How To Pick The Best Mutual Funds In A Rising Market

This is a definitive guide to picking up top-performing mutual funds in a rising market.

The interesting part?

You'll learn how to identify mutual funds that not only weather market surges but also position you for maximum growth.

While most investors remain unsure and make hasty decisions in a rising market, armed with the knowledge from this guide, you'll navigate with confidence and precision.

If you've ever been overwhelmed by the plethora of choices and conflicting advice when the market is on an uptrend, and dream of consistently making savvy investment decisions that compound your wealth, this guide has been curated just for you.

Ready to unlock the secrets of astute fund selection in a bullish market? Let’s dive in.

Investing In Mutual Funds 

While there are multiple investment avenues available to diversify your portfolio, mutual funds are considered to be the safest and most reliable option. 

They are suitable for people who want to kick off their investment journey. However, experienced investors also trust these investment funds as a safe and steady source of income.

To invest in mutual funds, you can go to an authorized distributor of your choice. You will have to study different distributors and select the one that's reaping maximum benefits. 

In this online age, investing in mutual funds has become easier. The process is fast as well as hassle-free.

Factors To Consider While Selecting Mutual Funds

Although mutual funds are managed by some of the most experienced fund managers, you shouldn't make your decision blindly. It's certain to keep a few factors in mind before making the final decision. 

• What's your risk appetite? That's going to play an important role in deciding the mutual funds that you buy for yourself. Large-cap funds are more suitable for conservative investors. Meanwhile, aggressive investors can root for small-cap funds. 
• Selecting the history of the mutual funds will become necessary. How's that particular fund providing returns to its investors? You should check the details from the past 5 years. 
• The investment tenure needs to be chosen cautiously and wisely. The longer the tenure, the better will be the chances for long-term returns. Mutual funds are generally known for providing low, steady, and long-term returns.

Different Measures To Pick The Best Mutual Funds In A Rising Market

A rising market, also referred to as a bull market, is a situation where the value of the stocks rises or is about to rise. 

This phenomenon is generally short-term and investors like to make the most out of it. We will discuss qualitative as well as quantitative measures to pick the best mutual funds in such a market.

1. Quantitative Measures 

(i) Past Performance

The past performance of mutual funds will be one of the standard ways to choose mutual funds. The equation is pretty simple here, the better the past performance of a fund, the more will be its reliability in a rising market as well. Since the bull market is a short-term phenomenon, you have to choose funds that can provide you with profits even when the market stabilizes.

You may assess the SIP performance of the scheme and categories of funds across various time frames such as 1-year, 3-year, 5-year, 7-year, since inception, etc.

You should also check how the fund has dealt with a rising market in the past.

(ii) Quality Of The Portfolio 

Mutual funds maintain a particular portfolio. It means that the investments are made into a pool of stocks, sectors, and market cap allocation. The characteristics of mutual funds can differ depending on their fund managers.

Some of them would like to chase momentum bets. But it's more important for them to hold on to the stocks with conviction in the long run. If the former is the case, the volatility of the fund will be high. That defeats the purpose of purchasing a mutual fund in the first place i.e. to get stable and consistent returns. 

(iii) Risk-Adjusted Returns

The volatility of the funds is high during a bull market. The valuations increased to a huge extent during this period, affecting the market as well as SIP returns. This is where risk-management techniques come into play. There are various ways to access and manage the risks such as Standard Deviation, Sharpe Ratio, Sortino Ratio, etc. 

All these methods will tell you how a scheme will adequately reward investors for the level of risk taken during the rising market.

It's a challenging job to adjust risk during this market situation. You have to pick a company that has dealt with the risk successfully in the past bull market situations. 

2. Qualitative Measures 

(i) The Experience Of The Fund Manager 

If a fund manager is experienced, it's sure that he has dealt with bull as well as bear market situations in the marketplace. He understands what it takes to build a strong portfolio in each of such market situations.

It will also be easier to check his track record and make the decision accordingly. The experienced fund manager can predict the arrival of the bull market in advance, making it possible to alter the portfolio in advance to fetch high rewards at low risk.

