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How to Choose the Right Type of Mutual Fund for Your Investment Needs

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A mutual fund is a professionally managed open-end investment vehicle that combines money from several participants to buy securities, bonds, money market instruments, and other financial assets. One can invest in mutual funds online. There are several types of mutual funds available, but how to pick one of them?

In this article, we will discuss how to choose a mutual fund that suits your needs.

How to Choose Mutual Funds?

There are different types of mutual funds available, but one should be aware of which one is the best mutual fund to invest in according to their requirements. The investment plan, which suits person ‘A’, may not be suitable for person ‘B’.

Investors are influenced by ads, acquaintances, and family, and pick plans based on the portfolios of others. Before deciding on an investment plan, consider your risk profile and financial objectives. Investments should be planned according to your requirement, not based on someone else’s holdings. Every person’s financial journey is unique. Start yours by investing in online mutual funds here.

Factors for Selecting a Mutual Fund Category

There are several factors to consider before choosing a mutual fund plan; they are:

  • Financial Goals
  • Risk
  • Liquidity
  • Taxes

Financial Goals

Your aim in terms of the time horizon, target, and return expectations should be the beginning point when investing in a mutual fund. You could be tempted to wait, exit, or forget about your investment if you don’t have a clear aim in mind.

There will be two types of goals:

  • Short-Term goals such as buying household items, saving for a down payment on a property, or going on an overseas vacation.
  • Long-Term goals including retirement or funding children’s college tuition

You may divide your short-term and long-term objectives, and then choose the appropriate funds depending on the time horizon to make a decision.


The risk comes from not understanding what you’re getting yourself into. Before investing in a mutual fund, the investor should consider the investment’s risk and if it matches his or her personal risk appetite.

Time Horizon Short-Term

(up to 3 years)


(3-5 years)


(5 years & above)


Credit Risk Funds,

Hybrid Funds

Multi-Cap Funds Mid-cap funds, Small-cap funds
Medium-Risk Low duration funds,

Ultra short-term funds

Balanced Advanced


Multi-cap funds
Low-Risk Overnight Funds, Liquid Funds Short duration funds,

Gilt Funds

Large-cap funds



First, an investor should be able to determine when the invested capital is required. If the funds are required soon, they should not be put in equity mutual funds.

Only invest in equity mutual funds if you have money that you can put aside for a reasonable amount of time without worrying about market difficulties. Compounding works best when money is kept undisturbed for lengthy periods. As a result, if you need money quickly, liquid funds are the way to go.


Before investing in a mutual fund, investors should carefully evaluate the tax implications. Mutual funds are a very effective investment instrument in terms of post-tax returns. When equity fund units are redeemed, the profits are taxed based on the holding term and the appropriate tax rate.

The returns generated from equity funds through long-term capital gains are taxed at 10% if the returns are above 1 lakh.

Indexation benefit is available for the capital gains released from debt funds.

So, before you make a decision, consider the tax implications of the fund category you want to invest in.


With so many options available, it is tricky to choose one of them. An investor can easily get confused and may land them in a difficult situation. The success of your investment portfolio and the achievement of defined objectives and goals are dependent on the mutual fund you choose.

As a result, considering all relevant aspects and mapping the intended investment across them before making a final decision is the best course of action. Explore various mutual funds Kotak Mahindra Bank website.

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