastly, it's important to consider the investment horizon and liquidity constraints. How long do you want to hold the investment? Do you think there will be any liquidity issues in the near future? Keep in mind that mutual funds are subject to market risk and can be volatile in the short-term. To reduce the impact of volatility, it's best to have an investment horizon of at least five years.

Now keeping the above aspects in mind, you can find the mutual fund that suits you best. Alternatively, you can click here to go to our Analysts' Choice section and pick funds for your different financial goals.

What you should do
When you're thinking about investing, you should always have a plan and specific goals in mind. That being said, desiring a 12 per cent return in one year is highly unrealistic, especially if you're only planning on keeping your investment for one year. If the market turns out to be unfavourable, you could end up losing money. In cases like this, your primary goal should be capital preservation which can be attained by investing in bank FDs or liquid mutual funds. Even though FD returns are fixed, liquid fund returns are reasonably safe.

Suggested read: Using debt funds for income

This article was originally published on February 08, 2023.