How to Choose the Right Mutual Fund Investment Plan and Maximize Returns

Mutual funds revolutionized investing in India by offering a simple and effective way for individuals to build wealth. While variety adds flavor to life, the wide array of mutual fund options can sometimes lead to confusion and indecision.

With the likes of aggressive equity funds and conservative debt schemes, the options available are endless. On top of that, trying to integrate these investments with your financial goals makes the investment decision convoluted.
What is the best way to identify the most appropriate mutual funds investment plans for you? Moreover, how does one achieve maximum return with minimal risk taken?

Let’s explain further.

Step 1: Define Your Investment Goals

Before looking into which funds to invest in, consider the following:

* What is the reason for investing? (e.g., retirement, house purchase, kids’ education)

* How long am I looking at investing for? (Short-term <3 Years, Medium-term 3-5 years, Long-term >5 years)

* How much of a risk am I willing to take?

These questions need to be answered as they will help decide whether you should choose long term mutual funds, short-term debt funds, or a balanced portfolio.

For instance, a 30-year-old has a long investment horizon, allowing them to ride out market volatility and benefit from the higher long-term returns of equities. In contrast, someone saving for a wedding in two years needs capital preservation and liquidity, making stable, low-risk instruments more suitable than volatile market-linked options.

Step 2: Choosing the Appropriate Category of Funds

Note the different fund types and how they fit an investor’s needs:

1. Equity Mutual Funds

This is best for long-term appreciation over 5 years, and if you can absorb fluctuations in the market.

* Large Cap Funds: Large blue-chip companies with a huge market cap look to generate stable returns.

* Mid & Small Cap Funds: Higher returns but also more volatile.

* ELSS (Equity Linked Saving Schemes): A Combination of tax-saving investment and wealth creation.

2. Debt Mutual Funds

This category is perfect for risk-averse investors or short-term objectives like saving for college. This category focuses on government securities, bonds, and fixed income instruments.

* Liquid Funds: Suitable to hold excess cash.

* Short Duration Funds: 1–3-year goals with low risk.

3. Hybrid Funds 

These invest into equity and debt, perfect for those new to investing or looking for moderate returns relative to lower market risk.

* Aggressive Hybrid: 65-80% equity and 20-35% debt.

* Conservative Hybrid: 75 -90% debt and 10-25% equity.

To achieve most targets set for wealth accumulation, long term mutual funds outperformed other categories in several goals with a dominating equity allocation.

Step 3: Analyse How a Fund is Performing, But Also Look Beneath the Surface

Evaluating a fund based on its past returns is vital, but it fails to tell the entire tale. Remember to check:

* Consistency: Does the fund remain above its benchmark and peers throughout the investment?

* Risk Metrics: Analyse the Sharpe Ratio (return/risk), standard deviation (volatility), and beta.

* Fund Manager Track Record: Bringing on seasoned managers with set strategies always helps, especially in harsh markets.

* Expense Ratio: Lower expenses result in higher net returns over time. This metric should always be assessed relative to funds in the same category.

Step 4: SIP or One-Time Investment?

Systematic Investment Plans (SIPS) allow funds to be invested in set intervals, eliminating the need to time the market. This is ideal for salaried individuals or those who are just starting with mutual funds.

On the flip side, lump sum investments are ideal when the market has corrected itself, or when there is cash lying around that needs to be put to work.

Best practice involves using both methods. This way, regular SIPs can be set as the baseline and bucks during the dips to enhance overall returns.

Step 5: Review and Rebalance Regularly

Your work does not stop after investing. Evaluate the performance of your fund at least once a year and check it against the mutual funds' investment plans of the same category. This is important to do because you may have some funds that do not perform well throughout or have subtle strategy changes. In such a case, it is prudent to shift from such funds and consider switching.

Also, as you achieve different milestones in your life, the goals you set for yourself, along with your risk appetite, change. With such circumstances, your portfolio needs to be rebalanced. As an example, when expecting to meet a financial goal, you can shift from aggressive equity to hybrid or even debt.

How DealPlexus Helps You Invest Smarter?

Given the number of factors that need to be considered, identifying the right mutual funds investment plans can easily become a full-time job. This is where DealPlexus helps you out.

Whether it's retirement planning, tax savings, or wealth creation, DealPlexus provides:

* Fund recommendations constructed by experts according to the customer’s appetite for risk.

* Investing tools focused on life milestones that assist you in choosing mutual funds that meet life milestones.

* Instant portfolio updates and notifications for all other relevant financial activities.

* Access to the foremost long-term performing mutual funds, which are available having undergone rigorous research.

By removing the unnecessary complexity, DealPlexus makes mutual fund investing smarter and simpler. You are now ascertained that in the absence of guesswork; you can confidently amass long-term wealth.

To Wrap Up

To invest successfully, set your investing strategy based on your goals, risk tolerance, timeframe, and not on trying to chase the market’s highest returns. The best performing mutual funds investment plans are the ones that one can continue to follow in rough markets.

With disciplined spending habits, proper research, and support from DealPlexus, achieving superior returns is made simple.

Let your investments chase you and start working today! Divide your funds in a way that helps them grow while you sleep.