Investing in mutual funds can help beginners build wealth over time. There are different categories of mutual funds in India, and knowing how to select the best mutual funds that align with your financial goals is crucial. In this blog, we will explore the essential steps to identify the right mutual funds for your investment journey in 2025.
Steps to Find the Best Mutual Funds
Beginners can use the following steps to find the best mutual funds in 2025.
Define Your Investment Goals
Every investor should first clearly establish their investment goals before delving into the world of mutual fund investments. They must decide if they are saving for short-term objectives like a trip, a down payment for a house, or other urgent requirements or long-term objectives like saving for their children’s education or their retirement.
They can choose a debt fund for stability or an equity fund for growth. Knowing their objectives before embarking on this journey can help them in selecting the best mutual fund type.
Research Different Types of Mutual Funds
Beginner investors should educate themselves on the different types of mutual funds, such as:
- Equity funds are best suited for long-term capital growth because they invest primarily in stocks.
- Debt funds are a suitable option for conservative investors looking for steady income because they invest in fixed-income securities.
- Hybrid funds offer a combination of both.
Assess Your Risk Tolerance
Investors should also assess their risk tolerance before investing as it is crucial in determining which mutual funds are appropriate for them. If they have a high-risk tolerance, can handle market fluctuations, and seek higher returns, they should invest in equity funds. If their risk tolerance is low and prefer stability then they should invest in debt or hybrid funds on your respective SIP investment app.
Evaluate Fund Performance
Before deciding on a mutual fund to invest in, investors should compare mutual funds and review their historical performance to make informed investment decisions. Investors should analyze the returns over different periods (1 year, 3 years, 5 years) of mutual funds they are interested in and then compare them against relevant benchmarks.
They should also look for consistency in the performance of the selected mutual fund across multiple market cycles to achieve better gains.
Understand Tax Implications
Investors should know that different mutual funds have varying tax implications based on how long the investors hold them.
Equity Funds are taxed with Long-term capital gains (holding period over 12 months) at 12.5% above ₹1.25 lakh and short-term gains (holding period less than 12 months) are taxed at 20%.
Consider Fund Manager Expertise
In the beginning, new investors should consider the experience and track record of the fund manager as it can significantly influence a fund’s performance. Before making an investment they should research the manager’s history with the fund and their overall experience in managing investments.
Investors should look for a stable and experienced management team as it is often a good indicator of potential success.
Review Fees and Expenses
Beginner investors should also understand the importance of the associated costs of mutual funds as it can greatly influence the returns on their investment.
Associated costs generally include the Expense Ratio which is the fee charged for the management of the fund. Lower expense ratios mean they are having more gains on their investment.
Conclusion
Finding the best mutual funds as a beginner in 2025 involves careful consideration of financial goals, risk tolerance, and thorough research into available options. Beginner investors should start small, stay informed, and adjust their strategy as needed to build a successful investment portfolio over time. Happy investing!