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Which is the best mutual fund to invest?

This is one question I have been asked numerous times over the last 9 years, since I began assisting people with their personal finances and investments.

I must, however, warn that this is an extremely dangerous question to ask.

As you know, the Mutual Fund universe is gigantic. It offers umpteen kinds of funds, ranging from 100% debt-oriented funds to 100% equity-oriented funds; hybrid funds; and gold funds. Even within each of these broad categories there are many sub-categories.

Each scheme 
- has a specific objective
- offering a specific returns range
- with a specific risk level
- and specific liquidity parameters,
- suitable for a specific need.

Therefore, to choose the best mutual fund(s), it is important to be fully aware of the particular investors' detailed financial profile... in terms of what is the objective, how long can one invest, how much risk one can take, what are the present investments, whether the investment is regular or one-time, what are the liabilities, the tax profile, etc.

For example, mid-cap funds generally give better returns than large-cap funds. But they are also riskier and need more time to show performance vis-a-vis the large-cap funds. So even if mid-caps may be the best performing funds, they may not be suitable for a low-risk or short-term investor.

For example, in terms of returns equity is a good product. But that doesn't mean everyone should invest his every penny in equity. While equity would be the 'right' option for a young working professional, the same would be a 'wrong' option for a retired person looking for regular income. 

For example, Bank Fixed Deposit would be the 'right option' for a person in the nil/low tax bracket, while the same FD would be a 'wrong' option for someone in the highest tax bracket. Such an investor would be better off with debt mutual funds.

For example, in a restaurant you will have a menu offering various kinds of food items. But suppose you are vegetarian, you will not prefer a non-veg item even though it might be the best dish. Or even among the non-vegetarians, some people may like chicken, some mutton and some seafood.

As such, there is no single and simple formula to identify the best mutual funds, that would uniformly apply to all.

Nor it is advisable to blindly invest in the top-performing mutual funds of the day.

Sorry to disappoint you, but there are no short-cuts.

I usually give an analogy here. The generic question... which is the best best mutual fund... is like asking the doctor which is the "best-selling or top-curing" medicine. The result, you would appreciate, would be disastrous. Ideally, you must tell your symptoms and let the doctor advise the "most suitable" medicines. 

Similarly, it is not prudent to seek such general purpose advice. There are many who won't bother to understand your needs and give you a very general advice. This may or may not be suitable for you. My experience shows that most people lose money primarily because of such wrong investment choices; and not because of any problem with the investment product per se. 

So please shift your focus from the "best" to the "right" mutual fund, or for that matter any other investment.

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

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