How to choose a mutual fund: 12 things to check
Most people pick a fund from a “top funds” list sorted by last year's return. That is the least reliable way to choose. Check these instead, in this order.
- Your goal and time frame come first. When you need the money decides the category: debt or liquid funds for money needed within 1 to 3 years, hybrid funds for 3 to 5 years, and equity funds only for money you won't touch for 5 years or more. The category matters more than the fund.
- Compare funds in the same category only. A small cap fund will beat a large cap fund in some years and fall much harder in others. Comparing them tells you about the market, not the fund manager.
- Look at 3, 5 and 10-year returns against the category average. One-year returns mostly reflect the market mood. A fund that stays above its category median over several periods is more convincing than one great year.
- Check consistency with rolling returns. Trailing returns depend on the start and end dates. Rolling returns check every 3 or 5-year window, so you can see how often the fund beat its category. A fund that did so in more than 60 to 70% of windows has been consistently good.
- See the worst fall. The maximum drawdown is the biggest drop from a peak, and the recovery date shows how long investors waited to get back to even. Ask yourself whether you could have held on.
- Weigh return against risk. Volatility shows how much returns swing. The Sharpe ratio shows the return earned above a risk-free rate for each unit of that swing. Higher is better, but only compare it within a category.
- Keep costs low. The expense ratio is charged every year, whatever the fund returns. Direct plans skip the distributor commission, so they cost less than regular plans of the same fund. Also check the exit load: many equity funds charge 1% if you sell within a year.
- Look inside the portfolio. Read the top 10 holdings and sector weights in the monthly factsheet. If two of your funds share more than half their holdings, you own the same thing twice. Under 30% overlap is fine. Since 2026, fund houses must publish category-wise portfolio overlap every month.
- Know who runs it. A strong 10-year record means less if the manager who built it left last year. Check the current manager's tenure.
- Mind the fund size. Very small funds can be costly to run and may be merged or closed. Very large small cap funds can struggle to buy enough small companies, which is why some pause lump-sum investments.
- Match the riskometer and benchmark. Every fund shows a riskometer from Low to Very High. Make sure it matches how much loss you can take, and compare the fund's return with its benchmark index (the total return version).
- Understand tax and lock-ins. ELSS funds lock each investment for 3 years. Equity fund gains held over a year are taxed at 12.5% above ₹1.25 lakh a year, and at 20% if sold within a year. Gains on debt funds bought after 1 April 2023 are taxed at your income slab rate.
Two common myths: a fund with a ₹10 NAV is not “cheaper” than one with a ₹500 NAV, because the NAV only shows the price of one unit; and owning ten funds is not more diversified than owning three if they hold the same shares. Three to five funds across different categories is plenty for most people.
How to read the comparison
| Measure | What it tells you | Better when |
|---|---|---|
| Return (a year) | The compound annual growth rate (CAGR) of the NAV over 1, 3, 5, 10 or 15 years, up to the latest NAV. | Higher than the category |
| SIP of ₹10,000 a month | What a real monthly SIP on the first working day of each month would be worth today, and its XIRR (the annual return on money that went in at different times). | Higher |
| Beat the category | Every 3 or 5-year window, checked week by week, compared with the middle fund in the same category and plan type. Shows how often the fund came out ahead. | Above 60–70% |
| Worst 3 or 5-year period | The lowest annual return across all those windows: the worst outcome for someone who stayed invested that long. | Higher |
| Volatility | How much monthly returns swung over 3 years, stated as a yearly figure. | Lower |
| Sharpe ratio | 3-year return above the risk-free rate (we use the median overnight fund, 6.0% a year) divided by volatility. | Higher |
| Worst fall | The biggest drop from a peak to a low in the fund's NAV history, with dates and when it recovered. | Smaller |
| Expense ratio | The fund's total yearly cost as a share of your money, taken out of the NAV every day. | Lower |
| Fund size | Average money managed by the fund (all its plans) over the latest reported quarter. | Depends: very small funds can be fragile; very large small cap funds can find it harder to invest |
| Category rank | Where the fund's return placed among funds of the same category and plan type. | Closer to 1 |
| Your score | Each fund gets 1 to 5 stars per factor for where it stands in its own category; your 0 to 5 stars for how much each factor matters weight them into a total. | Higher, on your own weights |
Average returns by category
Median annual returns of direct-plan funds in each category, from NAV data to 18 October 2026. Half the funds did better and half did worse.
