How To Choose The Right Equity Mutual Fund To Invest In?

There are scores of equity mutual funds that are on offer and investors can buy them at the net asset value. However, many investors are confused as to which equity mutual fund is the best for them. To choose the right mutual fund, you need to first understand a few things. Take a look at the few things before we tell you how choose the equity mutual fund.

Time period for investment

If you are looking at a time frame of less than 3-years, we suggest that you look at alternate investments like maybe debt. Equity mutual funds tend to yield returns in the more long-term. One can consider debt investments like debt mutual funds, just in case the investment objective is more short term in nature.

Those in their 20s and 30s can invest for many years and hence they should consider equity mutual funds in order to generate long-term returns. Investors who have stayed the course have made more money than others. While it maybe easy to book profits when you have made reasonable returns, it's extremely difficult to time the markets and hence exiting at the right net asset value.

 

Age and risk appetite

Age is a big factor when taking a risk. An investor in his fifties and sixties would not like to take a risk, while those in their twenties and thirties, might be willing to take a risk. Hence, if you believe that you are nearing retirement or even close to the same, one should avoid taking the risk.

Apart from the age, it is also in an investors nature, whether he has an appetite for risk. Some investors though young, may just not want to consider taking greater risks. Hence, they could consider other various safe forms of mutual fund investment, including GILT Fund or other debt funds. They could also look at opportunities in the fixed deposits space.

 

How to choose the right equity mutual fund then?

Based on the above factors, say you zero down on equity mutual funds. We suggest that you look at the ratings provided by CRISIL and Value Research. A 5-star rating is perceived as good. However, we wish to state that it's almost impossible to choose the right equity mutual fund, even though one may look at the rating.

A fund that performs well today, might not do so tomorrow. Equity Mutual Fund investing is a very tricky form of investment, and you can rely on an expert advisor, though even that may sometimes disappoint you. In short, there is no formula for investing in the best equity mutual fund and if somebody says that he knows which is the best, he is trying to play clever. Take the help of ratings and an expert advisor to short list, but, as we emphasized there is no guarantee.

 

 

About the author

Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. Sunil's areas of interest include commodities, equities, mutual funds, tax planning and debt instruments.