How to Select Best Mutual Fund

How to select best Mutual Fund

Hi, you are new to mutual fund investment, trying to find the best mutual fund then this article for you. Here we know how to select the best Mutual fund. The investor needs to do some analysis before stepping in to invest in a mutual fund.

Key Points

  • Search for Funds
  • Highlights of Scheme
  • CAGR – Return on Investment
  • Return with fund’s benchmark
  • Fund Portfolio
  • Portfolio Overlap
  • Risk-o-meter
  • Investment Period
  • Direct Plan
  • Index Fund

Search for Best Mutual Fund

Google search for “best mutual fund”, you will get lists of mutual fund with best performance as below

And also find the same list of best performing mutual fund by AMC, Benchmark, Sector, etc. in your investing Mobile/Web applications.

If it is NFO (New Fund Offer) download the Scheme document to analysis, there is no fund history because it is newly launching by the AMC but you can compare this fund with same benchmark with already existing fund.

Highlights of Scheme

Every fund has a SCHEME INFORMATION DOCUMENT (SID) prepared by Asset Management Company(AMC) and gets approval from the Securities and Exchange Board of India(SEBI) before fund launch and it is available on the AMC website.

You should know the Highlights of the Scheme such as the Type of Scheme, Investment Objectives, Asset Allocation and Investment strategy, etc.


SID: Microsoft Word – 274 – SID – SBI Banking & Financial Services Fund.docx (

CAGR – Return on Investment

We are expecting better return than Fixed Deposit, Right!

Check the Return on Investment, how that fund performed in 1, 3 , 5 and since that fund launched and which return is greater that 10% or up to your choice.

Example : SBI BANKING AND FINANCIAL SERVICES FUND has given 12.81% since fund launch see below image and also find the return of 1.25% in 1 years, 9.46% in 3 years and 18.63% in 5 years. This percentage is calculated by Compound Annual Growth Rate (CAGR)

Check the Article CAGR is important concept in mutual fund

Return with fund’s benchmark

Check the return should be above/meet that fund’s benchmark.

Example: Benchmark of SBI BANKING AND FINANCIAL SERVICES FUND is Nifty Financial Services Index

You will get how that fund performed while comparing with that fund benchmark with this fund, 1, 3, 5, since inception. In this example, fund performance is not lower, not higher and it maintained as much as a benchmark and also compare to another fund with the same benchmark (Nifty Financial Services Index) and then decide whether you can invest this fund or not.
Return on investment

Fund Portfolio

Check the Fund Portfolio Holdings which means fund invested in different stocks with some percentage. This will show you what are the stocks in Fund Holdings.

Stock Name (%) Of Total AUM
etc. 8.95

Portfolio Overlap

Portfolio Overlap should be < 40% if you already invested in other funds whether it is same benchmark or different benchmark. Check the article What is Portfolio Diversification and Portfolio Overlap with examples.


Every Mutual Fund has risk based on investment based on stocks, debt, strategy, etc. and also it is called Risk -O-Meter and mentioned in Scheme Document and Advertisement “Product Labeling”. Risk-O-meter displays risk of your principal investment when you invest in a specific fund. Check the risk level and invest based on your choice.

Six Risk levels

  • Low Risk
  • Moderately Low Risk
  • Moderate Risk
  • Moderately High Risk
  • High Risk
  • Very High Risk

SBI Banking  Financial Fund

Investment Period

Set an investment period based on your choice. You can invest and sustain for 5 years and above to get better returns.

Direct Plan

There different plans available in same fund such as Regular Plan – Growth, Regular Plan – Dividend, Direct Plan – Growth, Direct Plan – Dividend and also Dividend Reinvestment Plan.

Direct Plan – An Investor has to invest directly with the AMC, with no distributor to facilitate the transaction. It has lower expense ratio.

Expense Ratio

It indicates how much the fund charges in terms of percentage annually to manage your investment portfolio.

Invest in Direct Plan – Growth Plan only where it has lesser expense ratio.

Index Fund

This type of mutual fund that invest to the exact ratio of the specific index (Benchmark of the fund) and also it is computerized. It has a low expense ratio and low risk. Minimum investment in securities of a particular index (which is being replicated/ tracked)- 95% of total assets.

Most of investors like to invest in Fund Benchmark with Nifty50 or BSE Sensex and also these type of fund give return based on market move and also a passively managed fund or passive fund.

Take a look about S&P 500 index funds, United States :


I hope that you understand that how to select the best mutual funds simply.

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