To choose the best performing mutual fund to invest in, a variety of criteria must be taken into account, including benchmarks for funds, the performance of the chosen funds relative to other funds of a similar category, historical returns, ratios, profile of the fund managers, and more. For long-term investors with retirement plans, investing in mutual funds has been shown to be a lucrative wealth creator, particularly in the equity category. However, there are numerous other types of mutual funds available, including equity, debt, hybrid, multi asset, flexi cap, fixed-maturity funds, tax-saving funds, liquidity-based funds, and so on. Investors may find it challenging to choose the best-performing fund from a vast sector. Let’s find out the solution from our industry experts. Dikshit Mittal, Fund Manager & Senior Equity Research Analyst LIC Mutual Fund Asset Management Ltd Identify your investment goals and risk appetite: Before selecting a mutual fund, it's important to determine your investment goals and risk appetite. This will help you narrow down your options and find funds that are aligned with your investment objectives. TRENDING STORIES See All Premium India’s earnings growth prospects more promising than peers Premium Uddhav Thackeray takes Shiv Sena name, symbol battle to . . . Premium Life insurance stocks need cover Premium ‘AMD India biz more than doubled in 2 yrs’ Evaluate past performance: Look at the past performance of the mutual fund over different time periods (1 year, 3 years, 5 years, 10 years). It's important to remember that past performance is not indicative of future results, but it can give you an idea of how the fund has performed in different market conditions. Analyze the fund's investment strategy: Understand the fund's investment strategy and see if it aligns with your investment goals. Look at the fund's investment philosophy, the type of companies it invests in, and the fund manager's track record. Check the expense ratio: Mutual funds charge an expense ratio to cover the cost of managing the fund. Look for funds with a lower expense ratio as they may tend to perform better over the long term. Look at the fund manager's track record: Evaluate the fund manager's experience and track record in managing the fund. Look at the fund manager's investment style, performance history, and how long they have been managing the fund. Compare different funds: Compare the performance, expense ratio, investment strategy, and other factors of different mutual funds to find the one that is best suited for you. Diversification: Diversification is essential to reduce risk in your investment portfolio. Look for mutual funds that have a well-diversified portfolio across different sectors and asset classes. MORE FROM THIS SECTION See All Premium Premium Who's going to benefit from integration of India’s UPI . . . Premium Premium Some FTX customers get their money back—in Japan, at least Premium Premium Transparency and Transferability: New age of Alternativ . . . Premium Premium Private banks better placed than state banks in India: . . . Read the scheme documents: Read the scheme documents carefully before investing in the mutual fund. These documents contain all the relevant information about the fund, including its investment strategy, asset allocation, past performance, and expense ratio. By following these steps, you can identify the best performing mutual fund for your investment goals and start your SIP. It may be good to consult a financial advisor before making any investment decisions. Karan Batra, Chief Product Officer, MarketsMojo When choosing the best performing mutual funds to start a SIP in the year 2023, it pays to be thoughtful and consider a few important factors. Before anything else, it's important to assess your investment objectives and risk tolerance to ensure that you select the fund that will be most beneficial to your portfolio. Once you've made this assessment, then you can review the fund's overall performance, investment costs, risk levels, portfolio composition and tax implications to make an informed decision. At MarketsMojo, we believe that the best SIP investments come from funds which demonstrate a consistent level of performance across the three key parameters of Returns, Risk and Portfolio. By researching these metrics, we help you choose a fund that will work towards achieving your financial goals. Seeking the right financial expert can provide an added layer of assurance that you're investing in the right mutual fund for your specific needs. Jinesh Gopani, Head Equity, Axis Mutual Fund Riding on the back of multiple awareness initiatives, Mutual Funds have gained their rightful acceptance in the financial world. While investors have begun to showcase preference towards mutual funds to commence their investment journey, primarily due to the advantage of being able to invest via SIPs, the real question that we need to ask is ‘Do investors know how to select the right fund?’ There are a whole range of factors at play here that are often overshadowed by looking at performance numbers only. With an SIP, one can begin investing a small amount each month, and watch it grow over time. This periodic investment not just promises potentially better returns, but also instils a sense of discipline. Some of the important factors investors need to take into account while starting a SIP in an equity fund to make a wise and informed decision are as follows: Analyse the risk appetite: Analysing risk is not just limited to that of the investor (which by itself is key), but also includes understanding the risks associated with each scheme. This will allow investors to take a macro view of their portfolio and select the fund that matches his/her requirement. Evaluate performance: In the financial world, we can all advocate that ‘History rarely repeats itself’ So if you see a fund performing at its peak in the present, the same momentum may not continue moving forward. Performance needs to be measured against the benchmark. This will help the investor draw parallels between performance against the volatility, the stances taken by the fund manager, the style preference adopted by the fund, etc. to make informed decisions Consider Taxation: All investors need to consider the taxation aspects of investing in mutual funds. The taxation of equity mutual fund returns is determined by the holding period as well as the applicable tax rate. Determine the financial goals: Before signing on the dotted line, it is critical to keep one's financial goals in mind if one intends to invest in equity funds. Every equity fund is different in terms of risk, fund composition, and style. Furthermore, each investor is unique, with varying levels of risk tolerance, financial objectives, and investment horizons. Thus, it is significant to seek funds that are well-suited to one's needs and requirements Source: AMFI, Axis MF Research Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India The benefits of SIPs as many. Ranging from the averaging opportunity to being affordable and helping in creating a financial discipline, SIP’s have been a go to option for investors who prefer to invest a set amount at regular intervals. When it comes to picking funds that you want to start an SIP in, there are a few factors to keep in mind. To start with, we must remember what we’re investing for. When we envisage a goal in mind, its easier to maintain an investment discipline and ensure that we’re working