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Don’t Simply Chase The Mutual Funds With The Highest Returns: Here’s What To Do Instead

29 June 2022

Investing in Mutual Funds In India is a great way to save money, grow your savings, and make sure you're getting the best return on your money. Mutual funds are a great way to invest in the stock market without having to worry about investing in individual stocks.

Mutual funds are made up of many smaller investments that are bought by one company, which pools them together and then invests them for the benefit of all investors. The fund manager then buys shares in different companies and holds them for a period of time until they become more valuable or sell off their investment to another party.

Mutual funds are ideal for people who want to invest their money but don't know where or how much they should put away each month. They allow you to invest a lump sum of cash with a professional fund manager instead of trying to figure out how much you can afford to put aside each month or week.

The main reason why people invest in mutual funds is that they offer an attractive return on investment (ROI). Mutual funds can also be a good way to diversify your portfolio and reduce risk by investing in multiple companies. However, it is important to remember that chasing mutual funds with the highest returns is not the right thing to do. 

Why Is Chasing Returns Not The Right Way To Invest?

When you invest in a mutual fund with the highest returns, you are putting your trust in someone other than yourself - which means they could be making decisions based on personal biases or interests rather than objective research.

A good way to avoid this situation is by choosing one that has been recommended by financial advisors or experts or industry leaders instead of choosing one based purely on its name or reputation because reputation alone doesn't guarantee quality management practices.

  1. Different Types Of Mutual Funds Involve Different Levels of Risk and Returns

Those that give higher returns usually also have a higher risk – and that is okay. You have to take a risk. But make sure you’re aware of the level of risk and are comfortable with it. Higher-risk mutual funds are better for a longer period of investment duration.

Risky mutual funds are not suitable for short durations. If you are investing for the long-term, you can invest in riskier funds. This is why investing for the long term is advised. You can earn higher returns. 

  1. High Returns Can Be One-Off Incidents

Many mutual funds once in a while will suddenly perform very well for a very short period of time. Some people invested in a certain mutual fund when their last 1 year returns were showing around 50%. This was a one-off incident.

Most people who invested in this fund at this time are seeing negative returns right now. Sadly, many inexperienced investors start investing in such funds simply because they showed a peak in returns, without analyzing whether the fund strategy is in line with their investor profile. 

Many investors are looking for a way to invest in India, but they are finding it difficult to find the right funds. Most of the mutual funds that are available in India are not worth investing in.

These funds do not provide good returns over a period of time and their performance is similar to that of other mutual funds that are available in the market. Therefore, if you want to invest in mutual funds then you should look for those which offer good returns over a period of time.

What Should You Keep In Mind While Investing In High Return Mutual Funds?

It is important to note that while investing in high-return mutual funds in India, there are several things that you should keep in mind. You can never be sure of the quality of returns and risks involved. It is important to understand this before you invest your money.

1) Quality Of Returns

The first thing you should keep in mind while investing in a high-return mutual fund is that the return on investment should be high of course, but also consistent. Don’t invest in mutual funds that have given very high returns recently but have otherwise not provided great returns.

2) Risks Involved

The second thing you should keep in mind while investing in a high-return mutual fund is the risk involved. You need to check if the fund has any risk of losing its value due to market fluctuations or any other factors which could harm its performance over a longer period of time. The risks involved in the fund you invest in should be inclined with your risk appetite.

3) Liquidity

If you are looking to invest in high-return mutual funds, you will want to consider the liquidity of your funds. Liquidity refers to how easy it is for you to withdraw your money from a fund or transfer it between funds. The higher the liquidity, the easier it is for you to move your money around. The riskier a fund is, the less liquid it will be.

4) Choose The Category Of Fund Wisely

Decide which categories and subcategories to invest in based on your goals, investment duration, and risk appetite. And then, how much to invest in each of these categories. Then, choose good mutual funds in those categories.

5) Fund Should Comply With Your Financial Goals

You should consider a mutual fund’s ability to meet your financial goals. You can also compare your needs with the type of funds available in the market and choose accordingly. 

First of all, know where you stand with your finances. Financial goals can be large or small, single or complex. You may want to retire early and make regular withdrawals before you stop earning income, or you may have a long time frame in mind to fund an investment strategy that accelerates the growth of your investments.

Whatever the case, it's important that you understand your financial situation so that you can make informed decisions about what mutual fund is right for you.

Conclusion

The right way to invest in India is to use your money to create a financial future that you can be proud of.

In other words, don't chase the highest returns. Instead, find an investment strategy that has the lowest risk and most tremendous reward potential, and stick with it. It's important to understand why chasing mutual funds with the highest returns is not the right way to invest in India.

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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