How to choose a Mutual Fund?

How to select a fund?
By Reuters

There are over 700 mutual fund schemes running in India today and about 35 different companies that run these funds. So, how will you choose which fund to invest in?

Goals. Are you investing to fulfill a short-term or a long-term goal? Or, are you investing just because you over heard in your office cafeteria that you should invest in a certain fund? Not all mutual funds serve the same purpose, so you should know why you are investing.

If you want capital appreciation for your child's education 20 years from now, it is better to invest in an equity fund rather than a bond or money market funds. Equity funds are definitely high on risk, but they have the potential to generate higher returns over 20 years compared with a debt fund. However, if you want to save and protect your capital for funding your child's education in two years, then you a more conservative fund like a bond or money market fund should be your choice. A short time period does not give you the flexibility to take on a lot of risk.