Investing in mutual funds gives the best returns compared to the savings account. There are different types of mutual finds in the market. There are actively and passively managed funds. Some of the actively managed funds are equity funds, growth funds, hybrid funds, retirement funds and so on.
Here are some tips to select best mutual funds that will give you good returns:
- Choosing the funds usually depends on the requirements, preference, age and investment objective. If someone wants more profit and is willing to accept the risk factor then growth funds are the right option for you. If someone cannot afford the risk then hybrid funds is the suitable option.
- One also needs to decide how many mutual funds to invest in. One should buy at least three to five funds so that the amount is diversified.
- Select the sector in which you want to invest. It is advised to choose a fund so that the investment money is distributed in all the sectors.
- Expense Ratio:
The expenses and the fees should be kept low. The funds with low charges perform better in long run compared to the ones with high costs. Go for the mutual funds which have expense ratio below 1.00%. Expense ratio includes management fees, administrative cost and other annual expenses.
- Alpha Ratio:
This measures the risk in comparison to the benchmark index or market. The alpha should be more positive.
- Sharpe Ratio:
This indicates if the return of the investment is due to excess risk or smart investing decisions. Higher sharpe ratio is considered to be better.
- Make sure you check the details of the mutual funds before you invest. Analyze their performance of the previous years. A good mutual fund is said to be the one that regularly outperforms its benchmark over 3-5 years.
- You should also know about the companies and if they are reputed or not the ones in which the fund invests in.
- After you have shortlisted funds then look for their portfolio allocation. If more money has been put in mid cap and small cap funds then the risk is more than average but it also give good returns
- There are several resources on internet. Check on various sites and tools.
- Thus make sure you follow these tips and you are able to choose the right fund. All your investments should be made according to the portfolio and requirement.
Some of the top performing mutual funds:
There are several large cap funds that invest in large cap companies. When the markets are skyrocketing this may mean muted funds. But they give stability to the investment portfolio. Some of the top performing funds in this category are ICICI Prudential Top 100 Equity, Franklin India Bluechip Fund and DSP BlackRock Top 100 Equity.
HDFC Top 200 is the best fund in large and mid cap category. It comes with a 10 year record of giving an annual return of 31.66 percent.
There are several top performers in multi cap category like HDFC Equity with 19.55 percent annual return in three year period, UTI Dividend Yield with 19 percent and Quantum Long Term Equity with 18.17 percent.
Other funds in mid cap and small cap category are Birla Sun Life Dividend Yield Plus, ICICI Prudential Discovery, ING Dividend Yield and IDFC Small and Midcap Equity with annual returns of 20 percent in three year period.
Canara Robeco Equity Tax Saver, HDFC Taxsaver are some of the top performers in tax saving category with annual return of more than 15 percent over three years.
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