How easy is it to select the Best Funds from about 40 Mutual Funds and Hundreds of Schemes? Definitely not easy.
Suppose we do select a few. Will those funds be the Best? Not Sure
So, in this difficult and unsure tasks, how do we go about selecting the Best Funds?
Firstly, Don’t go for the Best. Select what’s Right for you.
Let’s see an example to understand things better. Consider you went shopping for Apparels. You don’t just pick what looks good. You firstly look for what kind of clothes you need. Whether formal or casual. Then you select your size. Then you see which one looks best. Afterwards, the question is about whether the pricing is justified or not. Lastly, you go for the one which suits you. This is how you shop for what’s right for you.
The fund selection should be based on your objectives, time horizon, risk appetite which tells you what asset allocation and categories you should look for and then select the one which suits best in the categories laid down.
It defines the purpose for which you are investing. It gives an idea that whether you are looking for over-diversification wealth accumulation or long term wealth maximization. It would give you an idea about how much should you invest to reach your goals and how much can you invest based on your expenses and other obligations.
This is linked to your objective. Your time horizon suggests which approach fits best for you whether Conservative, Moderate or an Aggressive. Based on your time horizon you can select what percentage of debt should you have in your portfolio, for e.g. if your time frame is for 3-4 years, you can go for complete debt in low maturity category. As you time horizon increases you can add Equity in your portfolio.
This is where you judge yourself that whether you are okay with less liquidity and suffering a loss in the short run for long-term benefits or loosing on capital in times of volatility scares you. You can then decide on which of the right Debt-Equity mix is meant for you.
Now once you know how much Debt and Equity is needed and which categories you have to include in the portfolio, you start looking for the funds in those categories. This will help you to follow a focused approach and avoid over diversification. Therefore, next time you don’t have to look for those 100s of funds to invest more or track you know you model core portfolio and you follow it till the time you believe it is time to go for some other scheme.
Checkout Top performing Mutual Funds selected by Piggy after qualitative analysis.