Mutual Fund

Mutual Funds: Investing Done Right Or Not! [Top Mutual Funds]

Looking to invest in Mutual Funds? Maybe the stock returns are better. But what about risk? All such things must be popping up in your mind when you think of investing your hard-earned money. Still, no need to stress your brains out! Just follow our lead and we will have answers to each and every question. But today our alpha focus will be on investments via Mutual Funds.   

What is a Mutual Fund?

Mutual Fund definition

Mutual Funds are quite possibly the most famous investment choices nowadays. A mutual fund is an investment vehicle shaped when an asset management company (AMC) or asset house pools investments from a few people and institutional financial investors with common investment targets. 

An asset manager, who is a financial expert, deals with the pooled investment. The asset manager buys securities namely stocks and bonds that are in accordance with the investments.

Working

Mutual Funds are a brilliant investment alternative for individual financial investors to get in line with a specialist managed portfolio. Likewise, you can broaden your portfolio by putting resources into mutual funds as the asset allocation would cover a few instruments. Financial investors would be designated with reserve funds units dependent on the sum they contribute. 

Every financial investor would subsequently get profits or losses that are relative to the sum they contribute. The aim of the fund manager is to give ideal returns to its investors by putting the securities that are in line with the fund’s targets. The performance of mutual funds totally depends on the underlying assets.

Mutual Fund Information: Breaking Down

Mutual Fund

Mutual Funds, in contrast to stocks, don’t put their pooled investments in a specific stock or share. But, a mutual fund plan would put the investments across a few investment choices to provide their financial investors with greater returns. 

Likewise, financial investors are not needed to do their research to pick the best-performing stocks as the asset manager, and his group of experts and economic analysts do this research work and pick the top-performing stocks that can possibly offer exceptional yields. Therefore, mutual funds investing is a brilliant way to broaden your investment portfolio. 

The cost of the fund unit of a mutual fund is called the net asset value (NAV). It is the cost at which you purchase or sell fund units of a mutual fund scheme. The NAV of a mutual fund is determined by dividing the total worth of assets in the portfolio, subtracting the liabilities. Each & every mutual fund unit is sold and purchased at the current NAV value of the mutual fund.

Mutual Funds: Types 

Types 

Mutual funds in India are broadly categorized into debt funds, equity funds, and balanced mutual funds, which depend on their equity exposure & asset allocation. Therefore, the risk taken and returns given by a mutual fund plan would rely on its type. The different kinds of mutual funds are as follows:

Equity funds

Equity funds mostly put their investments in equity shares of listed companies across all markets. A mutual fund falls under the domain of equity funds if it offers its investments at about 65% of its portfolio in equity instruments. Equity funds have the ability to offer the highest yield and returns among all classes of mutual funds. 

The returns given by equity funds rely on the market fluctuations, influenced by several economic and geopolitical variables. The equity funds are further categorized as:

Small-Cap Funds

Small-cap funds, equity funds that invest in equity and equity-linked instruments of listed organizations with small market cap. SEBI defines small-cap organizations as those that are positioned after 251 in the market cap list.

Mid-Cap Funds

Mid-cap funds, equity funds that invest in equity and equity-linked instruments of listed organizations with medium market cap. SEBI defines medium-cap organizations as those that are positioned between 100 to 250 in the market cap list.

Large-Cap Funds

Large funds, equity funds that invest in equity and equity-linked instruments of listed organizations with large market cap. SEBI defines large-cap organizations as those that are positioned between 1 to 100 in the market cap list.

Sector\Thematic Funds

Sectoral or Thematic funds, equity funds that invest in equity-linked instruments of listed sectors namely IT & FMCG. Sectoral funds invest in company equity that works with the same themes such as travel.

Multi-Cap Funds

Multi-Cap Funds, equity funds that invest in equity and equity-linked instruments of listed companies across each and every market cap. The fund manager customizes the asset allocation seeing the market conditions for gaining the best returns for its investors. Thereby, reducing the risk levels.

Index Funds

Index Funds, equity funds that track and emulate the performance of a stock market index such as NSE Nifty50 & S&P BSE Sensex. The asset allocation of an index fund is similar to its underlying index. Further, the returns provided by the index mutual funds are the same as that of its underlying index.

Equity-Linked Savings Scheme (ELSS)

An equity-linked savings scheme (ELSS), comes under Section 80C of the Income Tax Act, 1961. The investors can claim tax deductions of up to Rs 1,50,000 each year by putting their investments in ELSS.

