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How Can You Choose The Right Mutual Fund?


A mutual fund collects money from individuals and invests in stocks. With the change in their prices over some time, the value of the shares held by the fund house increases or decreases. This benefit is distributed among those who have invested in proportion to the amount of their investment.

How Can You Choose The Right Mutual Fund

Depends on the type of scheme invested

Depending on the type of scheme invested in it, mutual fund returns range from -10 percent to 25 percent per year. Each mutual fund house has different plans. Each plan deals with the type of shares in which it is going to invest.

1. A large-cap scheme, for example, invests only in large companies like Reliance, TCS, Infosys, Tata Motors, SAIL, etc. The shares of these companies do not fluctuate much because they are very stable and people hold these companies. ‘Stocks only sell them when they need money.

These stocks usually transfer from one generation to another. Profits from these firms are also limited, as the growth of large firms is 6 to 8%. In large-cap schemes, the returns of good mutual fund houses are limited to 10 to 12 percent per year. Almost all funds have large-cap schemes. Some of the ordinary people include Reliance large Cap, HDFC large Cap, Franklin Blue Chip, Franklin large Cap, DSP Blackrock, SBI Blue Chip Fund, ICICI Blue Chip, Prudential large Cap, Aditya Birla, Motilal Oswal, Mira Asset, HDFC Index Fund Huh, ICICI Nifty Next 50, etc.

Who does not want to take too much risk and do not want to park their funds for too long can invest in them — ideal for investment for 3 to 5 years.

2. Mid-cap or multi-cap schemes invest in stocks of companies that are 10 to 15 years old, have established them, growing at a rate of 15 to 50% annually and have a potential blue-chip shortly. Or large-cap companies. These schemes provide maximum returns for an extended period of 5 to 10 years.

There are several mutual fund houses, which have given 18 to 25% annual returns to investors under these schemes since inception.

These are ideal for starters who are in their 30s and will need money for their children’s higher education. They want to build their marriage or retirement corpus. A monthly SIP of around 25k invests for a period of 20 to 25 years, which will be in the form of a vast fund running into crores.

3. The next schemes are small-cap funds. These are schemes that invest in relatively new and small sizes. The stocks of these companies touch the sky in the bull phase and also sink their noses in the bear phase. The fund houses investing in these companies offer annual yields, which are about 30% annually from negative. But it is challenging to analyze what year it will be. Some schemes in this category have given returns of up to 40% in the previous year, but are negative from 0 to -12% this year as well. Investing in these schemes is extremely risky and beginners should avoid it.

4. Another funding category is ELSS — investments in this category exempt from income tax on the annual limit of Rs 1.5 lakh. The lock-in period is only three years and yields range from 8% to 15%. HDFC Tax Saver, Franklin Tax Saver, Mirae Asset Tax Plan, Axis Long-Term, Aditya Birla, DSP Blackrock, etc. are some good funds under this scheme.

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