Personal Finance Blog- India V 2.0: How to choose an equity fund?

For most of the novice investors , "How to choose an equity fund?" or " What fund should I invest in from among the few hundreds available'? remains the top question.

Most of them are also misguided by NAVs. i.e Fund which have a lower NAV is cheaper. (Mutual Funds - All you wanted to know ) . This is one reasons for mushrooming of NFOs .(Beware of NFOs )

What are the simple ways to choose a fund?

1. Go for the ones that have consistently performed against their benchmark indices. ( Every fund is bench marked against certain index and see the comparative returns over a period of time( atleast 3 years).)

2. Avoid frequently chasing the top performers for last 3months/ 6months (Chasing the best performing mutual funds ) one you have invested.

There are different websites which give different ratings for a same fund. Use your extensive study of sites initially to figure out the best. Over a period of time you will get adept at this skill.

In this context, I happened to see an analysis of consistent top performing equity funds on business line. The summary sheets are presented below for your reference.

The analysis showed that only 7 of the 64 diversified equity funds (including tax planning funds) have repeatedly beaten their benchmarks in each of the last five years (August 2002-2007). A further 28 funds (roughly four out of every 10) have outperformed their benchmark in four of the past five years.