With markets evolving in 2025, selecting the best-performing mutual funds is essential. While past performance is important, it should not be the sole criterion for determining the best-performing mutual funds. Factors like active vs passive funds, risk tolerance, financial goals, etc. also decide which funds should be picked. For better decision-making, investors need to be aware of market trends.
This blog will help you explore essential criteria to make smart choices for picking mutual fund schemes in order to achieve long-term wealth creation.
Factors for Picking the Best-Performing Mutual Funds
Here are the key factors to pick the right and the best performing mutual funds:
1. Fund Performance
Evaluating the performance of a mutual fund helps analyze its returns and risks over time. Comparing the performance with benchmarks helps determine the fund’s long-term stability. Comparing the fund’s performance with its peers also helps in determining its consistency.
Therefore, it is wise to select funds that outperform their category. However, investors must bear in mind that positive past performance does not guarantee promising results in the future. Regularly reviewing performance is essential to ensure that returns align with your goals.
2. Associated Costs
There are various costs related to investment in mutual funds. The most common cost is the expense ratio. Expense Ratio is the annual fee charged for managing a mutual fund. A lower expense ratio entails a lower cost of investment. However, costs must not be the only determining factor. In the case of best-performing mutual funds, suitability and fund performance must be prioritised over costs, even if a fee is required.
Exit Load is the fee charged by mutual funds when investors redeem units before a specific period. Investors must consider the exit load before investing as it impacts net returns. Therefore, try selecting those mutual funds that charge minimal or no exit loads at all.
Apart from these, Investors must be aware of the associated expenditure that is incurred before investing in any best-performing mutual funds. The main costs associated with mutual funds are:
- Account Fee is charged for maintaining an investor’s mutual fund account.
- Switch Price is a fee incurred when transferring investments between mutual fund schemes.
- Distribution and Service Fee include charges paid for administrative tasks like marketing, AMC communications, and investor services.
- One-time charges are those initial charges that are paid for the first time when investing in a mutual fund scheme.
These charges differ from fund to fund and are based on the platform chosen for investors. For example, direct investment platforms do not charge any account or distribution fees.
3. Track Record of Fund Manager
For beginners, selecting a fund that is managed by an experienced fund manager is essential. Check which other mutual funds they have managed and how they have performed.
When investing in mutual funds, especially active funds, the return of your investment is largely driven by the asset selection by the fund manager. Thus, you need to check the track record of the fund manager in order to invest in the best mutual funds for SIP or lumpsum.
4. Return Consistency
Analysing a mutual fund’s long-term performance and consistency is a must. Instead of considering high short-term returns, investors must seek long-term wealth creation.
Comparison with performance during various market cycles also helps in determining stability. A fund that consistently outperforms its category average indicates strong management. The investment risk reduces drastically and the growth is more sustainable.
Conclusion
Picking the right mutual funds depends on performance, risk, and personal financial goals. While high returns are attractive, consistency is also another determining factor. For long-term wealth creation, expert management of funds and knowledge about market conditions as per evolving personal needs are important. As a result, investors should maintain a resilient portfolio for sustainable financial growth.