towards the goal. Once we have this set in our minds, we can then start thinking about the level of risk and the type of funds that we’re willing to take. A fund often witnesses peaks and troughs when it comes to performance and this year’s performer may not be in the limelight the year after. For example, we often invest in funds when they have reached the peak of their performance only to see that the returns that they generate are not commensurate with what the fund generated in the past. As markets turn so could the fund’s performance. Two takeaways from here – a combination of trying to predict the markets and investing when funds outperform could prove detrimental to your portfolio. The best workaround to this, it to look at the manager’s stability, the fund’s philosophy, and the fund manager’s adherence to the process. Another important thing to look at is how the fund has performed across market cycles in the past. This will give us a sense of how the manager has been maneuvering the fund, especially in down markets. Think about how much additional risk the fund takes to generate additional alpha and if this ties in with your risk appetite. Attribution reports are a great way to help understand a fund managers investment style. Take for example a large cap manager who generated a significant alpha from his/her mid cap holdings and think about how it fits in with your portfolio. Another example could be of a small cap fund that tends to take on a higher level of liquidity risk in order to generate returns, as investors it’s important that we’re aware of the risks associated with the funds that we’re investing in, rather than looking at returns alone. While investing is a great way of compounding returns and planning for your goals it’s also a process that requires a lot of patience. Often investors exit a fund in panic when it underperforms, thus making mark to market losses. Just as it’s important to not chase performance, it’s also important to evaluate your portfolio and take a well-balanced approach in a manner that higher risks taken on one fund can be balanced out by another in the portfolio. Yogesh Kalwani Head Investments InCred Wealth Investing in mutual funds through a Systematic Investment Plan (SIP) is a timeless strategy to grow wealth in the long term. Here are some steps to help you identify the right mutual fund: Consider the investment style and investment strategy: Mutual funds can be categorized based on their investment style, such as growth-oriented, value-oriented, small-cap, mid-cap, large-cap, etc. The investment strategy of a mutual fund can vary based on the fund's objectives and asset allocation. It's essential to review the fund's portfolio to understand the fund's asset allocation, sector allocation, and stock selection. Look for mutual funds with a diversified portfolio that can help mitigate risk and generate consistent returns. Evaluate the fund's investment strategy / investment style to ensure that it aligns with your investment goals and risk tolerance. Selecting funds based purely on historical returns (based on 1/2/3yr returns) can be misleading and it is observed top performing funds keep varying over time. It is therefore important to evaluate funds on Quantitative factors like consistency in performance, risk-adjusted returns, portfolio composition, AUM size etc. Diversify your portfolio: It's important to diversify your portfolio by investing in different types of mutual funds. This can help you reduce the overall risk of your investments while allowing you to achieve your investment objectives. Ulhas Joshi, CEO, Rank MF, SAMCO Group It is not easy to predict the best performing mutual fund. All funds will have their periods of outperformance and underperformance depending on the market cycle. An investor should first keep his individual risk profile in mind before finalizing a scheme. An investor can consider funds with a high active share with a low portfolio turnover ratio having a composition of high quality stocks. Nitin Rao,Head Products and Proposition, Epsilon Money Mart Investors are often confused as to how to find the best mutual fund for investing. And while enough methods and ways are already available, we often ignore the old maxim: To do less is more and consistency is the key! SIP is a long-term process, and you should review and rebalance it periodically, maybe every 6 months. Therefore, investors can follow the following steps to design their own portfolio and select the best performing mutual fund to start SIP: Investing in Mutual funds means understanding your investment objectives; the why and the when should form the core of the selection process. We are a firm believer of Asset Allocation. And mutual funds provide an excellent platform to diversify across different asset classes- equity, debt, gold, etc. It helps in reducing risk as well as stability. Quality: Mutual fund investing is all about following a strong system and process driven by data. Thus, it always makes sense to track the fund manager, the schemes they manage and the process they follow in constructing their portfolio. Simply selecting the schemes based on recent performance is one of the worst decisions an investor can take. Prakhar Pandey, Founder and CEO, Moolaah With this ever evolving Mutual fund market, and new forms of investment avenues across financial instruments, SIPs seem to be the most stable and handsome form of investment from a long term perspective. However, it is important to define why and which Mutual fund scheme one should invest in. The following 5 reasons need to be kept in mind, before taking a call on a long term SIP: - Investment Objective & Time period The purpose with which an investment is being made shall define the time horizon and risk taking capability of investing. If an investment is from a shorter term perspective, then in general cases the investment shall be in risk averse instruments, however the longer the tenure, the greater the risk taking capability to get a better IRR. Also, defining a goal for investment gives a direction to which the purchase of an SIP can follow. - Diversification & Portfolio Management Analysing what type of risk profile you have, is key to the kind of asset class you should invest in. A well diversified portfolio stands through all weather types in a dynamic & ever changing environment of investing. For example, a 21 year old, want to invest in SIPs will generally be guided to put the majority of money in equity instruments, however, if 100% of the existing money is in equity & the goal of investment is from a travel perspective in 2 years time, then the end investment asset class might shift towards fixed income mutual funds too. - Quality of the Asset Management Group It's always important to choose the right asset management company in terms of investing. Key points of consideration tend to be the quality of the fund manager with his track record, total assets under management, focus on risk adjusted returns than absolute returns, the pedigree of the fund house, and past horrors if made by the AMC. - Costs associated to the Fund / Investment Since the demographics of the Indian diaspora tends to focus more on costs than returns, the key prerogative to look under costs, is whether the investment is in the direct plan or regular plan, the fund management fees on a yearly basis, exit load (if being charged on exit of investment), tracking error in case of ETFs / Index Funds. - Need for a Portfolio Ma