That’s a good question. I am happy to see that you are doing proper research before investing in a product. The mutual fund industry in India is growing by leaps and bounds. There are currently over 500 mutual funds in the market. And that number is growing at a fast pace. Hence for a retail investor, it becomes tough to identify the one that would be suitable for their needs.
Having said that, below are some of the criteria that can help to choose the best fund for your needs:
- Investment horizon: What is the goal that you want to invest in? It is very important to link every investment with a goal. If your goal is within 5 years then you should go for a debt mutual fund. If it’s more than that then equity funds would be more ideal.
- Return since launch: This is also an important criterion. There is no use investing your hard-earned money into a fund that is not performing well. But your returns expectation should match the type of fund that you are investing in. For example, equity funds usually offer returns in the range of 12–14% while debt funds give around 7–8%.
- 3 year/5 year returns: Has the fund been able to consistently outperform its benchmark index over a period of 3 and 5 years?
- Rank within the category: What is the rank of that fund in its own category? You should always a fund which is among the top 3 in that category.
- Expense ratio: This is the percentage of your returns that the AMC charges in return for managing your money. The higher the ratio the less your end returns will be. For this, it is recommended to go with direct plans of mutual funds as they have very low expenses ratio.
- Exit load: This is the percentage of your invested amount that you will have to pay to the AMC if you redeem your investments within one year. Depending on the category of funds that you are investing in this may range from 0–1%.
A good place where you can find all the above-mentioned criteria for a mutual fund & much more is Value Research (www.valueresearchonline.com). Hopefully, I was able to answer your question.