Best Performing Mutual Funds to Invest?

As an investor, you would want to get valuable returns from your investments and grow your wealth fast. In this endeavour, you may look for the best mutual funds, which may invariably be equivalent to funds that have generated valuable returns in the past. But, experts suggest that investing with only returns in mind can be counterproductive.Many investment experts have corroborated that the concept of the best mutual fund is a myth. This is because the mutual fund that has performed well in the past may not perform in a similar manner in the future. This means, if you choose a fund based on the past or current performance, there is no guarantee that it will yield the same returns in the future. Similarly, the funds that are not performing well today may become the best-performing ones in the future.When it comes to investing in mutual funds, there is no 'one size fits all' type of funds. This means the fund which worked well for someone in the past may not necessarily be the right scheme for you and vice-versa. So, when you invest in mutual funds, you must look beyond the best performing funds and choose the funds that suit your specific investment goals.The right way to go about investing in the mutual funds that are in sync with your investment goals is by answering two important questions –

• For how long do you want to stay invested?
• What is your risk-taking capacity?

Once you know the answers to these questions, you can find the best mutual fund category that fits your objective.For example, if you wish to invest for a shorter duration like one to three years, it is better to invest in debt funds. On the other hand, if you are looking to stay invested for a longer duration, like five years more, you can consider investing in equity funds, mid-cap funds, or small-cap funds.Now that you know the right mutual fund category as per your investment horizon and risk appetite, here are a few tips to help you choose the right fund .

The fund's performance matters a lot while choosing the right mutual fund scheme . But, you must consider the fund's long-term performance through multiple cycles. If the fund has not been able to beat its benchmark returns value in the past three, five, or seven years, you can reasonably conclude that it may not be a good investment in the future.

When you invest in mutual funds, there are certain charges that you must bear, like the Exit load and the Entry load . These are the fees charged by the fund houses. The Entry load refers to the price you must pay to start investing in the mutual fund scheme, and the Exit load is the fee you pay when you withdraw your investments from the scheme.Today, most fund houses do not levy Entry load, but the Exit load remains; mostly, the fund houses levy exit load when the investors withdraw the funds before a prescribed limit. When you are looking for the best mutual fund scheme, you should look for schemes that have zero or minimal charges.

Another critical aspect you must consider while choosing the right investment scheme is the consistency of the funds' performance. For example, assume that a fund offered 9% returns in the first year, and in the subsequent two years, it offered 9.5% and 10% returns.Now, compare this with another fund that offered 12% returns in the first year, 1% in the second year, and 6% in the third year. Among the two funds, it is obvious that the first funds are more consistent than the second as its returns increased every year, albeit marginally.If you consider the above tips while selecting the mutual fund schemes, you can call them the best mutual funds for you. Final Word The best investment approach is to look for the right mutual fund to suit your financial goals rather than chasing the best mutual fund's illusion. Make sure you do your research well about the scheme, the fund manager's credentials, the fund houses' terms and conditions before making the final choice.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.