How to select the best mutual fund?

As one of my main areas of expertise is mutual funds, a common question I often come across is, “Tell me a good plan to invest in?” To answer this, I used to first ask about the purpose behind the question? Even after asking this question, if I still don’t get clarity, I would try to push further to find out the purpose, be it for education, home, car, vacation or retirement? The reason for this request was to know the duration of the investment, which is important for selecting the right type of plan. The usual response to this is that it is just excess money that the investor wants to invest in better alternatives. But I also get responses like this: “I would like to double my money!”

What I infer from my 17 years of experience is that the reason for asking said question is more to seek assurance of getting a better return than their expectations or getting a better return than other alternative d ‘investment.

Thus, the main intention is to obtain superior returns.

The challenge, however, is that schema performance is never static and constantly changing. This is because the year-over-year performance of the same asset class, market capitalization, stock, or investment style will not be the best performer.

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Equity

26%

Global Equities

36%

Equity

30%

Debt

9%

Gold

11%

Equity

28%

Gold

8%

Global Equities

27%

Gold

28%

Equity

22%

Global Equities

17%

Equity

9%

Debt

11%

Global Equities

0%

Debt

ten%

Global Equities

14%

Debt

seven%

Gold

24%

Equity

16%

Global Equities

19%

Gold

12%

Debt

8%

Global Equities

4%

Equity

-5%

Global Equities

8%

Debt

6%

Equity

6%

Equity

14%

Global Equities

17%

Debt

4%

Debt

9%

Gold

-5%

Gold

-8%

Gold

-seven%

Equity

2%

Gold

5%

Global Equities

-3%

Debt

ten%

Debt

ten%

Gold

-4%

Source: Equities – S&P BSE Sensex Returns, Global Equities – MSCI ACWI INR Terms, Debt – Crisil Short Term Bond Fund, Gold – MCX Prices

As the value of the investment becomes considerable, one is tempted to spend on lifestyle expenses like house, car, gadgets and vacations. In addition, many times, contingencies like illness or accidents lead to a forced withdrawal of money. Temptation is an internal factor and contingencies are an external factor, but both have an indirect impact on performance and wealth creation.

Also, the performance of any type of mutual fund is not linear; they fluctuate due to mark to market. Unlike fixed deposits where the value increases linearly, in mutual funds the value fluctuates. This price fluctuation is what we call volatility risk.

A person’s perception of life and life goals tend to change every few years, which can also impact an individual’s wallet. Obviously you want to grow your money and therefore it is very important to determine your risk profile and the duration of your investment, to choose the right asset class and to follow it, not only in terms of performance. year to year, but also with regard to your personal profile. You have to align your investments with your profile and personal needs. Another important criteria is asset allocation and diversification, as this is the most important factor for successful mutual fund investing.

There will only ever be one best pattern or best performance. The important thing is that you identify an appropriate program and focus on a risk-adjusted return. The biggest risk in investing in mutual funds is our own behavior. You don’t need an advisor to identify the best performing program; for this, you can visit the Association of Mutual Funds in India (AMFI) website. You need an advisor to help you identify your risk profile, the duration of your investment and manage emotions such as fear and greed. Also remember that this is not a one-time exercise; this needs to be done at regular intervals as we humans tend to change over time. We must stay the course to obtain favorable results.

Always remember that there is only one thing that is constant and that is change. So the most successful pattern will always change, and so will your emotions. Instead, build the right investment mindset, which is neither too nimble nor too rigid.

So now, when looking for the answer to the question of which plan to invest in, be clear about the different factors that matter: your expectations, your experience, your current financial situation, your cash flow, your life goals, your aspirations, your fear, your greed, etc. In the absence of these, there will never be a real answer you will get, other than just random guesses and guesses.

Opinions are personal: The author, Mithun M Desai, CWM is the founder and director of Jumbo Wealth

Disclaimer: The opinions expressed are those of the author and are personal. TAMPL may or may not subscribe to the same. The opinions expressed in this article/video in no way attempt to predict or time the markets. The opinions expressed are for informational purposes only and do not constitute investment, legal or tax advice. Any action taken by you based on the information contained herein is your sole responsibility and Tata Asset Management will not be liable in any way for the consequences of any such action taken by you. There is no guaranteed or assured return in any of the Tata mutual fund schemes.

Investments in mutual funds are subject to market risk, read all plan documents carefully.

Dolores W. Simon