Best Mutual Funds to Invest
Investing in mutual funds in India can be a good way to participate in the Indian stock and bond markets. The choice of mutual funds should be based on your financial goals, risk tolerance, and investment horizon. Here are some popular categories of mutual funds in India, along with examples within each category:
Types of Mutual Funds
| Type of Mutual Funds | Description | |
| 1 | Equity Mutual Funds | These funds invest primarily in stocks and are suitable for long-term wealth creation. Example: HDFC Equity Fund, ICICI Prudential Bluechip Fund. |
| 2 | Large-Cap Funds | These funds invest in large, well-established companies, offering stability. Example: SBI Bluechip Fund, Aditya Birla Sun Life Frontline Equity Fund. |
| 3 | Mid-Cap and Small-Cap Funds | These funds focus on medium-sized and small-sized companies, respectively, and have the potential for higher growth. Example: DSP Midcap Fund, HDFC Small Cap Fund. |
| 4 | Multi-Cap Funds | These funds invest in a mix of large-cap, mid-cap, and small-cap stocks, providing diversification. Example: Kotak Standard Multicap Fund, Parag Parikh Long Term Equity Fund. |
| 5 | Sectoral or Thematic Funds | Sectoral funds concentrate on specific industries or themes. Example: ICICI Prudential Technology Fund, SBI Healthcare Opportunities Fund. |
| 6 | Index Funds and ETFs | These funds aim to replicate the performance of a specific market index, such as the Nifty 50 or Sensex. Example: UTI Nifty Index Fund, Nippon India ETF Nifty BeES |
| 7 | Debt Mutual Funds | Debt funds invest in fixed-income securities like bonds, offering more stable returns. Example: HDFC Short Term Debt Fund, Franklin India Corporate Debt Fund. |
| 8 | Liquid Funds | Liquid funds are suitable for short-term investments and offer high liquidity. Example: Aditya Birla Sun Life Liquid Fund, SBI Liquid Fund. |
| 9 | Hybrid Funds | These funds combine equity and debt investments, offering a balanced approach. Example: ICICI Prudential Equity & Debt Fund, HDFC Hybrid Equity Fund. |
| 10 | Tax-Saving (ELSS) Funds | Equity-Linked Savings Schemes (ELSS) offer tax benefits under Section 80C of the Income Tax Act. Example: Axis Long Term Equity Fund, Aditya Birla Sun Life Tax Relief 96 Fund. |
| 11 | International Funds | These funds invest in global markets, offering diversification beyond India. Example: Franklin India Feeder Franklin U.S. Opportunities Fund, ICICI Prudential US Bluechip Equity Fund. |
| 12 | Gold Funds | These funds invest in gold-related assets, providing exposure to the precious metal. Example: SBI Gold Fund, Kotak Gold Fund. |
Before investing, it’s important to assess your financial goals, risk tolerance, and investment horizon. Additionally, consider factors like the fund’s historical performance, expense ratio, and the reputation of the fund manager. Diversification across different fund categories can help manage risk. Consulting with a financial advisor or planner can also provide personalized guidance for your investment needs in India.
What are best mutual funds?
Selecting the best mutual funds depends on your financial goals, risk tolerance, and investment preferences. There isn’t a one-size-fits-all answer because what’s best for one person may not be suitable for another. However we can provide some guidance on how to identify suitable mutual funds:
Remember that there’s no single “best” mutual fund for everyone. It’s essential to build a diversified portfolio that aligns with your specific financial objectives and risk tolerance. Also, periodically review and rebalance your portfolio to ensure it stays aligned with your goals as they evolve over time.
Top Best Performing Equity Mutual Funds
| Fund Name | 5-year Return (%) | 3-year Return (%) | |
| Quant Small Cap Fund Direct Plan-Growth | 30.52% | 47.08% | Know More |
| Quant Infrastructure Fund Direct-Growth | 27.21% | 44.01% | Know More |
| Quant Tax Plan Direct-Growth | 26.11% | 36.07% | Know More |
| Axis Small Cap Fund Direct-Growth | 25.86% | 34.43% | Know More |
| Quant Mid Cap Fund Direct-Growth | 25.55% | 40.02% | Know More |
| Nippon India Small Cap Fund Direct-Growth | 25.28% | 43.71% | Know More |
| ICICI Prudential Smallcap Fund Direct Plan-Growth | 38.92% | 24.79% | Know More |
| Kotak Small Cap Fund Direct-Growth | 24.75% | 37.37% | Know More |
| Quant Active Fund Direct-Growth | 24.52% | 33.44% | Know More |
| Quant Flexi Cap Fund Direct-Growth | 23.99% | 34.20% | Know More |
Last updated date – 27 Sep 2023
Top Best Performing Hybrid Mutual Funds
Hybrid funds are a type of mutual fund that invests in a mix of asset classes, such as equity, debt, gold, commodities, international equities, and more. This diversification can help to reduce risk and improve returns over the long term.
