3 ways to invest in the best mutual funds

Those who are embarking on their first mutual fund investment stand to gain by taking these 3 tips on board.

Investing in mutual funds is par for the course for serious investors looking to create wealth for the future. But even the most experienced investor began their journey from a simple instrument, and so can you. If you have been gravitating increasingly towards mutual funds in India, you can take heart in knowing that selecting the right fund is easier than you imagine.

Before you shortlist the most likely fund you want to invest in, follow this 3-point guide:

1 Identify your financial goals.

The first step is to list down both the short term and long term financial goals. Identifying your goals helps you map the time frames required to realise them. This often entails asking one of the following questions:

• Do I want long term gains? How long can I keep my money tied up, and what should I do to address emergency liquidity concerns?
• Do I want regular income in the short term? Am I prepared to accept short term volatility?

Answering these questions helps pare down the list of likely mutual funds in India that satisfy either of the two strategic goals.

2 Identify the fund type suited to your risk appetite.

Your propensity for risk goes a long way in helping to choose the best mutual fund that suits not just your goals, but also your appetite for risk. You might have a higher appetite for risk, and opt for short term funds despite their inclination to show swings in the market conditions. Or you might take a more conservative approach and choose a longer term (four years or more) to tide over market volatility and gain higher returns. Novice investors are advised to stay invested in the fund for at least five years, so as to get higher capital gains.

3 Pick the fund best positioned to realise your goals.

This is where a lot of research and a bit of intuition are needed. At this stage, you will actually select the fund that ticks all the boxes for you. The best mutual funds in India are positioned to deliver on these goals:

• Wealth creation
• Tax savings
• Regular income
• High liquidity.

Picking the right mutual fund house is key to making a rewarding investment. The fund manager that works with you must understand your investment style and internalise your financial goals. Often, if the investment style of the fund manager does not jell with that of the investor, it can result in lower gains overall.