1. Find out your basics

The bottom line is that you should constantly keep in mind that you are choosing mutual funds in order to accomplish your financial objectives. As a result, start by listing all of your financial objectives. Find out how much time you have left to accomplish those goals after that. Finally, evaluate your capacity for taking risks.

2. Never ever ignore the following rule

You should separate your goals into short-term and long-term ones now that you are aware of what they are. To accomplish your short-term goals that must be completed within three or four years, you should always choose safer solutions like bank deposits and debt mutual funds. You may want to think about investing in equities mutual fund schemes if you have long-term goals that must be accomplished in at least five to seven years.

3. Don’t be timid, but also not daring

You may think that using debt for short-term aims and equity for long-term ones is a sensible strategy. However, it is one of the frequently disregarded or forgotten laws that ruins many portfolios. You take a significant risk when you choose a risky investment to achieve your short-term objectives (it could be a risky debt or equity scheme). You won't be able to accomplish your aims if the investments suffer severe losses. You do not have the luxury of time to recover your losses because you are investing for a short amount of time. Equity is actually only advised for long-term investors because of this.

4. Never underestimate risk

When the market is booming, the majority of investors believe they have a very high risk tolerance. They only understand the true meaning of risk when the market has a downturn and their investments begin to lose value. Because of this, it is vitally important to select debt and equity mutual funds in accordance with your risk tolerance.

5. Focus on long-term reords

Avoid picking strategies that are at the top of the list for a month or a year. Always check for a track record over time. Check out how it performed during the market's bull and bear markets. Keep in mind that controlling the negative effects is just as crucial. Prioritize stability above flashiness. Additionally, consider the fund manager and fund house's track record as a whole.