How to choose the best mutual fund scheme?

 Introduction

A safe technique to achieve big returns is through mutual funds. Mutual funds, as opposed to stocks, are managed by experts with extensive industry knowledge. Simply look through the numerous offered plans, pick the best one, and deposit your money. Nevertheless, picking the finest mutual fund scheme can be difficult, particularly since fund companies provide a variety of plans including growth, income, liquid, ELSS, Fund of Funds, etc. Additionally, picking the appropriate type (direct or regular) is essential.

To learn how to invest in direct or traditional mutual funds and which plan is ideal for you, scroll down. The sections that follow include comprehensive explanations of each mutual fund strategy as well as tried-and-true advice on how to generate excellent returns.

Regular or Direct - Where Should You Invest?

You invest in a normal scheme when you use a licenced broker or mutual fund agent. However, you invest in the direct plan when you speak with the Asset Management Company (AMC) or mutual fund firm directly.

A direct mutual fund scheme's Net Asset Value, or NAV, is frequently higher than that of a standard plan. In actuality, a portion of your investment in a normal plan goes to the broker or agent. As a result, the cost ratio (the amount AMCs charge to maintain your account) for ordinary mutual fund schemes may be greater at the mutual fund house.

Continue reading to learn how to invest in direct mutual funds now that you are aware of the distinctions between regular and direct mutual funds.

The Types of Mutual Fund Schemes Available in India

The most popular mutual fund plans in India are as follows:

1. Growth: Long-term investors participate in these plans. Growth funds are typically equity-based, which means that more than 90% of your investment goes toward purchasing stocks of different large, mid, or small-cap companies.

2. Liquid:- People with a limited investing horizon should choose for liquid programmes. Investing in debt securities like treasury bills or commercial papers is done by liquid funds. Since there is no lock-in period for these money, you can remove the entire amount whenever you choose.

3. ELSS:- For many investors looking to reduce their tax burden, the Equity-Linked Savings Scheme, or ELSS, is a popular option. You can deduct up to INR 1.5 lac from your taxes if you invest in ELSS according to Section 80C. Additionally, your investment will be locked for a minimum of three years.

4. Income:- Investments made by income funds often involve low-risk financial securities like bonds or debentures. Investors that finance income funds receive a consistent income from the fund. Every month or every three months, fund houses normally sell a certain number of units and deposit the proceeds into the investor's bank account.

5. Capital Protection:- As the name would imply, the main goal of these plans is to safeguard your capital. These funds invest in both debt and equities to guarantee risk-free capital growth.

6. Fixed Maturity:- These closed-end funds have a maturity date, much like a fixed deposit. Your funds are locked in till maturity if you invest in these funds. These funds often invest in assets used in the money market and offer a hypothetical yield.

7. Pension:- You may put money into these accounts to build a sizable retirement fund. These funds, like capital protection funds, invest in a variety of debt and equity instruments to produce stable capital growth while minimising risks.

8. Fund of Funds:- These plans invest in other mutual fund plans offered by the same or other mutual fund companies. Your fund's worth will rise if every plan does well, and vice versa.

You must have worked out how to invest in direct mutual funds by now, as well as the many options available to you. Now, let's focus on the top three recommendations for selecting the ideal mutual fund plan for 2021.

3 Tips to Choose The Best Mutual Fund Schemes

1. Investment Objective and Risk Tolerance Level 

Mutual funds, in contrast to fixed deposits, are subject to change. You must first assess your degree of risk tolerance before determining your investing goals.

For instance, remaining invested for a long time could be a better choice for you if you are a risk-averse investor. According to conservative calculations, long-term investors seldom ever experience losses. But if you don't mind taking chances, put money into aggressive equity funds.

2. Investment Style

Some investors just make investments for capital gains. They set a financial objective and strive to meet it. However, some other investors make investments in order to generate a consistent income.

Select "Growth" if you wish to invest in capital growth. However, if you require an income, the "Dividend" option will better suit your needs.

3. Expense Ratio and Entry or Exit Load

The cost that mutual fund companies charge to manage your money is known as the expense ratio. The fee may range from 0.50 percent to 3 percent. The cost you must pay when purchasing or selling units is referred to as a "entry load" or "exit load." The entrance or exit burden might be between 0.50% and 3% of the expenditure ratio. Some mutual fund programmes, particularly liquid funds, do not impose entry or exit loads, nevertheless.

Therefore, consider the fee and load before selecting the best mutual fund scheme. Lower income will result from a higher fee.

Invest Now Before The Market Changes Its Course

You are thus aware of how to choose the finest plans and how to invest in direct mutual funds. It's time to put your newly gained information to use and make investments that will pay you handsomely.

Mutual Funds English can be your go-to destination to get information about the best-performing mutual funds. You can compare funds, evaluate their performance, and invest within two minutes.