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How to Pick a Mutual Fund Scheme

Investing in mutual funds has become something as simple as grocery shopping. However, picking the right type of mutual fund is essential if you want to achieve your financial goals. There are a variety of mutual funds available in the market, hence picking the right one can often be confusing. You can choose to invest in a mutual fund as a lump sum or choose an MF systematic investment plan. The right type of mutual fund is not always the one that gives you the highest returns. When it comes to investing in mutual funds, you need to consider a variety of factor such as your risk profile, financial goals etc. Many investors tend to select mutual funds based on the ratings given by financial research agencies. However, these ratings are not always reliable. If you want to choose the best mutual funds, ensure that you consider the following pointers: -

Performance Ranking

Besides finding out the recent as well as long-term performance, understanding the performance ranking of a mutual fund is also important. You can find out a fund’s performance ranking by checking the quartile ranking. The quartile ranking represents the fund’s performance in each quarter in relation to its peers. The funds which have remained in the top quartile for most of the time are the best. And in case, you find that your scheme has been dropping below the 3rd quartile during a couple of consecutive quarters, it is probably time to exit that particular scheme.

Total Expense Ratio

The expense ratio is an important factor which cannot be overlooked while selecting a mutual fund scheme. Since all distribution and fund management related expenses are borne by the mutual fund schemes, having a high expense ratio will affect the final returns. Hence, lower the total expense ratio, the better will be the returns.

Fund Manager’s Experience

A fund’s performance is heavily dependent on the fund manager’s experience. A fund manager is the ultimate decision maker therefore his approach and experience count a lot. Therefore, one should always take the effort to find out the fund manager of the scheme and his past performance. By taking a look at the performance of the other schemes managed by him, you can gauge his performance.

Scheme Asset Size

The scheme asset size varies according to the type of scheme. Generally, comfortable asset size for equity schemes can be hundreds of crores, while debt schemes will be in thousands of crores as the value per investor is usually higher in debt funds. High scheme assets will help in reducing the total expense ratio of the scheme.

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