In todays mutual fund arena, an investor is troubled with choices to invest across 2000+ schemes in the Indian mutual fund market. For many of us, lack of knowledge proves to be a hindrance in choosing the appropriate scheme.
Historically when there were very few schemes, investors use to select mutual funds on the basis of the funds asset size, brand value of the AMC and the reputation of the fund manager. With increase in number of funds, investors started analyzing the past performance of the fund for their future investment. But the results were startling, investors invested their hard earned money but they were not receiving expected return, so only past performance of the fund does not help you to forecast future performance of the portfolio. A fund which has been star performer till date failed to deliver return in future. This has happened on multiple instances.
Then how to select a mutual fund???

Investment objective: Before investing ask yourself a question, What is your goal of investment? - whether you want to invest for a short period of time or for long period. Are you looking for a bigger but riskier growth of your investments or a smaller but safer growth, are you investing for tax saving or for your future. Then decide what type of investor you are, if you are averse to risk select a fund which has less beta if you are risk lover pick a fund which has high beta. Remember risk and return always goes hand in hand. Similarly there are many questions which one needs to think before selecting an asset class for investing.
Once you have classified your investment goal and type of investor, look at fund level performance measures.

Measuring the performance: Look at the track record of a fund, how has it performed across various measures, absolute return, relative return to peers, alpha over the benchmark, Jensen Alpha.
The performance can also be measured by using certain ratios like volatility, sharpe ratio, treynor ratio, information ratio, beta.

Research on fund manager: The performance of the fund manager can be done by analyzing the performance of funds managed by him. This helps the investor to know the fund managers ability in handling market volatility, average return generated by him.

Consistency: An important yardstick can be alpha to measure the consistency. It shows returns over and above that given by the benchmark. If a fund is giving a positive alpha constantly then we can say the fund is performing consistently, a positive alpha is desirable and shows performance that is better than the benchmark.

Diversification: There is an important saying Never put all your eggs in one basket. Diversification is inversely proportional to risk. It eliminates the unsystematic risk.
By following this pedagogy you can zero down to your final choice and invest appropriately.