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How to Choose a Mutual Fund as Per Investment Objective

To start off, I was quite scared of investing in mutual funds at first. It is easy to say, of course, that we’re going to be investors in such a big market, but it is not always easy to become the one in action. The most important challenge comes into play when you have to choose your fund.

Honestly, there are so many options out there, and it is way too hard to come up with one, isn’t it? Mutual funds are becoming increasingly popular as more individuals choose to invest in them.

How to Choose a Mutual Fund?

Is it hard to explain everyone’s objective in one post? I don’t think so. Well, it might be hard to address every goal, but it is not hard to derive a customized response to each goal from here. All we have to do ahead is, find out how.

I have been there, twisting and turning to know what is the right fund for me? Do I have the appetite for it? Can I make enough money from it? Or will I have to face the loss? I have had people come up to me and say, buy some SBI mutual funds, I have shared there, and it has never disappointed me. But does it work the same for everyone? Maybe that fund did work for your friend, do you think it would be what you need to?

We live in a time where every meal of the day on each plate is customized according to body conditions and dietary plans, so has lifestyle changed from one person to another.

Factors to Choose a Mutual Fund

Here are some factors you would want to take note of and start investing in. The answer to these factors can turn out to be the fund that suits your objective the most. Prioritize your mutual fund investment objectives accordingly, and find the fund you should be ending up with.

Factor 1: The Investment Goal

If you invest for a defined purpose or objective, you will make better investment selections. This aim may be to buy a new vehicle or house, to save for your child’s education, or to take a trip overseas. Investing in a mutual fund to save and achieve higher returns than a savings account or fixed deposit may also be a goal. You can make an informed decision if you have a certain goal in mind.

Factor 2: The Tenure

A vacation overseas is a negotiable objective in the sense that if you don’t have enough money, you can postpone it for a few months. A child’s college education, on the other hand, is a non-negotiable aim. You must pay the fees at a particular time, which you cannot postpone.

Factor 3: The Risk Appetite

Risk is defined as an unfavorable financial outcome in comparison to your expectations. Some people are more willing to take chances than others. Your risk tolerance is determined by your age, stage of life, and personal and financial position. If you can accurately estimate your risk, you will be able to select a mutual fund based on your risk tolerance.

Factor 4: Asset Allocation

Distinct asset classes have different risk profiles; for example, debt funds are often less risky than equity funds. You should realize that risk and reward are inextricably linked. Asset allocation seeks to achieve your financial objectives by balancing risk and return. If your risk tolerance is higher, you may allocate more to stocks and vice versa. You should invest in the appropriate asset class based on your financial goals and risk tolerance, and to do so, you must understand how to select the appropriate mutual fund.

Factor 5: A Lump Sum Amount or SIP

If you know how to choose the proper mutual fund, you should determine if you can invest in a lump sum or through a systematic investment plan (SIP). You may benefit from rupee cost averaging and the power of compounding by investing through SIPs. If you have available funds, you can invest in a lump amount in accordance with your best asset allocation.

Factor 6: The Taxation

Taxation is one of the most significant aspects to consider when determining how to select a good mutual fund since you must be aware of the tax implications of your investments before you begin. Short term capital gains (kept for less than 12 months) in equities funds, for example, are taxed at 15%, whereas long term capital gains (held for more than 12 months) are tax-free up to Rs 1 lakh and taxed at 10% afterward (in excess of Rs 1 lakh of capital gains). Short-term capital gains (kept for less than 36 months) in non-equity funds are taxed at your marginal tax rate, while long-term capital gains (held for more than 36 months) are taxed at 20% after indexation.


Starting your investment journey may appear to be a difficult undertaking, but after you begin investing and learning more about investments, jargon, and so on, investing will become a healthy habit that will help you create wealth.

Before selecting the appropriate fund to invest in, the aforementioned factors must be considered. You’ll also need to keep an eye on the fund’s performance and make modifications as needed.

It’s also a good idea to diversify your portfolio by investing in several asset types. Apart from this, you can start off by choosing the right fund for you with widespread options.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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