| Category | Funds | 1 year | 3 years | 5 years | 10 years |
|---|---|---|---|---|---|
| Large Cap | 34 | -5.4% | 9.5% | 7.8% | 11.8% |
| Flexi Cap | 45 | -1.9% | 11.4% | 9.3% | 13.1% |
| Large & Mid Cap | 36 | -1.0% | 12.3% | 10.4% | 14.1% |
| Mid Cap | 33 | 1.6% | 15.1% | 13.1% | 15.6% |
| Small Cap | 35 | 8.9% | 13.9% | 14.2% | 16.8% |
| ELSS (Tax Saver) | 38 | -4.0% | 10.0% | 9.4% | 12.9% |
| Aggressive Hybrid | 30 | -1.6% | 10.3% | 8.6% | 11.5% |
| Balanced Advantage | 37 | -0.4% | 9.1% | 8.3% | 9.9% |
| Multi Asset Allocation | 36 | 3.8% | 14.0% | 12.4% | 11.7% |
| Arbitrage | 39 | 6.7% | 7.3% | 6.8% | 6.4% |
| Liquid | 39 | 6.5% | 6.9% | 6.4% | 6.1% |
| Short Duration | 24 | 4.7% | 7.3% | 6.4% | 7.0% |
| Corporate Bond | 21 | 4.1% | 7.1% | 6.2% | 7.1% |
| Gilt | 24 | 1.0% | 6.2% | 5.5% | 6.7% |
Direct or regular plan?
Every fund has two versions with the same portfolio. A regular plan pays a commission to the distributor or bank that sold it, taken from the fund every year; a direct plan doesn't, so its NAV grows a little faster. Over the last 5 years the typical equity fund's direct plan returned 1.25% a year more than its regular plan, and the typical debt fund's 0.43% a year more. In flexi cap funds, the median 5-year return was 9.3% for direct plans and 8.0% for regular plans.
A regular plan can still make sense if a distributor gives you real help with choosing, rebalancing and staying invested. Direct plans exist only since January 2013, so 15-year records come from regular plans.
Where the data comes from
Daily NAVs published by AMFI (the Association of Mutual Funds in India) for every open-ended scheme, using the growth option of each fund. Returns are worked out from those NAVs, so they include the fund's expenses but not exit loads or tax. Data is up to 18 October 2026 and covers 3,357 fund plans; history before April 2006 isn't included. Expense ratios come from the total expense ratio (TER) disclosures fund houses file with AMFI, and fund size is the average assets fund houses report to AMFI for April - June 2026, both via open datasets that collect them. Exit load, portfolio and fund manager aren't included: check them in the fund's latest factsheet on the fund house's website or AMFI.
In February 2026 SEBI revised how mutual funds are categorised. Solution-oriented retirement and children's funds were discontinued and are being merged into similar schemes, and new life cycle funds were introduced. Category names follow what each fund reports to AMFI.
Frequently asked questions
Which mutual fund is the best?
No single fund is best for everyone. Start with the category that fits when you need the money and how much loss you can handle, then compare funds within that category on 5 and 10-year returns, consistency, worst fall and cost. The fund finder on this page does the first two steps for you.
How do I compare two mutual funds?
Make sure both are in the same category and the same plan type (direct or regular). Then compare 3, 5 and 10-year returns against the category average, rolling-return consistency, the worst fall, volatility, expense ratio and portfolio overlap. Add both funds above to see these side by side.
How does the score work?
You give each factor (returns, consistency, smaller falls, steadier ride, return for the risk, low cost, fund size and track record) 0 to 5 stars for how much it matters to you. Each fund gets 1 to 5 stars per factor for where it stands among funds of its own category: top fifth gets 5 stars, bottom fifth gets 1. Your stars weight those to give a total out of 5. Change your stars and the order changes. It is a calculation on past data, not a rating or a recommendation.
Can I see what I would have earned in a fund?
Yes. Tap any fund name to see what a lumpsum and a monthly SIP started 1, 3, 5, 10, 15 or 20 years ago would be worth today, using the fund’s real NAVs. You can change both amounts.
What are rolling returns and why do they matter?
Rolling returns are the returns for every possible window of a given length, such as every 3-year period, checked week by week. They show how a fund did across many start and end dates, so one lucky or unlucky date can’t distort the picture.
Is a higher NAV fund more expensive?
No. NAV is just the price of one unit. A ₹10 NAV fund and a ₹500 NAV fund grow by the same percentage if their holdings do. What matters is the return and the expense ratio.
Why don’t direct plans have 15 or 20-year returns?
Direct plans were introduced in January 2013, so no direct plan has 15 years of history yet (except a few fund houses that only ever sold direct). Switch to regular plans to see 15 and 20-year records; the direct plan of the same fund usually did a little better because it costs less.
How many mutual funds should I own?
For most people, three to five funds across different categories is enough. More funds in the same category usually overlap heavily and add tracking work without real diversification.
Why isn’t exit load in the score?
There is no up-to-date public source of exit loads for every fund, so we don’t guess. Many equity funds charge 1% if you sell within a year, but it varies; check the fund’s factsheet.
How often is the data updated?
The data on this page runs to 18 October 2026. Always check the latest NAV and factsheet on the fund house's website before investing.
Is this investment advice?
No. WealthSum is not a SEBI-registered investment adviser. The comparison and rankings use past NAV data only and do not consider your full finances. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.