Mutual funds: Investing wisely, CA explains how to pick mutual funds with logic, not emotion

When Chartered Accountant Diptii Saeth began investing, she made the same mistake many first-time investors do. “I picked my first mutual fund because a friend said, ‘Yeh wala toh double kar dega!’” she recalls. “Spoiler: it didn’t.”

That experience taught her a valuable truth — smart investing isn’t about chasing hype; it’s about choosing clarity.

Today, Saeth advocates a methodical, goal-oriented approach to mutual fund selection — one grounded in logic, data, and discipline rather than emotion or hearsay. She outlines a simple four-step rule for anyone looking to build lasting wealth through mutual funds.

1. Goal-first, not trend-first

Every investment should start with a clear purpose. “Ask yourself — is this for a short-term need, a long-term goal, or retirement?” says Saeth. The fund must align with your timeline and risk profile, not with whatever is trending in the market. Equity funds may suit long-term goals, while debt or hybrid funds may be better for short-term stability.

2. Consistency over hype

Rather than focusing on one year of stellar performance, investors should examine a fund’s 3-year and 5-year track record to gauge consistency across market cycles. Sustained, steady returns reveal the fund’s quality far better than temporary spikes driven by market sentiment.

3. Expense ratio matters

Many investors overlook costs, but lower expenses directly translate into higher real returns. “Always compare expense ratios,” Saeth advises. “Even a 1% difference compounds significantly over time.” Choosing direct plans over regular ones further reduces costs, boosting long-term performance.

4. Fund manager over fund name

A mutual fund’s brand may draw attention, but the real driver of performance is the fund manager — their experience, investment philosophy, and track record. “You’re trusting them with your money,” says Saeth. “So know who’s managing it.”

SIPs and the power of compounding

For most investors, the most effective way to build wealth through mutual funds is a Systematic Investment Plan (SIP). SIPs promote discipline by allowing small, fixed investments at regular intervals. Over time, these contributions harness the power of compounding, where returns start generating their own returns.

The results can be dramatic: an investor who starts early with modest SIPs for 20 years will likely accumulate a far larger corpus than someone who invests more but starts later. SIPs also eliminate the stress of market timing — investors buy more units when markets are low and fewer when they’re high, benefiting from rupee-cost averaging.

Even small SIPs can grow meaningfully if given time. They help investors stay focused on long-term goals such as retirement, home ownership, or children’s education, while cushioning against short-term market volatility.

Saeth emphasises that investing is not a one-time decision but a lifelong habit. Reviewing portfolios periodically, realigning with goals, and staying invested through market cycles are key to success. “Markets will fluctuate — that’s their nature,” she says. “Your discipline and patience decide whether you create wealth or just chase returns.”