How to Choose the Best Mutual Fund in India?

Finding the best Mutual Fund is a challenging task for many investors. In 2025, the investment landscape is evolving, with new trends, innovative technologies, and shifting market conditions. Every Mutual Fund has a unique feature. It is becoming more popular due to its feature of diversification of portfolio. There are various types of Mutual Funds, each with its investment strategy and risk profile. In the previous blog, we have given information about the type of risk involved in Mutual Funds. In this blog, we will provide information about how to choose the best Mutual Fund in India.

As we know, a Mutual Fund is a financial product that pools money from multiple investors to create a large fund that is managed by professional fund managers.

Before selecting any Mutual Fund, the following parameters must be considered:

Key Takeaways:

• Objective Of Mutual Fund

• Types of Mutual Fund

• Type of Management

• Risk Associated with Mutual Fund

• Past Performance of Mutual Fund

• Types of Best Suitable Plan

• Taxes Associated with Mutual Fund

The Objective of Mutual Fund

Every investor in India has one main common objective which is to generate wealth through mutual fund investment. Before making any investment decision, it is important to finalize your objective — whether you are looking for long-term investment, short-term investment, or something in between. In India, different types of mutual funds are available.

Long-term Mutual Fund

Long-term Mutual Funds help to create wealth over a longer duration. In this, the fund manager invests money into the stocks of the company for a longer duration, and investors receive dividends which help to make sustainable wealth.
Example: Equity Fund

Short-term Mutual Fund

In this fund, money is invested for a short period. Generally, the investment period varies from 1 to 3 years.
Example: Debt Fund

Selecting the Best Type of Mutual Fund

• Equity Fund: It is considered the most high-risk high-return Mutual Fund. In this fund, money is invested in different Stocks or Sectors.

• Debt Fund: It is called a fixed-income fund. Generally, money is invested in government bonds or corporate bonds.

• Hybrid Fund: Money is diversified into equity, debt, securities, etc. Hybrid Funds help to balance the overall portfolio.

• Index Fund: The index represents the overall performance of the stock market. Through index funds, money is invested into all the companies of the particular index.

• Money Market Fund: Government Securities, Government Bonds, and Treasury Bills are the investment options in Money Market Funds. It is a short-term fund that has low risk and low return.

• Income Fund: It is quite similar to a Debt Fund. Money is invested in government debt which generates fixed guaranteed income on a steady basis.

Type of Management

There are two approaches followed in the Mutual Fund ecosystem:

1. Actively Managed Mutual Fund:
   The Fund Manager is responsible for making decisions on the diversification of the portfolio and finding the right opportunities.
   Examples: Equity Mutual Funds, Debt Mutual Funds, and Hybrid Mutual Funds are actively managed Mutual Funds.

2. Passively Managed Mutual Fund:
   Money is directly invested into an index fund or Exchange-Traded Fund (ETF).

Analyze the Past Performance of the Fund

Good past performance does not guarantee future results, but it is important to analyze some insight data, which helps to know how the fund performs under different market conditions. Analysis of recent fund performance shows how your investment is going, and long-term historical performance shows good investment decisions and knowledge of the fund manager team.

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Types of Best Suitable Plan

• Direct Plans are purchased directly from the Asset Management Company (AMC), which ultimately helps to reduce commission costs and results in a lower expense ratio.

• Regular Plans are purchased through distributors or brokers, which incur a higher expense ratio due to the commissions they charge.

Expense Ratio of the Fund

Expense Ratio is the cost for a company for a particular year. It includes various fees like management fees, operation fees, and other allocation charges. Generally, an actively managed fund has a higher expense ratio as compared to a passively managed fund.

The Risk Associated with Mutual Funds

There are multiple risk elements linked with mutual fund investment. Market Risk, Inflation Risk, Currency Risk, Management Risk, etc., have a major influence on Mutual Funds.

Transparency and Trust

Transparency is an important factor while making any investment decision. A good Mutual Fund should be transparent in its operations. The facility for investors to get the performance of the fund and other financial reports is important.

Conclusion

First of all, every investor should understand that there are no Mutual Funds in the market that will give you a guaranteed and quick return; it requires time. It is a long-term wealth-creation process. To select the best mutual fund, the investor must have the ability to analyze the historical performance of the fund. If the investor is not able to understand the historical performance of the fund and various other financial metrics, then the investor should consult with a financial advisor.

FAQ

1. How to check a good Mutual Fund?
Ans: The historical performance of the fund, Expense Ratio, and Type of management are some of the key parameters for choosing the best mutual fund in India.

2. Which is the No.1 ranked Mutual Fund in India?
Ans: There is no mutual fund that ranks 1 permanently. The ranking of the mutual fund is dynamic and varies from time to time. SBI Mutual Fund ranks first position based on assets under management.

3. What is a Flexicap Fund?
Ans: It is a type of equity fund in which money is invested in large-cap, mid-cap, and small-cap segments.

4. What is the future of Mutual Funds in India?
Ans: The Indian Mutual Fund industry has reported tremendous growth in the last decade. Over the last 10 years, the average growth rate in India was about 20% annually.

5. What is the main purpose of a Mutual Fund?
Ans: Mutual Funds are useful for diversifying our portfolio. They provide facilities to invest money in different segments. Also, mutual funds offer accessibility and affordability for investors.

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