risk in mutual funds

Best Mutual Funds to Invest

When mutual funds have opened up a new horizon for the next-gen investors, we often become perplexed about which are the best mutual funds to invest in in the market. The answer is simple, it depends on your financial goal. The definition of “best mutual fund” is a relative matter and it varies from person to person. Mutual funds offer you the most customized way of investments according to your portfolio and financial goal. The following matters define the best mutual funds for an investor.

Reliability

An Asset Management Company (AMC) pulls money from so many investors and their fund managers decide where to invest that capital for a better return. In this way, mutual fund investments go on through several AMCs across the country. The profile of an AMC is a big factor for making it reliable to investors. AMCs are in most cases connected to reputed banks, financial organizations, insurances, and big corporates. The position of their stocks in the market, history of returns over the past few years, and the flexibility of their schemes are the things that make a mutual fund reliable for investors. You may check if your target fund is SEBI authorised mutual fund or not.

Nature of investments

Duration of investments: Why and how long do you want to invest? Ask yourself, and then find out the scheme suitable for you. If you want to invest for a limited time, choose debt funds that will provide you with a secured income in duration from one day to more than seven years. If you want to invest for a moderate return over a few years, you may invest in large-cap funds of a mutual fund. If you are interested in investing in stocks for a higher return, invest in equity funds. If you want to invest a small amount monthly for a longer period (3-5 years), you may choose an SIP of a mutual fund. If you want to save tax, go for ELSS schemes of mutual funds.

Past records

A sincere study on the past record of all existing schemes of mutual funds in the present market is essential before you invest in a scheme of mutual funds. Suppose, you want to invest in a SIP under the ELSS scheme for multiple purposes, systematic investment, tax benefits, and return. The first thing you need to do is to study the percentage of annual return/loss of all the schemes of all Asset Management Companies (AMCs) in the present scenario. You will get a clear cut idea about the way of management of different AMCs. The company, which has been able to provide better returns at an average over the last 3-5 years, are suitable for your investments. You can choose the specific scheme offered by that AMC for your investment for a better outcome.

Risk factors

Investments should be made in mutual funds as per your risk appetite. If you want to invest in a comparatively safe zone, you can think of debt funds in mutual funds for a shorter term and also a secured return. Otherwise, you can invest in large-cap funds in mutual funds for 2-4 years because, in such funds, your money is invested for the top 100 stocks in the present market. If your risk appetite is moderate, you can go for mid-cap funds in mutual funds. If you possess a high-risk appetite, you should think of small-cap funds. Such funds are the most volatile, you may face comparatively bigger losses. But, in terms of return, small-cap funds can give you the best return in the market.

This year has seen the most volatile market not only in India but also across the globe since March 2020. After COVID 19 pandemic hit the global financial market, investors in stocks, debts, equities and other funds have become suspicious about the outcome of their investments. But, we hope that the market will soon be suitable for the investors as soon as we come out of this situation. Investors are suggested not to lose hope, they can think of plans for longer terms for their desired outcome. You may consult an AMFI registered mutual fund distributor for knowing the best mutual fund for you according to your portfolio.

How to Choose the Best Fund for SIP?

Systematic Investment Plan (SIP) has opened up a new horizon for enthusiastic investors in India. A systematic investment plan helps an investor to invest a fixed amount in intervals (weekly/monthly/bi-monthly/quarterly/annually). To understand what is the best fund for you for an SIP investment depends on a number of factors. Investors can invest in equities, debts, and liquid funds under traditional mutual fund schemes through an SIP. It reduces the burden of an investor who wishes to invest in the market. Investors can invest an amount as low as Rs 500 per month in a scheme of mutual funds. Almost all the traditional schemes of a mutual fund invest in ELSS funds, debt funds, equity funds, liquid funds, and ultra-short funds directly online through a Systematic Investment Plan.

Everyone’s financial conditions and investment goals are not the same. You can hardly opt for a fund just seeing the short term return factors. If you want to invest in the long run, you have to choose a fund that has proven it less volatile in the longer run. The following are some of the factors that you may consider for determining the best fund for SIP in the present scenario.

Eligibility: How much you can invest after fulfilling all your liabilities is the main thing that you need to determine before selecting a fund for investment. You can invest in the diversified portfolios of mutual funds through SIP. SIP is designed to offer flexible plans for people of all economical classes. Determine the amount that you can invest in regular intervals. Then you select your funds on the basis of your investment goals.

Risk appetite: Risk appetite is an investor’s ability to take risks for his investment. There has always been risk in direct trading as well as mutual fund investments, You need to know how much risk you can bear before choosing a fund. At first, you have to know the risk factors for each and every fund when you are investing through SIP. SIP in debt funds might be less risky as investments in debt funds go directly to the bonds and securities of governments, government bodies, or big corporates. Liquid funds and ultra-short funds are also suitable for those investors whose risk appetite is very low. People having a big risk appetite might consider investing in equity funds.

