How to choose mutual funds: This is what you must do to build your wealth smartly

How to choose mutual funds: Every individual has different financial goals, risk appetite, duration of investment and so on. However, the choice of funds should be based on one's risk profile.

How to choose mutual funds: Experts suggest people to allocate some funds in debt-schemes as it promises fixed returns. Photo: Pixabay

How to choose mutual funds: Fund allocation while choosing mutual fund category and the percentage of surplus money to be invested into these various categories are one of the most important decisions that an investor has to take in much advance. It has been found that people look at the returns of the schemes more than the investment goal that he or she wants to achieve. As per the tax and investment experts, diversification of the portfolio is must as it helps maximise one's investment returns. They are of the opinion that when one scheme fails to deliver other scheme chips in and it helps an investor to gain even when the most followed mutual funds are not giving the kind of return that an investor has bagged previously.

Kartik Jhaveri, Manager — Wealth Management at Transcent Consultants said, "Allocating entire fund in one mutual fund scheme is not a smart idea. ideally, one should diversify one's portfolio so that if a scheme fails to deliver, other schemes pare that lesser return." He said that in mutual funds there are various categories — equity, ELSS, debt. In Equity, there are further segregation — Small-cap, Mid-cap, Large-cap and ELSS. In ELSS, an investor can claim Income Tax exemption up to Rs 1.5 lakh investment under Section 80C of the Income Tax Act.

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"Decision to invest in small-cap, mid-cap or large-cap completely depends upon the risk appetite of the investor. But, if you take my opinion, I suggest people allocate some funds in debt-schemes as it promises fixed returns. Around 20-25 per cent of the surplus fund should be invested in debt-schemes. Apart from that around 30-35 per cent should be invested in small-cap, mid-cap and large-cap and rest have to be in the ELSS mutual funds as one needs to look at the money they would be saved by saving the income tax outgo as well."

Speaking on the smart way to invest in the mutual fund while allocating funds to one's portfolio Harsh Jain, COO and Co-Founder at Groww said, "Every individual has different financial goals, risk appetite, duration of investment and so on. However, the choice of funds should be based on an individual's risk profile. While allocating funds, the investor should have a balanced approach, ensuring increased protection against market volatility. You should neither be too aggressive nor too conservative. If one decides to begin their investment journey, then they should have a proper viable plan in place to meet financial goals and optimizing the returns. So, begin investing early, invest according to your risk profile and stay invested. Remember, only people who make smarter decisions with their money, build wealth over time."

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