5 Factors To Check Before Choosing A Mutual Fund

A mutual fund is a type of investment programme that pools the money from numerous investors to purchase a variety of securities. The fund management then invests these monies to buy different securities, such as gold, equities, bonds, etc. Each mutual fund will have a distinct goal and yields that vary.

The mutual fund scheme that best meets an investor’s investing goals and risk tolerance is one that also takes other elements into account. Even if opening a mutual fund account these days is a simple and convenient process, it is crucial to know how to choose the best mutual fund to invest in.

Here are 5 things to consider when selecting an Online Mutual Fund Investment.

Do Your Research
There are several factors to take into account while choosing the best mutual fund, including return expectations, risk tolerance, investment horizon, investment knowledge, etc. Each type of mutual funds is unique, and as a result, each has a unique level of risk. However, there isn’t a single system you can use to compare the risks associated with various mutual fund categories. Prior to starting your investment adventure, it’s crucial to do some research because it will assist you to make a more informed decision and provide you a clear picture.

Know Your Goal
Prior to choosing to invest in a sip mutual fund, you must determine your goal. For instance, if you have long-term financial goals, you can invest in equity funds; but, if your financial objectives are short- or medium-term, you can invest in debt funds.

Therefore, deciding the aim comes before selecting a mutual fund. The phrase “time horizon” refers to the length of time a prospective investor plans to keep money in a mutual fund scheme. It could be less than a day or longer than five years. Various time horizons call for distinct investment categories that perform best. This is thus because some funds invest in debt with shorter maturities, while others invest in debt with longer maturities.In general, equity investments are best for long-term investments of seven years or more, whereas debt funds are best for short-term investments. You can choose a fund that is most suited to your goal by considering the time frame you are looking for and the profits you expect.

Do a Risk Analysis
The level of risk an investor is willing to take with the money they have invested is referred to as risk tolerance. This pertains to both the investor’s risk tolerance and their comprehension of the hazards associated with each mutual fund and whether they are compatible with one another.

The degree of risk that an investor is willing to take in order to increase their chance of earning higher returns on their online Mutual Fund Investment is referred to as risk appetite or risk profile of an investor. Investor risk profiles can be divided into three basic categories: cautious or risk-averse investors, aggressive investors, and moderate investors.

Check the Expense Ratio
The cost ratio is the commission or fee assessed to investors for the proper management of their investments. It effectively functions as the fund manager’s fee, which is levied against all investors to guarantee that gains are realised across all assets.

You should look for mutual funds with a low expense ratio if you’re an investor. This is due to the fact that even though the percentage may seem smaller now, it has a big impact when applied to your entire investment portfolio over a long period of time.In general, the smaller the expense ratio, the higher the net returns of a mutual fund plan.

Consider the Taxes Your Investment Attracts

Every new investor should think about how much of their fund’s income will be subject to taxes. Based on the holding period and applicable tax rate, the returns from equity mutual funds are taxed. Post-tax returns are frequently efficient with mutual funds.

Investors, especially newcomers, must take tax considerations into account. Before planning to invest your money in a particular scheme, it is crucial to find out the tax liability that will result from it and to comprehend the overall impact of the scheme in terms of returns subject to taxation.


You cannot pursue investing as a side business. If you want to succeed even with mutual funds, you must be proactive and vigilant. Because mutual funds are vulnerable to market risk, conducting a basic study of a specific investing strategy becomes crucial. But be aware that past performance is no guarantee of future results for a fund, regardless of how well it did in the past.

Always make it a habit to check that the goals of your financial portfolio and the investments you make in online Mutual Fund Investment are compatible.

CA Mukesh Gupta
CA Mukesh Gupta
Mukesh Gupta is the founder and director of Wealthcare. He is Fellow chartered accountant, Certified Financial Planner and Certified Public Financial advisor. He is in financial services industry since 1994. He conducts free money management sessions for corporates and associations on topics related to Personal finance. His previous engagement was with Birla Sunlife group. He regularly writes on topics related to Personal finance and occasionally appear on electronic media.

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