| Fund Name | 5-year Return (%) | 3-year Return (%) | |
| Quant Multi Asset Fund Direct-Growth | 23.06% | 29.09% | Know More |
| Quant Absolute Fund Direct-Growth | 21.16% | 27.90% | Know More |
| Kotak Multi Asset Allocator FoF – Dynamic Direct-Growth | 18.18% | 22.09% | Know More |
| Bank of India Mid & Small Cap Equity & Debt Fund Direct-Growth | 17.56% | 27.47% | Know More |
| ICICI Prudential Equity & Debt Fund Direct-Growth | 17.42% | 29.39% | Know More |
| ICICI Prudential Multi Asset Fund Direct-Growth | 16.88% | 30.16% | Know More |
| HDFC Balanced Advantage Fund Direct Plan-Growth | 16.26% | 24.79% | Know More |
| Kotak Equity Hybrid Fund Direct-Growth | 16.23% | 23.22% | Know More |
| Baroda BNP Paribas Aggressive Hybrid Fund Direct – Growth | 15.87% | 20.13% | Know More |
| HDFC Retirement Savings Fund – Hybrid Equity Plan Direct-Growth | 15.49% | 22.69% | Know More |
Last updated date – 27 Sep 2023
Top Best Performing Debt Mutual Funds
Top Performing Debt Mutual Funds to Invest in India?
Debt mutual funds are a type of mutual fund that invests in fixed-income securities, such as government bonds, corporate bonds, and other debt instruments. These securities offer a regular stream of income in the form of interest payments. Debt mutual funds are generally considered to be less risky than equity mutual funds, but they also offer lower potential returns.
| Fund Name | 5-year Return (%) | 3-year Return (%) | |
| Nippon India Nivesh Lakshya Fund Direct – Growth | 9.44% | 4.90% | Know More |
| Aditya Birla Sun Life Medium Term Direct Plan-Growth | 9.07% | 13.66% | Know More |
| DSP Government Securities Direct Plan-Growth | 8.99% | 5.42% | Know More |
| SBI Magnum Gilt Fund Direct-Growth | 8.91% | 5.92% | Know More |
| Bandhan Government Securities Investment Plan Direct-Growth | 8.89% | 4.65% | Know More |
| ICICI Prudential Constant Maturity Gilt Fund Direct-Growth | 8.81% | 4.54% | Know More |
| Bandhan Government Securities Fund Constant Maturity Direct-Growth | 8.77 % | 3.99% | Know More |
| Edelweiss Government Securities Fund Direct-Growth | 8.76% | 5.76% | Know More |
| Kotak Gilt Investment Direct-Growth | 8.73% | 5.80% | Know More |
| ICICI Prudential All Seasons Bond Fund Direct Plan-Growth | 8.64% | 6.62% | Know More |
Last updated date – 27 Sep 2023
How to Select the Top Performing Mutual Funds in India
Selecting the top-performing mutual funds in India requires a systematic approach and consideration of various factors. While past performance is essential, it should not be the sole criteria for choosing a mutual fund. Here’s a step-by-step guide on how to select the top-performing mutual funds in India:
government bonds, corporate bonds, and other debt instruments. These securities offer a regular stream of income in the form of interest payments. Debt mutual funds are generally considered to be less risky than equity mutual funds, but they also offer lower potential returns.
Set Clear Investment Goals
Determine your financial goals, such as wealth creation, retirement planning, or saving for a specific milestone. Your goals will influence your choice of mutual funds.
Assess Your Risk Tolerance
Understand how much risk you are comfortable with. Your risk tolerance will guide you in selecting the appropriate asset class (equity, debt, hybrid) and fund category.
Understand Different Fund Categories
Familiarize yourself with various types of mutual funds, such as equity funds, debt funds, hybrid funds, and sectoral funds. Each category serves a different purpose and carries varying levels of risk.