(ii) Efficiency Of The Mutual Fund House

If you have to judge a mutual fund house, you have to look at its risk management techniques. It's not just about making the most out of a bull market. The focus should be to get consistent returns in any market situation throughout the year.

It doesn't mean that the funds will provide returns all the time. There might be situations where they underperform. It's about having a long-term vision with the fund and how prudent investment practices can affect them in the long run.

Features Of A Bull Market

A bull market is a typical situation occurring in a growing economy. The prices rise way out of proportion. Since it lasts for a short term, asset prices may fall as a part of a market crash as well. The major features of a bull market are as follows:

1. Immense Price Growth

The phenomenon of the bull market runs parallel with the sustained growth in asset prices. The index keeps setting new highs repeatedly over some time. For example, The Sensex, the benchmark stock market index of India, has nearly tripled in value since March 2020. As of August 2023, the Sensex is trading at around 64,000 points, up from around 25,000 points in March 2020.

2. Less Unemployment Rate 

The employment rate tends to go higher during this period. During this period, people have money to spend which they use to drive corporate profits at a bigger scale. The unemployment rate in India has fallen to around 7.95% in recent months as of July 2023, the lowest level in years. This is due to the strong economic growth that the country has experienced in recent years.

3. High Investor Confidence

The confidence of investors increases during the time of a bull market. Some of them receive huge profits, becoming more confident to invest in risk-weighted assets as well. Investor confidence in the Indian economy is high, as evidenced by the record inflows of foreign investment into the country. In 2023, foreign investors invested a record ₹46,581 crore in Indian markets.

4. Growth In The Economy 

The bull market leads to huge growth in the economy as well. The situation of a bull market arises only when the market is completely out of recession. It will also end before the recession period starts again. You can correlate it with positive inflation in the economy. The Indian economy is growing at a rapid pace, averaging around 8.3% GDP in the June 2023 Quarter. This strong economic growth is due to a number of factors, including low-interest rates, high investor confidence, and strong consumer spending.

How To Invest In Mutual Funds Online

We have told you how investing in mutual funds is fast and seamless. Now we should also let you know how to invest in mutual funds online. The process is as follows: 

1. You have to pick a mutual fund house and go to its website. There will be various mutual fund products listed there. You need to pick the one that suits your investment needs the most. 
2. Once you have gone through all the funds, finalize one fund by selecting it. We have already told you how you can select a mutual fund based on qualitative and quantitative measures. 
3. You have to enter the scheme details here. There are various scheme options like growth and IDCW (income distribution cum capital withdrawal). You have to also fill in details regarding investment types such as lump sum or SIP i.e. Systematic Investment Plan. 
4. Once the scheme details have been filled properly, enter your PAN and date of birth details. Before that, you need to make sure that you're KYC compliant before proceeding further. 
5. You will be required to fill in more personal details. Then enter the investment details like investment amount, frequency of payment, etc. 
6. The final step would be to make the payment online. Once this step is completed, you have successfully purchased the plan. 

Final Analysis 

Choosing the right mutual funds is rather subjective. Even if you choose the best mutual funds for SIP, the goal might still not be achieved if the schemes do not align with their financial goals, risk profile, and investment horizon. 

Different mutual funds have different characteristics, as they follow different investment styles, strategies, objectives, risk profiles, etc. 

Thus before selecting the mutual funds for SIP in a rising market, you have to: 

• Evaluate your needs - You may select the mutual funds appropriately once you're done analyzing your needs. 
• Think about investing an adequate amount in mutual funds - You have to set realistic return expectations before determining the amount to be invested in mutual fund schemes regularly via SIP. 
• Keep emotions at bay - No matter if it is a bull or bear market, you have to invest on a routine basis, even if you do it in small amounts. The benefits of SIP will be only available if investors invest regularly regardless of market conditions.

The average return during the bull market stood at 169.5% between 1943 and 2021. So if you take the right measures to invest in mutual funds during a rising market, there's a decent scope for earning profits!

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