Everyone seeks substantial returns from their investment. In doing so, many look for best mutual funds, often by past returns. However, focusing solely on returns can be counterproductive and risky. This article explores picking mutual funds that match your investment objectives.

Dispelling the "Best Mutual Fund" Myth

The notion of "best mutual funds" is deceptive. A fund performing well today may not excel tomorrow, and a poorly performing mutual fund might become a top performer. Investors have incurred considerable losses while chasing this illusion, neglecting their financial goals along the way.

Investors commonly evaluate a fund's performance over one to three years, selecting those with top returns. However, investing shouldn't follow this "one-size-fits-all" method and should align with your investment goals.

Choosing Mutual Funds Based on Investment Goals

Achieve success by choosing mutual funds aligning with your investment horizon and risk tolerance.

Key Considerations:

• Risk Assessment: Evaluate the level of risk you can tolerate, as various mutual fund types have differing risk profiles.
• Investment Horizon: Your timeline affects fund choice. For example, debt funds suit short-term objectives (1-3 years), while small or mid-cap funds are optimal for long-term horizons (over 7 years). For medium-term (3-5 years), hybrid funds are advisable.
• Equity Funds: Pursue investments beyond five years given market volatility.

3 Criteria for Selecting a Mutual Fund

#1 Downside Protection

Assess a fund's ability to shield against losses. A fund with fluctuating returns is less desirable than one managing downturns systematically.

#2 Return Consistency

Consistency is essential. A fund delivering stable returns is more reliable than one with sporadic performance highs and lows.

#3 Fund Manager Track Record

The expertise of a fund manager significantly impacts its success. A skilled manager can improve an underperforming fund. Therefore, assessing the fund manager's history and approach is vital.

Conclusion

Resist the temptation of the "best" mutual fund. Instead, focus on identifying the right fund that fulfills your specific investment requirements, emphasizing criteria like downside protection, return consistency, and managerial expertise. Adhering to these principles simplifies selecting the optimal mutual fund. Start investing efficiently with the ETMONEY app to align with your investment goals.