How to select best mutual fund ?

Since last few years, Mutual funds are center of attraction for all investors in India. Situation is such that financial planning without mutual funds seems impossible for many. But, is it true and if yes how to go about it. 

'Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing'

Have you ever asked this question to yourself. Why this line is mandatory disclosed with every Mutual Fund ads and product documents ?

Simple answer : Everyone in Financial World will advice you based on past data and future probability. As Market is dynamic and changes on daily basis all investments are subjected to risk. Offer documents helps Mutual Funds to pass liabilities on you as now you’ll be responsible for your decisions.

Kya Mutual Funds Sahi Hai ? - Share your view in comments below and wait for my next post. 

Today we will understand, how to select best fund for your investment. You might be Surprised why we are discussing this topic first ! Don't be, next post might completely change your view on Mutual Funds completely. Stay Subscribed.

Best Mutual Fund selection process: 

1. Financial Plan - Your financial plan must be very clear. This includes amount to invest, tenure, realization gains expected or maturity amount. 
2. Risk Appetite -   It is very important to understand taking unusual risk for higher is not required. You can check my previous posts for more details.
3. Selection of right fund category -  There are multiple type of fund category: ELSS, Equity, Debt, Sectoral funds, Thematic funds, Liquid Funds, etc. This depends mainly on three factors tenure, amount to be invested and method of investing. 
4. Method of Investing - Investing through Lumpsum and SIP has a huge significance on investment and selection of funds.

Once above basic parameters are in place, you now need to filter funds based on three basic criteria.

You can use this link for the same: http://destyy.com/wNtH0F

1.  Standard Deviation - Always try to find funds which have standard deviation in line with Nifty funds or nearby by them. Standard deviation measures the volatility the fund's returns in relation to its average.
2. Beta - Prefer funds with Beta of 1 or below. A beta of less than 1.0 indicates that the investment will be less volatile than the market.
3. Alpha - Higher the better. Alpha is a measure of an investment's performance on a risk-adjusted basis.

Fund Manager & Fees are other important criteria. They are not included in above list as it depends on fund category you want to invest.

Share your views in comments below and let me know if your need more explanation on any of the above points. Also, if you have any questions in mind do ask them in comments. 

Related Post:  

1. Index Fund Investing way for Future ?
2. Mutual Fund Sahi Hai ?