Investment Horizon: Investment horizon refers to the duration of your investment, the probable validity of your investment portfolio. Long term investors should seek equity funds. Equity funds in a shorter-term might appear volatile, but these give higher returns in the longer run. On the other hand, short term investments in SIP can be made at debt funds, liquid funds, and ultra short term funds for better return and fewer risk factors.

Company profile: Reliability of an Asset Management Company depends on several factors like the track of return in the last few years, CRISIL rank, Assets Under Management (AuM), Net Asset Value (NAV), etc.

Recent Performance: Before making the decisions of investments, you need to track the recent return history of any specific scheme of the mutual fund. Almost all the schemes of mutual funds now offer investment options through SIP. Return in several intervals in a month, year, three years, five years will help you to track the performance, consistency, and volatility of a fund. The fund, which has shown a consistent return, can be chosen because we can assume that the fund is managed by skilled professionals and the fund has a rich portfolio. Check how the NAV per unit developed over the course of time in a fund. Suppose that a fund’s NAV per unit value was Rs 10 five years ago. Now it’s NAV per unit is Rs 15. In the meantime, it had fallen to Rs 8 per unit. So this fund might be considered for the long run as it seems to be less volatile.

Choosing the best fund for SIP is very important because one decision might be a determining factor for the fulfillment of your financial goal. SIP investments in mutual funds are goal based investments and are subject to market risk. You need to read all the terms and conditions carefully before investments. You need to do a proper study before choosing a fund for investments. Expert’s advice and guideline might be beneficial for a consistent return in the longer run. You may contact an AMFI registered mutual fund distributor for expert advice and investment opportunities in a suitable SIP scheme for you. You may check the website of SEBI to know more about the valid mutual funds in Indian market.

Risk Factors and Returns in Equity Mutual Funds

Equity mutual funds invest in different types of shares according to the present market condition. Such mutual fund is famous for high return capability; it invests in the shares of several companies after a sincere study of their market value and past records. Investors need to have a study on the present market condition and the past record of a mutual fund before investing in the equity fund of it to avoid potential losses. All equity mutual funds are not the same; Investors need to have a clear cut idea of a type of equity fund before moving for investment. An equity mutual fund is liable to invest at least 60% of its total wealth in the equity shares of different companies; the rest of the portion it invests in debt funds or in other schemes.

Types of Equity Mutual Funds

Equity Mutual Funds on the basis of Risk Factors

Mutual fund investment is subject to market risk; an equity mutual fund is also no exception. The fund manager of an equity mutual fund organizes the scheme on the basis of risk factors too. As an equity mutual fund invests more than 60% of its assets in equity shares, it bears a comparatively greater risk than a debt security fund. However, the risk factors also depend on the market capitalization of the shares of a company. Equity funds that invest in large-cap funds of the top 100 shares bear fewer risk factors than the equity mutual funds which invest in the mid-small cap funds.

Funds on the basis of Market Capitalization

Equity mutual funds can be categorized on the basis of the market capitalization of the company where it is investing. Some equity mutual funds invest in large-cap funds for a secured return over a period of 2-4 years. This fund comprises blue-chip companies that have the largest amount of market capitalization. On the other hand, medium-small cap funds are comparatively volatile, have greater risk factors, but have better return possibility. These mutual funds invest in the shares of the companies that share a comparatively lesser amount of market capitalization. Some equity mutual funds are Flexi-cap funds, as the fund managers don’t depend on market capitalization value, but the potentiality of the share.

Funds of the Basis of Themes

A number of equity linked mutual funds in the current market invest in the shares of a specific type of company. These are the theme-based equity funds that choose shares from different sectors like pharmaceuticals, real-estates, banking, and finance, etc. The fund manager of such mutual funds chooses the shares of companies on the basis of a common theme. For instance, if the average market of infrastructure is going well now, he might choose the shares of different infrastructure companies from different levels of market capitalization. This type of equity funds are less flexible and bear a comparatively greater risk. However, in terms of return, they have a good record too.

Funds on the basis of Features

Equity mutual funds can be categorized on the basis of features of the investments. Some funds offer the investors the opportunity of investments through a Systematic Investment Plan (SIP). You also get the option of investment in ELSS funds for tax saving U/S 80C of the Indian Income Tax Act.

To Sum up

Equity mutual funds are suitable options for those who want to take mutual funds as goal based investing. Here you have a high scope of earning a good amount with such investments. Otherwise, you get benefits like tax savings under 80C in several equity funds under the ELSS scheme. Before investing in an equity mutual fund, you need to be aware of your criteria like risk factor, tax exemption, the term of investments, etc. You should also study the market over a few years and go through all the terms and conditions before choosing a fund for investment. The best equity mutual fund is that fund which matches your investment capability and financial goal well. Your financial portfolio is diversified when you invest in equity mutual funds. This increases your earning and your credibility as a prospective investor. You can choose and invest online in an equity mutual fund according to your financial goal and risk appetite. Consult an AMFI Registered Mutual Fund distributor to know more.

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