This is one question I have faced umpteen times since I began my practice as an advisor. However, this is an extremely dangerous question as what is elixir for one could be poisonous for another. Mutual fund universe is gigantic with various categories, subcategories etc. Each mutual fund scheme
– has a specific objective.
– has different risk return metrics.
– has different liquidity.
– has different taxation and exit load structure.
– Is suitable to meet different needs.
As it is clear from the above list, selection of mutual fund scheme depends on financial profile of the Investor in terms of risk appetite, the objective, time horizon, tax considerations etc. For e.g. mid and small cap funds may produce excellent returns over 15-20 years but they are extremely volatile. Therefore some investors may prefer relative stability of large cap or balance funds with less returns. For retirees pure equity funds may not be suitable as they need regular income.
Just like hotel menu offers numerous options and everyone choose as per their requirement, investment needs to be done by opting need based products. Therefore there is no formula as such to identify the best Mutual Fund.
Which is the best Mutual Fund is like asking the doctor which is the best selling or top curing medicine? The result may be fatal and therefore we let the doctor diagnose and advise the most suitable medicine. Hence it will be great if you can shift your focus from what is best to what is right Mutual Fund in alignment with what you need.
Remember, there are 10000 Mutual Fund Schemes out there. 9990 may be useless to you. You have to wisely choose at max 4-5 schemes for your needs out of remaining 10. Sometimes a combination of multiple schemes should be prescribed. It’s good to consult a good financial advisor for that.
Happy Investing !!