Research Fund Houses
Identify reputable fund houses with a track record of good fund management. Look for consistency in fund performance.
Analyze Historical Performance
Review the historical performance of the mutual funds you are interested in. Look at their returns over different time horizons (1 year, 3 years, 5 years, etc.). While past performance is not indicative of future results, it can provide insights into a fund’s management.
Check Expense Ratios
Compare the expense ratios of different funds. Lower expense ratios mean lower costs for investors, which can have a significant impact on your returns over time.
Consider Risk-Adjusted Returns
Evaluate a fund’s risk-adjusted returns, such as its Sharpe ratio or Standard Deviation. This helps assess how efficiently the fund has delivered returns relative to the risk taken.
Look at the Fund Manager’s Track Record
Assess the experience and track record of the fund manager. An experienced manager with a consistent track record may be better positioned to navigate market volatility.
Check Fund Assets Under Management (AUM)
Ensure that the fund has a reasonable AUM. Extremely large or small AUM can have implications for the fund’s performance and liquidity.
Examine Portfolio Holdings
Review the holdings within the fund’s portfolio to understand the sectors and stocks it is invested in. Ensure it aligns with your investment strategy and goals.
Consider Tax Implications
Be mindful of the tax implications of your investment. Different types of funds (e.g., equity, debt) have varying tax treatments.
Read the Scheme Information Document (SID)
The SID contains essential information about the fund’s objectives, risks, fees, and other relevant details. Read it carefully.
Diversify Your Portfolio
Avoid putting all your money into a single fund. Diversify your investments across different asset classes and fund categories to spread risk.
Consult with a Financial Advisor
If you are unsure about your investment choices or need personalized advice, consider consulting a certified financial advisor or planner.
Regularly Monitor Your Investments:
Keep track of your investments and periodically review your portfolio to ensure it aligns with your goals. Rebalance if necessary.
Remember that investing in mutual funds involves risks, and there are no guarantees of returns. Consider a long-term investment horizon and stay informed about market developments that could affect your investments. Review and adjust your portfolio as your financial situation and goals change over time.
Top Best Mutual Funds for SIP
Selecting the top-performing mutual funds in India requires a systematic approach and consideration of various factors. While past performance is essential, it should not be the sole criteria for choosing a mutual fund. Here’s a step-by-step guide on how to select the top-performing mutual funds in India:
Here’s the list of the five best mutual funds for SIP:
| Fund Name | 5-year Return (%) | 3-year Return (%) | |
| Quant Active Fund Direct-Growth | 24.52% | 33.44% | Know More |
| Parag Parikh Flexi Cap Fund Direct-Growth | 19.92% | 24.37% | Know More |
| Mirae Asset Emerging Bluechip Fund Direct-Growth | 19.08% | 25.84% | Know More |
| PGIM India Flexi Cap Fund Direct-Growth | 19.07% | 23.94% | Know More |
| Quant Large and Mid Cap Fund Direct-Growth | 18.99% | 30.08% | Know More |
| Kotak Equity Opportunities Fund Direct-Growth | 18.13% | 26.66% | Know More |
| Edelweiss Large & Mid Cap Direct Plan-Growth | 17.29% | 26.40% | Know More |
Last updated date – 27 Sep 2023
Remember that investing in mutual funds involves risks, and there are no guarantees of returns. Consider a long-term investment horizon and stay informed about market developments that could affect your investments. Review and adjust your portfolio as your financial situation and goals change over time.
How Tax is applied on Best Mutual Funds in India
The tax treatment of mutual funds in India depends on several factors, including the type of mutual fund, the holding period, and the gains generated. Here’s a breakdown of how taxes are applied to mutual funds in India:
Equity Mutual Funds:
Short-Term Capital Gains (STCG): If you hold equity mutual funds for less than one year, the gains are considered short-term capital gains. As of my last knowledge update in September 2021, short-term capital gains on equity mutual funds are taxed at a flat rate of 15% plus a cess of 4%, resulting in an effective tax rate of 15.6%.
Long-Term Capital Gains (LTCG): If you hold equity mutual funds for one year or more, the gains are considered long-term. Long-term capital gains on equity mutual funds up to ₹1 lakh in a financial year are exempt from tax. Gains exceeding ₹1 lakh are subject to a tax of 10% plus a cess of 4%, resulting in an effective tax rate of 10.4%. However, these gains are taxed without the benefit of indexation.
