Mutual fund is one of the most popular investment options among investors due to their awesome benefits that allow diversifying the investment options among different assets without having the headache of managing every investment individually. Also, investing in mutual funds can give you access to some investment options that would otherwise be unavailable to individuals.
There are various types of mutual funds available in the market and can be classified into different categories depending on their investment asset classes, risk factors, and investment objectives. We can’t find a single mutual fund scheme that can be beneficial for everyone. Thus we made a list of the best mutual funds, hopefully, these mutual funds will help you to achieve your financial goal.
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Table of Contents
What is mutual fund?
Mutual funds are professionally managed investment schemes operated by asset management companies in which a group of investors with similar investment objectives invest together.
The money is collected from investors and invested in stocks, bonds, or other securities. Investors get a proportional share of the income/profit generated from their investment after subtracting the applicable costs.
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Why to invest in mutual funds?
To better understand, ‘why should we invest in mutual funds?’ First, we have to know, ‘what are the benefits of mutual funds?’ Here are some benefits of mutual funds which make them an attractive investment option.
- Professional expertise: Mutual fund is a very good investment instrument if one doesn’t have the skill or the time to explore the market. Here you can invest your money in one go or through SIP(Systematic Investment Plan) which is managed by professional fund managers for which you just have to pay a nominal fee(0.5% – 2.5%).
- Returns: One of the biggest benefits of mutual fund investments is that you have the opportunity to earn potentially higher returns than traditional investment options which offer assured returns.
This is because the mutual fund return rate is directly linked with the stock market’s performance. So, if the market is on a bull run and it does exceedingly well, the impact would be reflected in the return of your fund. However, poor performance in the market could negatively impact your investment.
- Diversified: “Don’t put all your eggs in one basket.” This is a famous mantra to remember when you invest your money. When you invest only in a single asset, you could risk a loss if that asset class crashes. However, you can avoid this problem by investing in different asset classes and diversifying your investment portfolio.
- Tax Advantages: People who invest in a tax saver mutual fund can claim a tax deduction of up to Rs.1.5 lakh/year by investing in equity linked savings scheme (ELSS) under section 80C of the Income Tax Act. ELSS mutual fund comes with a lock-in period of 3 years.
Another tax benefit is the indexation benefit available on elss debt funds. In the case of traditional products, all interest earned is subject to tax. However, in the case of debt mutual funds, only the returns earned over and above the inflation rate (embedded in the cost inflation index (CII)) are subject to tax. This could also help investors earn higher post-tax returns.
- Liquidity: The most important feature of investing in mutual funds is that the investor can withdraw money at any time. So, if anyone requests to redeem a mutual fund it generally takes 1 – 5 working days. There is no issue of withdrawal of mutual fund money like fixed deposits or PPF. Mutual fund offers flexible withdrawal facilities, but factors like the pre-exit penalty and exit load should be taken into consideration.
- Variety of Schemes: You can find several mutual fund schemes out which a couple of funds will surely match your investment goal keeping the risk factor, time, and types of investments in mind.
- Transparency: There is no doubt that mutual funds offer their investors unparalleled transparency, regardless of their gender or financial situation. Furthermore, every mutual fund scheme is strictly regulated and supervised by SEBI and AMFI (Association of Mutual Funds in India), so there is almost zero risk of fraud involved.
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What are the best mutual funds to invest in?
Here are the 9 major types of equity mutual funds, go through them and hopefully, you will find your desired one.
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Large Cap Mutual Fund:
Large-cap mutual funds are those equity funds that invest a large portion of their total assets in companies with higher market capitalization and excellent track records.
- Who should invest in large-cap funds?
- Ideal for: Investors who don’t want to take much risk yet like to enjoy the juice of equity
- Large-cap mutual funds risk factor: Low risk
- Return expectation: approx. 12% or more YoY return on a long-term basis(based on 2012-2022)
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Best Large Cap Mutual Funds |
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10 Yr |
5 Yr |
3 Yr |
1 Yr |
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Mirae Asset Large Cap Fund |
16.67 |
11.32 |
14.26 |
4.15 |
32,158.54 |
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Canara Robeco Bluechip Equity Fund |
13.90 |
12.87 |
16.94 |
2.29 |
7414.40 |
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Large & Midcap Fund:
Large and midcap funds are open-ended funds that invest in stocks of large and medium-sized companies. The ratio between the large and mid-cap investments may differ from fund to fund.
- Who should invest in large and mid-cap funds?
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- Ideal for: Investors those who want to take a little bit of risk
- Large & midcap mutual funds risk factor: Medium risk
- Return expectation: approx. 14% or more YoY return on a long-term basis (based on 2012-2022)
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10 Yr |
5 Yr |
3 Yr |
1 Yr |
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Mirae Asset Emerging Bluechip |
23.06 |
14.48 |
21.05 |
3.27 |
22,146.97 |
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Canara Robeco Emerging Equities Fund |
20.60 |
12.14 |
20.08 |
3.51 |
13,890.22 |
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Multi Cap Fund:
A multi-cap mutual fund invests in stocks of companies of different market capitalizations. You can find investments in large, mid-cap, and small-cap companies in multi-cap funds which makes it less risky than small-cap funds but riskier than large-cap funds.
- Who should invest in a multi-cap mutual fund?
