Finding the Right Fund

Choosing the right mutual fund requires careful evaluation of factors that determine its suitability for your investment goal

- Narayan Krishnamurthy

If you track investment news, you have likely encountered a “sure-shot” theme touted as the best entry point. One year, it is gold; another, technology. At other times, small caps, PSUs, manufacturing, consumption or the latest multi-bagger sector dominate the conversation. It can seem as though there is never a moment to sit out. For new investors, such narratives can be spellbinding, fuelling visions of hitting the jackpot by backing these seemingly foolproof ideas.

While some of these themes may indeed deliver strong returns, the real risk lies elsewhere: most investors do not lose money because the themes themselves are flawed, but because they select funds for the wrong reasons. The growing popularity of mutual funds underscores this trend, amplified by advertising that persistently promotes their benefits. The latest example of this mainstream appeal is a Mumbai metro station branded ‘Mutual Fund Sahi Hai’. Accessibility has further fuelled adoption. Mutual funds can now be purchased with ease through banks, brokerages, mobile apps, distributors and a range of other investment platforms.

The best fund is not the one that topped return charts last year; it is the one that aligns with your goals, risk tolerance, time horizon and investing behaviour. In many ways, selecting a mutual fund is akin to a doctor prescribing the right medicine. While self-medication is common, effective treatment follows a careful diagnosis. Likewise, before choosing a fund on the strength of glowing reviews, high ratings or recent returns, pause to ask a fundamental question: what is the purpose of your investment?