Debt Mutual Funds:
Short-Term Capital Gains (STCG): If you hold debt mutual funds for less than three years, the gains are considered short-term capital gains. Short-term capital gains on debt mutual funds are added to your taxable income and taxed at your applicable income tax slab rate.
Long-Term Capital Gains (LTCG): If you hold debt mutual funds for three years or more, the gains are considered long-term. Long-term capital gains on debt mutual funds are taxed at a rate of 20% after allowing for indexation benefits. Indexation adjusts the purchase price for inflation, reducing the taxable capital gains.
Tax-Saving (ELSS) Funds:
Equity-Linked Savings Schemes (ELSS) have a lock-in period of three years. Gains from ELSS funds are treated as long-term capital gains if held for three years or more, and they are taxed at 10% plus a cess of 4%, resulting in an effective tax rate of 10.4% for gains exceeding ₹1 lakh. Gains below ₹1 lakh are exempt from tax.
Dividend Distribution Tax (DDT):
Until March 31, 2020, dividend income from mutual funds was subject to Dividend Distribution Tax (DDT), which was paid by the mutual fund company. However, since April 1, 2020, the dividend income received by investors is taxable in their hands at their applicable income tax slab rates.
It’s important to note that tax rules in India can change, and you should consult with a tax advisor or financial expert to get the most up-to-date information and guidance on tax implications related to your mutual fund investments. Additionally, your individual tax liability may vary based on your income and other financial circumstances.
Who Should Invest in Best Mutual Funds
Investing in mutual funds can be suitable for a wide range of individuals, depending on their financial goals, risk tolerance, and investment preferences. Here are some categories of people who may consider investing in mutual funds:
Long-Term Investors:
Mutual funds are well-suited for individuals with long-term financial goals, such as retirement planning or building wealth over several years. Long-term investors can benefit from the potential for compounding returns.
Goal-Oriented Savers:
If you have specific financial goals, such as buying a home, funding a child’s education, or taking a dream vacation, mutual funds can help you work toward those goals by providing a disciplined investment approach.
Risk-Averse Investors:
Mutual funds offer options for conservative investors who are not comfortable with high levels of risk. Debt funds and hybrid funds with a debt component can be suitable for those seeking capital preservation and stability.
Risk-Tolerant Investors:
Equity mutual funds are suitable for investors willing to take on higher levels of risk in exchange for the potential for higher returns. They can be ideal for those with a longer investment horizon and a tolerance for market volatility.
Diversification Seekers:
Mutual funds provide instant diversification because they invest in a mix of assets, such as stocks, bonds, or a combination of both. Diversification can help spread risk and reduce the impact of poor-performing individual investments.
Tax-Planning Individuals:
Tax-saving mutual funds, known as Equity-Linked Savings Schemes (ELSS), offer tax benefits under Section 80C of the Income Tax Act. Individuals looking to save on taxes while investing can consider ELSS funds.
Individuals with Limited Market Knowledge:
Mutual funds are managed by professional fund managers who make investment decisions on behalf of investors. This can be appealing to individuals who lack the time or expertise to manage their own investments.
Young Investors:
Starting to invest early allows individuals to harness the power of compounding and build wealth over time. Young investors with a long investment horizon can benefit from mutual fund investments.
Retirees and Pre-Retirees:
Retirees and pre-retirees may use mutual funds to generate a regular income stream through systematic withdrawal plans (SWPs) or invest their retirement savings in a way that aligns with their risk tolerance.
Busy Professionals:
Individuals with demanding careers may find mutual funds a convenient investment option due to the ease of SIPs (Systematic Investment Plans), which allow for automatic, regular investments.
It’s important to note that while mutual funds offer various benefits, they also come with risks, including the potential for loss of capital. Therefore, individuals considering mutual fund investments should assess their financial goals, risk tolerance, and investment time horizon before making decisions. Consulting with a financial advisor or planner can help you choose the most appropriate mutual funds for your specific needs and circumstances.
When to sell Top Mutual Funds
When to sell Top Mutual Funds
Deciding when to sell top-performing mutual funds depends on your financial goals, investment strategy, and specific circumstances. Here are some scenarios in which you might consider selling mutual funds:
Achievement of Financial Goals:
you invested in a mutual fund with a specific financial goal in mind (e.g., buying a house, funding education, retirement), you might consider selling when you’ve achieved or are close to achieving that goal. This allows you to lock in gains and ensure that your money is available when needed.