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- Ideal for: Aggressive investors who are ready to take risks
- Multicap funds risk factor: Medium risk
- Return expectation: approx. 14% or more YoY return on a long-term basis (based on 2012-2022)
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10 Yr |
5 Yr |
3 Yr |
1 Yr |
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Quant Active Fund |
20.40 |
20.61 |
31.02 |
8.03 |
2532.41 |
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Nippon India Multi Cap Fund |
14.81 |
11.77 |
16.47 |
17.74 |
12,266.06 |
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Mid Cap Mutual Fund:
A midcap mutual fund invests in medium-sized companies which have the potential to grow as large size co. Midcap offers a better return than large-cap mutual funds.
- Who should invest in midcap funds?
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- Ideal for: Those who are ready to take risk
- Mid Cap fund risk factor: Moderate risk
- Return expectation: approx. 15% or more YoY return on a long-term basis (based on 2012-2022)
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10 Yr |
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Edelweiss Mid Cap Fund |
20.57 |
14.14 |
25.54 |
4.95 |
2,608.97 |
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Kotak Emerging Equity Fund |
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13.96 |
24.69 |
7.89 |
20,106.81 |
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Small Cap Mutual Fund:
Small cap mutual funds invest in small companies, generally ranking below 250 on the stock exchange as per their market capitalization. Although smallcap mutual funds are a very risky investment option, it is very popular as in the long term it offers high returns.
- Who should invest in smallcap funds?
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- Ideal for: Those who are ready to take higher risks to get greater returns
- Small Cap fund risk factor: Very high risk
- Return expectation: approx. 17% or more YoY return on a long-term basis (based on 2012-2022)
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| 10 Yr | 5 Yr | 3 Yr | 1 Yr | ||
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Nippon India Small Cap |
24.37 |
16.50 |
31.87 |
10.48 |
19,989.52 |
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SBI Small Cap Fund |
25.11 |
17.42 |
27.64 |
8.43 |
12,513.95 |
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ELSS Mutual Fund:
ELSS mutual funds invest a significant portion of their assets in equity-related instruments. Normally, they have a three-year lock-in period. A tax-saving mutual fund can offer you a tax deduction of Rs.1,50,00 in a year under section 80C of the Income Tax Act.
- Who should invest in ELSS funds?
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- Ideal for: Enjoy the benefit of equity & tax savings
- Risk factor: Medium risk
- Return expectation: approx. 15% or more YoY on a long-term basis (based on 2012-2022)
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10 Yr |
5 Yr |
3 Yr |
1 Yr |
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Quant Tax Plan |
19.72 |
20.45 |
33.59 |
7.85 |
1515.16 |
| Bank of India Tax Advantage Fund |
16.04 |
13.90 |
33.59 |
-2.13 |
593.07 |
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Contra Fund:
In the contra mutual fund, most of the investments are made in companies that are not performing well in the short term. The idea behind contrarian investing is that stocks bought at low cost today will yield a higher return when issues are resolved and the stock rises in value in the future.
- Who should invest in a contra equity fund?
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- Ideal for: This is specially designed for long-term investors
- Risk factor: High risk
- Return expectation: approx. 14% or more YoY on a long-term basis (based on 2012-2022)
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10 Yr |
5 Yr |
3 Yr |
1 Yr |
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SBI Contra Fund |
15.01 |
13.55 |
26.39 |
14.50 |
5,165.40 |
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Invesco India Contra Fund |
17.44 |
12.72 |
17.54 |
4.65 |
8,840.51 |
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Dividend Yield Mutual Fund:
Dividend yield mutual funds invest in companies that are well known for declaring higher dividends. Since the companies are stable, it features a lower risk factor and higher stability.
- Who should invest in dividend yield funds?
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- Ideal for: Investors who are looking for lower volatility
- Risk factor: Low risk
- Return expectation: approx. 12% or more YoY on a long-term basis (based on 2012-2022)
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10 Yr |
5 Yr |
3 Yr |
1 Yr |
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Templeton India Equity Income Fund |
15.44 |
13.48 |
22.25 |
11.07 |
1282.60 |
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Focused Mutual Fund:
Focused equity mutual funds can only invest in a limited number of companies. As per the guidelines of SEBI, a focused mutual fund can invest in a maximum of 30 companies. Focused funds are much like multi-cap funds that can invest in small, mid, and large-cap companies.
- what are focused mutual funds best suited for?
- Ideal for: Investors who can take the high risk
- Risk factor: High risk
- Return expectation: approx. 16% or more YoY on a long-term basis (based on 2012-2022)
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10 Yr |
5 Yr |
3 Yr |
1 Yr |
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Quant Focused Fund |
18.12 |
12.77 |
18.95 |
4.61 |
106.32 |
If you’re looking for the best mutual fund for yourself, you first have to determine what type of fund you need, and for that, you must consider: 1) Your risk profile, and 2) your goals and time horizons.
- Risk profile: Your risk profile shows your willingness to take risks, if you are ready to take higher risks to gain greater returns, then you should go for small and mid-cap funds which will not be appropriate for those who don’t want to take risks.
- Goals and time horizon: Time horizon stands for the amount of time you want to stay invested. For example, if you are investing for your son’s higher education or for your retirement planning, and are ready to stay invested for 10 – 15 years or even higher, then long-term equity funds would be a perfect choice for you.
When you have decided on a particular type of mutual fund, all that is left to do is to find the mutual fund scheme that is most likely to provide the best returns. You should also keep in mind that mutual fund investments do not guarantee capital protection, unlike traditional investments. Here whatever approximate rate of returns is presented depending on their long-term performance only doesn’t guarantee for similar future returns. So do your research and invest in funds that can help you meet your financial goals at the right time in life.
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