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Mutual-Funds

Best mutual funds for short term: How to pick with 4 effective steps

Choose the best mutual fund to invest in 2022

Picking the best mutual fund that suits your need can be tricky. Internet is full of articles that focuses on similar concepts that of picking a stock. The most discussed aspects when it comes to choosing the best mutual funds are risk assessment, fund types, loads, fees and fund style (passive vs aggressive etc.).

History doesn’t repeat in case of mutual funds.

A short term investor

This is the most common wisdom that many short to medium term investors tend to believe. As per our analysis, though there are few exceptions, it still stands true by and large.

In this article however, we want to keep it simple and crisp.

The 4 most effective steps to choose the best mutual fund:

Answers of following questions:

  1. Know your investment style before picking the fund
  2. Consider the ‘β’ (Beta) of mutual funds
  3. Does expense ratio matter?
  4. Keep an eye out for fund houses’ online convenience and support

Our investment style should match with our choice of best mutual funds

It takes a long time to know what kind of investor we are. Psychology is a complex subject and adding to that are the different circumstances of life. Also, the stages of our life makes the assessment more complicated. (Parenting, partnering, family problems, health issues, job security, venturing etc.)

Though there is no ‘one-size-fits-all’ definition of assessing your investment style, often it boils down to one question.

There are plenty of online tools that can help you understand your investment style. Try this questionnaire from Motley fool. It’s trustworthy and backed up by data.

Also, as a second opinion, try this questionnaire from Thrivent Mutual Funds for example.

You should now be knowing your own investment style and type.

Consider the ‘β‘ (Beta) of best mutual funds

In a short sentence, Beta (ꞵ) is a number that describes the ‘sensitivity’ of a fund’s returns as compared to it’s underlying asset class/overall market.

There can be 5 main scenarios keeping Beta, ꞵ in perspective:

Beta Compared_how to choose best mutual fund_short term
  • ꞵ = 1: Ideally seen in index or ETF funds. Here, the fund is fully in sync with the index. Meaning, it’s perfectly correlated with the actual index (as it should be).
  • ꞵ = 0: The fund has no connection with the overall market. So, price changes are unrelated to the other. To describe it in one word, it is ‘unpredictable’.
  • ꞵ > 1: The fund is more volatile than the overall market. When the underlying asset value goes up, the fund tends to go up even more. Similarly, when the assets in portfolio fall, this fund will sink deeper!
  • ꞵ < 1 but > 0: The fund is less volatile than the overall market. Shifts in the stock market tend to move the security in the same direction, but to a lesser extent.
  • ꞵ < 0: The fund is negatively correlated with the overall market. In other words, the fund behaves ‘opposite’ of the market. So, when the stock market goes up, the stock tends to go down and vice versa.

IMPORTANT NOTE: Be careful on sources of Beta. Different sources tend to give out different Beta values and it mainly because they compare different horizon of time. For short to medium term investment, it is best to pick the ꞵ value of past 36 to 48 months.

Does expense ratio matter to pick best mutual funds for investment?

Expense ratio is a highly debated topic. On one hand, some say that it diminishes the overall return of your fund. While on the other hand, experts argue that a well managed, less volatile fund for a fee is better than unmanaged fund with higher risk to reward ratio.

Expense ratio of best mutual funds

However, to keep the discussion short here, for a short to medium term [1 to 5 years] investment, expense ratio shouldn’t be a concern. However for a longer horizon, it definitely matters!

Keep an eye out for convenience and support of best mutual fund houses

Firstly, online apps, websites are no longer a luxury but necessity. Secondly, after the pandemic, it’s extremely crucial to consider a fund house that keeps up with technology and user interface.

Oh sure yes, every fund house says they have an “amazing app” and a “easy to manage website”. However, Can you withdraw funds on time? Can you swap funds quickly and close your investment when required? Can you automate SIP/SWP easily?

There have been instances of users complaining that the fund was easy to invest in but withdrawal was a nightmare.

So, keep an eye out for fund houses that are invested in digital platforms and technology innovations.

If you’re looking for stock investment and wondering which stock broker is best in India for 2021, We have a very good comparison here. Check it out.

Categories
Stock-Broker-Review

Best Stock Broker in India for 2021

Best stock Broker for 2021
Best Stock Broker in India

Zerodha Stock Broker Review

Wondering which stock broker to use for buying shares and mutual funds in a single platform? You are on right spot !!!🙂 This review will help you in choosing the best stock broker available in the market today.

Things to consider before choosing best stock broker

Every individual should consider these before choosing any online brokers.

  1. Brokerage Charges:- This is a type of fees that you pay for a broker when you buy/trade stocks. Its crucial for the user to choose a broker who offers very less broker charges. If you trade in huge quantity , then it is always better to choose a discount broker over a full service broker because discount broker offers less fees.
  2. Trading Platforms:- Well, who would want to choose a broker whose software services are bad. Literally no one! Right?? You must always ensure that the software or the mobile application of the broker is user friendly and most reliable for usage.
  3. Customer Services:- One of the most influencing factor on selecting a discount broker is its customer service response. All discount brokers offer customer services through online platforms with no face to face interaction.
  4. Customer Reviews:- Not all customers will be happy with the service that they get. If you have spare time, you can go through the reviews on Play Store /App Store and choose the right one.

Brief history of Zerodha

Zerodha stock broker review
Zerodha Logo

Zerodha is the largest discount broker company in India. It was founded in 2010 by Nikhil and Nithin Kamath. It has a strong user base of 5million as of 2021. You can read more about Zerodha in Wikipedia

Services offered by Zerodha

  1. Equity Trading:- You can buy and sell any stocks during market hours. i.e. 9.15AM to 3.30PM
  2. Derivatives Trading:- One can buy or sell Options and Futures for all applicable stocks.
  3. Commodity Trading:- You can buy or sell Options and Futures for various commodities like Gold,Silver,Copper etc.
  4. Mutual Funds:- A user can invest in Direct Mutual Funds through Zerodha’s app called COIN.
  5. Bonds:- Users can buy Government bonds using Zerodha’s Golden PI platform.

Brokerage Charges

Brokerage charges are the fees charged by broker in order to execute a trade or a transaction. Below are the list of charges collected by Zerodha

Account Opening Charges₹ 300
– ₹200 for Equity and ₹100 for Commodity
Account Maintenance Charges₹300 per Annum
Equity Delivery Brokerage₹0 – You can buy any stocks without paying brokerage fee
Equity Intraday Brokerage0.03% on order value or ₹20, whichever is lower
Equity Futures Brokerage 0.03% on order value or ₹20, whichever is lower
Equity Options Brokerage₹20 per order
Commodity Futures Brokerage 0.03% on order value or ₹20, whichever is lower
Commodity Options Brokerage 0.03% on order value or ₹20, whichever is lower

When compared to other discount brokers , Zerodha offers lowest brokerage fee and hence can be considered as the best in market.

If you wish to Open Zerodha account, here is the link:- https://zerodha.com/open-account?c=TM9334

Pros and Cons of Zerodha

PROSCONS
Zerodha is one of the most reliable broker in India.On very rare occasions , software glitches happen due to huge customer base.
Best discount brokerage rates.Response from customer support can get delayed sometimes.
Offers wide variety of technical tools.Research and reports will not be provided.
Provides free stock market and financial education for everyone with Varsity Mobile application.

Conclusion

If you are willing to invest in stock market, buy shares and mutual funds , then you can definitely consider Zerodha as it is one of the best option. I have been using this from 3 years now and from my experience I will recommend Zerodha to everyone.

Note:- Zerodha Account can be opened here