How to Choose the Right Mutual Fund: A Beginner’s Guide

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The world of investments can be complex- a never-ending pool of options that can be overwhelming, to say the least. Mutual funds, however, offer a simplistic way to enter the world of investment. Investment experts suggest mutual funds for all types of investors, given their safety, liquidity, and professional management. Mutual funds are a professionally managed investment vehicle that pools money from investors, enabling them to invest in a variety of securities like stocks, bonds, or precious metals in small proportions. With the right mutual fund, you can beat the market and your investment goals. In this article, we will look at five fundamental factors to help you make an informed decision about choosing the right mutual fund.

If you are new to investing in mutual funds, it can be challenging to choose the right one that aligns with your investment goals. India has numerous mutual funds available, each with different strategies, portfolio allocations, and investment objectives. This article is a beginner’s guide to help you choose the right mutual fund in India.

Here are some essential points to consider when selecting the right mutual fund:

1. Determine your investment goals:

Before investing in any mutual fund, determine your investment goal. Your investment objective determines the type of mutual fund, investment amount, and investment duration. The short-term goals could be as simple as buying a phone or a computer. Long-term goals tend to be for major, more expensive investments such as buying a house or car, saving for your child’s education, retirement or even a business. Once you determine your goal, you can then create an investment strategy to achieve it. This process helps you to work towards these goals through well-defined investment avenues that suit your preferences. By combining these goals with your risk profile, you can find the fund that matches your needs and achieve your goals.

2. Assess your risk appetite:

Your risk appetite is the level of risk you are willing to take while investing in mutual funds. This decision usually is based on your financial situation, your investment goals, and your age, as an investor. Your risk profile can range from conservative to moderate, aggressive to very aggressive. Conservative investors generally accept lower return expectations for the safety of a low-risk portfolio. At the same time, more aggressive investors tend to opt for higher-risk bonds, equity, or a balanced portfolio.

3. Consider the expense ratio:

The expense ratio is the annual fee charged to you for managing your investments. When you invest in a mutual fund, fees like fund management and operational costs get incurred to maintain the fund. The expenses, when calculated as a percentage of the average assets of the fund, form the expense ratio. As an investor, you should always aim to choose a low-cost, high-performance fund.

4. Check the historical performance:

Historical performance is a historical record of mutual fund performances over different periods. The mutual fund’s performance may not become the sole basis to look at its historical track record. Still, it provides the investor with valuable insights into a fund’s ability to meet their short or long-term financial goals. Historical performance helps understand how well the fund has done in various markets by benchmarking the data to a given index. By comparing the performance of the fund to an index, you can quickly determine if the funds outperformance was merit-based or happened by chance.

5. Choose the right asset allocation:

Asset allocation is a percentage mix of various investment opportunities such as stocks, bonds, or cash. The composition and the ratio will depend on your risk tolerance, investment duration, and long-term goals. Beginners look for different types of mutual funds. A balanced portfolio evenly divided between stocks and bonds provides the right balance of risk and return. At the same time, aggressive investors would opt for portfolios with higher-performing stocks but higher risk.

Once you have assessed your investment goals, risk appetite, expense ratio, historical performance, and asset allocation, you can choose the right mutual fund to invest in.

As a beginner, it may seem challenging to choose the right mutual fund. But with Bajaj Finserv, investing in mutual funds has never been more accessible. With the Bajaj Finserv app, you can invest in mutual funds without any hassle. The app features personalized recommendations based on your investment goals, risk profile, and financial standing. With a few taps on your mobile, you can choose from a wide range of mutual funds, complete all formalities, and start your investment journey with SIPs in Mutual Funds starting at just ₹100.

Apart from the Bajaj Finserv app, there are some other apps available in India offering comprehensive mutual fund investment services. Paytm Money, Groww, and ET Money are some of the apps that offer personalized recommendations for mutual fund investments; provide detailed information about mutual funds, their performance, and their fund categories. The Paytm Money app also offers investments in initial public offerings (IPOs).
While each of these apps has its advantages, the Bajaj Finserv app’s features make it the best choice. The app offers personalized recommendations for mutual fund investments, an intuitive dashboard that displays the portfolio’s performance, and a curated list of top-performing mutual funds. Furthermore, the application process for investing in mutual funds is simple, straightforward, and secure.

In conclusion, mutual fund investment is an excellent way to build your wealth provided you select the proper mutual fund, maintain your investment strategy, and keep a strong focus on your long-term goals. Once you familiarize yourself with the investing process, and review your risk tolerance, expenses, and historical performance accurately, picking a mutual fund becomes easier. With the Bajaj Finserv app, managing your mutual fund investments has never been more accessible, allowing you to track mutual fund performance numbers, cost efficiency, and security. While considering other mutual fund investing apps, select the app that serves your needs best by integrating a healthy portfolio, easy payment options, and user-friendly, reliable investment management.