Rebalancing Your Portfolio:
Over time, your asset allocation within your investment portfolio may deviate from your desired targets due to varying performance of different asset classes. Selling mutual funds can help rebalance your portfolio to align with your intended asset allocation.
Change in Investment Strategy:
If your investment goals or risk tolerance change, you may need to adjust your investment strategy. Selling certain funds and reallocating your investments can help you align your portfolio with your updated strategy.
Fund Underperformance: .
If a mutual fund that was previously a top performer experiences a prolonged period of underperformance and fails to meet your expectations, you might consider selling and reallocating your assets to better-performing options.
Changes in Fund Management:
A change in the fund manager or investment strategy of a mutual fund can impact its future performance. If you are no longer confident in the fund’s direction, you may choose to sell and seek alternatives.
Tax Planning:
In some cases, you may want to strategically sell mutual funds to manage your tax liability. This could involve tax-loss harvesting (selling funds with losses to offset gains) or taking advantage of favorable tax rates on long-term gains.
Emergency or Unforeseen Expenses:
In the event of a financial emergency or unexpected expenses, you may need to sell mutual funds to access cash quickly.
Portfolio Review:
Regularly reviewing your investment portfolio and assessing the performance of your mutual funds is a good practice. Periodic reviews can help you identify when adjustments are necessary.
When considering selling mutual funds, it’s essential to do the following:
- Evaluate the reasons for selling and ensure they align with your financial goals and overall investment strategy.
- Understand any tax implications, such as capital gains taxes, associated with the sale.
- Consider the impact of selling on your portfolio’s diversification and asset allocation.
- Be mindful of transaction costs, including any redemption fees or exit loads associated with the mutual funds you plan to sell.
It’s often a good idea to consult with a financial advisor or investment professional before making significant changes to your investment portfolio. They can provide personalized guidance based on your unique circumstances and help you make informed decisions about when to sell mutual funds.
Take Loan Against Mutual Funds
A loan against mutual funds, often referred to as a Loan Against Mutual Fund (LAMF), allows you to borrow money from a financial institution using your mutual fund investments as collateral. Here’s a step-by-step overview of how it typically works:
Eligibility:
Ensure that your mutual fund holdings are eligible for a loan. Different financial institutions may have specific eligibility criteria regarding the type and value of mutual funds they accept as collateral.
Lender Selection:
Choose a bank, non-banking financial company (NBFC), or other lending institution that offers loans against mutual funds.
Loan Application:
Fill out a loan application with the chosen lender. You’ll need to provide details about your mutual fund holdings, including the scheme names and folio numbers.
Assessment:
The lender will assess the value of your mutual fund holdings. The loan amount you’re eligible for will depend on the Net Asset Value (NAV) of the units you pledge as collateral.
Loan Amount:
You can typically borrow a percentage of the NAV of the mutual fund units pledged as collateral. The exact percentage can vary between lenders but is usually in the range of 50% to 80%.
Interest Rate:
The lender will charge interest on the loan amount, and the interest rate can vary. It’s often lower than the interest rates for unsecured personal loans but higher than secured loans like home loans.
Loan Tenure:
Loans against mutual funds typically have shorter tenures compared to traditional loans. The repayment period can vary, but it’s generally shorter than the maturity period of the mutual funds used as collateral.
Repayment:
During the loan tenure, you’ll need to make regular interest payments. The principal can often be repaid at the end of the loan term. Some lenders may allow partial prepayment of the principal.
Loan to Value Ratio (LTV):
Lenders often set a maximum loan-to-value (LTV) ratio. This means they won’t lend you the full value of your mutual fund holdings to mitigate risk. The LTV ratio can vary between lenders.
Risk Considerations:
It’s important to be aware of the risks involved. If the value of your mutual fund units declines significantly, you may need to pledge additional units or repay a portion of the loan to maintain the required collateral value. Failure to do so could lead to the lender selling your pledged units.
Tax Implications:
Taking a loan against mutual funds generally doesn’t have tax implications as long as you don’t redeem the mutual fund units. However, the interest you pay on the loan is not tax-deductible.
Before proceeding with a loan against mutual funds, carefully review the terms and conditions, interest rates, and risks associated with this type of loan. Consult with a financial advisor to assess whether it’s a suitable financial decision for your specific circumstances.