How to Choose the Best Mutual Funds to Invest For Your Portfolio

In hindsight, people tend to see what they could have done to make their present better. And making money is an important aspect of making one’s present and future better.

Investments could always have been made in the small businesses back in time, which today have been profitable. But then again, there is no definitive way to determine which ones are the best mutual funds to invest in India. So it simply comes down to a bit of luck; or does it?

The toughest part of the decision comes when one has to choose the venture where they should risk putting their hard earned money into. Choosing a company based on its past performances can be misleading too.

However, there are companies which perform at par with the expectations and have proved themselves to be the best mutual funds to invest in India. Choosing such companies and their schemes involve deep research and due care. Let’s consider some of the steps one can take to search for the best mutual funds to invest in India:

Standard Deviation

Standard Deviation is the tool that measures the volatility of returns from a mutual fund scheme over a period of time. It also calculates the deviation of the returns by using the historical mean of the concerned company.

Sharpe Ratio

This is an excellent way to find out the best mutual funds to invest in India. Sharpe ratio measures the performance of the fund in relation to the risk taken by it. The more advanced the Sharpe ratio, the greater the fund has done in percentage to the risk.

Alpha and Beta

Alpha is the excess return received from a mutual fund as compared to its benchmark index. The percentage of alpha depicts its performance over its benchmark in a particular period of time. Beta, on the other hand, tells about the volatility of the fund compared to its benchmark index. A mutual fund with a beta of value = 1 means that it will move as much as its concerned benchmark index. A 1.5 value of beta depicts that for every 10% upside or downside, the mutual fund’s net asset value would be 15% in the said direction.

Choosing the Fund House

Selecting the right company and its scheme to invest in is an important step before investment. One should have faith in the company and its performance. The companies with a strong client base and a good track record generally have the best mutual funds to invest in India. Experts believe that consistency is the key while buying any policy. Thorough research must be done to look for the fund’s performance in the last 3-5 years. A strong company ensures an efficient process and support to build the portfolio of the client.

The Balance Between Risk And Returns

Although no investment is completely risk-free, but the ones with least risk and more return trade-off can be considered to be the best mutual funds to invest in India. A good mutual fund always gives better returns over the risk involved. To calculate this, one has to look no further than the Sharpe ratio of the said company. As mentioned above, advanced the Sharpe ratio, the healthier the fund has done in percentage to the risk.

Portfolio Diversification

Pertaining to the lower risk offered a mutual fund that is diversified is always better than the ones based on a particular sector. Before investing, one must check the history of the particular scheme and notice its performance over a period of time.

Expense Ratio

Another important step to take before investing is to calculate the expense ratio. Obviously, the best mutual funds are the ones that offer good returns at a lower expense. Usually, schemes with advanced assets have lesser expense ratio than that of a small sized fund. Other factors to look out for a while searching the best mutual funds to invest in India are – the fund manager, the size of the asset and its objective.

Some Extra Tips

  • For a consecutive investor, the investments should only be made in equity-oriented balanced schemes or a large-cap mutual fund scheme.
  • For a moderate investor, the investments must only involve large cap and multi-cap schemes.
  • For aggressive investments, one can choose between mid cap and small cap schemes. For them, sector-oriented schemes are also beneficial, but only with prior knowledge about the said sector.

Most of the investors choose a combination of schemes to create a mutual fund portfolio. However, this must be done only after the composition of the portfolio sets up in line with their risk profile. If one keeps the above points in mind, they can easily find out the best mutual funds to invest in India.

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