There are scores of equity mutual funds available in the market so that investors can select them per their financial goals. But wide availability of options also leaves investors confused as to which is the right product for them. The process to choose the right product is pretty simple and involves a little bit of self-assessment. This article discusses how you can choose the best equity mutual fund for investment. But before that, let's discuss a few factors which will drive your decision.
Age and Risk Appetite
When it comes to investing, an investor's age is a crucial determiner of his/her ability to take the risk. It is believed that an investor's appetite for risk is inversely proportional to age, meaning a young investor is capable of handling more risks than the one in the age group of 50 or 60. Likewise, a young investor can stay invested for more years than an older investor to reap the benefits of equity mutual funds, which perform better in the long run. Both these factors influence one's decision regarding mutual fund investing.
Apart from age, risk appetite is also a critical factor that influences investment decisions. Investors with a lower appetite for risk would prefer to invest in debt funds that earn fixed returns.
Investment Horizon
When it comes to investment, equity funds are best suitable for a longer investment horizon, and debt funds are recommended when investment tenure is less than three years. Debt funds yield better over a shorter period because of their predictable, risk-free nature. On the other hand, equity mutual funds perform better when invested over a long investment horizon. Young investors, therefore, should consider investing more aggressively in equity mutual funds since they can stay invested for an extended period.
Keeping these factors in mind, let's now see how to select equity mutual funds.
How to choose the right equity mutual funds then?
There is no golden rule that one can apply to find the best equity funds, but looking at the CRISIL and Value Research ratings is a good start. A five-star rating provided by Value Research is considered good. However, it is nearly impossible to pick one best equity mutual fund because a lot depends on market condition, fund manager's decision-making ability, and industries where it invests.
A fund that has performed well yesterday might not do so tomorrow, making equity fund investing tricky. You can rely on the services of a financial expert or research the market to find a good one. Also, remember to review the performance of the portfolio time-to-time and align it to your investment goals.
