A significant proportion of investors choose mutual funds instead of traditional stock exchanges because the technicalities of online trading overwhelm them. You might want to take advantage of the wealth-building benefits of online trading, but you might be overwhelmed by the technicalities of the process. Such funds invest a pooled amount of money from a large number of investors in a variety of securities on their behalf. This eliminates a significant portion of the arduous decision-making that goes along with stock market trading.

Various types of mutual funds are available on the market, but you must conduct exhaustive research to find a fund that is right for you. In order to determine if a fund is just good based on market parameters, or if it is the best fit for you, you have to assess several factors. The word ‘best’ cannot be universally applied to all investors.

You should consider the following factors before shorting the best mutual funds to invest in:

You must first ask yourself the ‘why’ question in order to build a successful mutual fund portfolio. Why are you investing in mutual funds? The answer to this question will assist you in identifying your goals and objectives. Your mutual fund investments may be able to fund your children’s higher education, your vacation abroad, or your retirement. Which mutual fund is best for you depends on the specific goal you choose.

Your risk appetite is a significant factor to bear in mind. Mutual fund investments that are more risky could bring you larger returns, but also greater losses if the market experiences a downturn. If you believe that you would not cope well with rapid fluctuations in the market, then a more moderate approach to mutual fund investments might be better suited for you. Accordingly, as your selection of mutual funds is contingent on your appetite for risk, it is important to evaluate this thoroughly before looking into any funds.

Choosing mutual funds requires you to know the duration for which you’ll be investing. For example, funds with a 5-year lock-in period may be ideal for those planning on a long-term investment, whereas funds with this lock-in period may not be the best fit for those concerned with short-term liquidity.

The three components of your investment approach – goals, risk appetite and preferred investment tenure – play a critical role in deciding which mutual fund to invest in. In this context, if you are a conservative investor with long-term objectives (5 years or more), large-cap funds may be the better option, while those who are willing to take on higher risk and looking for short-term investments (up to 3 years) should consider hybrid funds.

Here’s how you can start your search for the best mutual funds to invest in India once you’ve outlined your goals, timeline, and risk appetite:

A thorough review of a mutual fund’s historical performance may be used as an indication of its abilities and of the returns it has provided its investors. While no guarantee is made to future performance, analyzing this attribute can provide an idea of how it has performed over time. Investing in a mutual fund that consistently outperforms its benchmark may be a sound decision.

Every fund house is led by its fund manager’s investment strategy. This will dictate where your money goes if you invest in the mutual fund. If your strategy does not match the one of the fund house, it may not be wise to add this investing option to your portfolio. For instance, if you favour low-risk debt funds for long term investments, then selecting a firm that excels in equity funds might not be the best option.

You will be charged a certain amount by the fund house for managing your MFs. This charge includes the fund manager’s fee and is referred to as the expense ratio of the fund. Thus, low-expense mutual funds are the best ones to invest in because they take away a large portion of your earnings.

The exit fee is also intended to discourage investors from exiting mutual fund investments in the short-term. If you are looking to invest in mutual funds online, you should look for options that come with zero or minimal exit fees.