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Which mutual funds are better to earn good returns?

If you have any mutual fund queries, message on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.

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Last Updated: May 21, 2020, 09.56 AM IST

I have Rs 3 lakh with me. I am looking for good returns. Can you suggest which mutual fund will be better for me.
-Ajay Kumar

You are starting your investments in the wrong way. Never chase returns. When you look only at returns while choosing investment, you would miss out on other important parameters. For example, it is extremely important to choose a mutual fund that matches your goal, investment and horizon and risk profile. If these things do not match, you would face serious issues with your investments.

For example, suppose you have a very short investment horizon. If you choose an equity mutual fund, you are unlikely to meet your goal. This is because equity can be extremely risky and volatile in the short term. You would be forced to sell your investments at a loss to meet your goal.

So, first ask yourself why you are investing this money. That is your goal. Once you know the goal, you know how much time you have to meet it - that is your investment horizon. Next step is to find out how much risk you are willing to take - the answer will tell you about your risk profile. Once you know these three factors, you can choose a mutual fund scheme accordingly.

For example, if you have a seven-year goal and you are willing to take moderate risk to achieve it, you should invest in multi cap mutual funds. What if you are not willing to take risk and you have a short-term goal of a few months. In that case, you should invest in a debt scheme like a liquid scheme or ultra short duration scheme.

If you are new to mutual funds, you should seek the help of a mutual fund advisor before proceeding further. It is not easy to take care of your investments when you do not know much about mutual funds or investing. It is always better to gain some experience and knowledge before starting to take care of your investments on your own.

(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)

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