Best Equity Funds
5-Year Returns
3-Year Returns
Aditya Birla Sun Life India Opportunities Fund 26.88 %

14.7 %

Edelweiss Greater China Equity Off-shore Fund – Direct Plan-Growth

26.18 %

24.97 %

Edelweiss Greater China Equity Off-shore Fund

25.03 %

23.9 %

Aditya Birla Sun Life Digital India Fund – Growth-Direct Plan

24.06 %

29.5 %

ICICI Prudential Technology Fund – Direct Plan-Growth

23.72 %

30.94 %

SBI Small Cap Fund – Direct Plan-Growth

23.53 %

18.87 %

TATA Digital India Fund DIRECT Plan-Growth

23.5 %

28.29 %

ICICI Prudential Technology Fund

22.71 %

29.87 %

Mirae Asset Emerging Bluechip Fund – Direct Plan-Growth

22.56 %

21.27 %

DSP World Mining Fund – Direct Plan-Growth 22.55 %

20.88 %

Debt Mutual Funds

Debt mutual funds invest mostly in debentures, money markets, and other fixed-income play instruments like treasury bills, government securities, certificates of deposit, and other high-rated bonds & securities. A mutual fund is viewed as a debt fund if it puts its investments at least 65% of its portfolio in debt securities. Not affected by the market movements, debt funds are best for risk-averse financial investors. 

Further, the returns offered by debt funds are quite predictable. Therefore, the debt funds are categorized as:

Dynamic Bond Funds

Dynamic Bond Funds, debt funds whose investment portfolio is based upon the movements in the interest rates.

Income Funds

Income Funds put their investments in those securities that have a long maturity period and moreover, offer predictable returns over the period of time. The average maturity period of these income funds is 5 years.

Liquid Funds

Liquid funds, debt funds that put their investments in assets and securities that mature within a period of 91 days. They are a great alternative to put your surplus funds, and they provide higher returns when compared to a savings bank account.

Ultra Short-Term & Short-Term Debt Funds

Ultra Short-term and Short-term debt funds, mutual funds that put their investments in securities that have a maturity period of 1-3 years.

Gilt Funds

Gilt Funds, debt funds that hold their investments in government securities. These debt gilt funds are the least risky and best fit for risk-averse financial investors.

Fixed Maturity Plans (FMPs)

Fixed maturity plans (FMPs), close-ended debt funds that hold their investments in fixed income securities like government bonds. You can invest in fixed maturity plans only in the fund offer period, and your investment will be all locked up for a given period.

Credit Opportunities Funds

Credit Opportunities Funds, debt funds that invest in low-rated securities aiming at offering higher returns. All in all, these debt funds are quite risky.

Best Debt Funds
5-Year Returns
3-Year Returns

ICICI Prudential Multicap Fund – Dividend

13.08 %

11.08 %

NIPPON INDIA GILT SECURITIES FUND – Direct Plan-Growth

10.41 %

11.21 %

IDFC Government Securities Fund-Constant Maturity Plan-Growth-Direct

10.33 %

12.51 %

SBI Magnum Medium Duration Fund – Direct Plan-Growth

10.21 %

10.29 %

IDFC Government Securities Fund-Investment Plan-Growth-Direct Plan

10.11 %

12.06 %

ICICI Prudential Constant Maturity Gilt Fund – Direct Plan-Growth

10.09 %

11.99 %

ICICI Prudential All Seasons Bond Fund – Direct Plan-Growth

9.99 %

10.23 %

SBI Magnum Constant Maturity Fund – Direct Plan-Growth

9.94 %

10.66 %

SBI Magnum Gilt Fund – Direct Plan-Growth

9.88 %

10.85 %

DSP Government Securities Fund – Direct Plan-Growth 9.88 %

11.58 %

Balanced or Hybrid Mutual Funds

Balanced or hybrid mutual funds put their investments in both equity and debt instruments. The main aim of these balanced funds is to balance out the risk-reward ratio by broadening your portfolio. 

The fund manager customizes the asset allocation of the fund as per the market movements. It increases the gains of the investors and mitigates the risk levels. Investing in hybrid funds is a brilliant way of managing your portfolio as you have exposure to equity and debt instruments as well. This category of mutual funds is classified below: 

Equity-Oriented Hybrid Funds

Equity-oriented hybrid funds invest around 65% of their portfolio in company equity whereas the remaining investment is put in other fixed-income instruments.

Monthly Income Plans (MIPs)

Monthly income plans mainly invest in debt instruments and work to provide a stable return over a specific period of time. The equity exposure is limited to less than 20%. You can also decide about the dividends on a monthly, quarterly, or yearly basis.

Debt-Oriented Hybrid Funds

Debt-oriented hybrid funds hold their asset allocations i.e. at least 65% of its portfolio must be in fixed-income instruments like treasury bills and government bonds, and the remaining needs to be invested in equity.

Arbitrage Funds

Arbitrage funds work at providing the maximum returns by exchanging securities from one market at lower prices to another market at a higher premium. But, in case the arbitrage opportunities are not there, then the fund manager can pick to allocate his investments in debt securities also.

Best Hybrid Funds
5-Year Returns
3-Year Returns

HDFC Balanced Fund

18.7 %

10.83 %

HDFC Retirement Savings Fund- Equity Plan -Direct Plan-Growth

18.02 %

15.74 %

Tata Retirement Savings Fund-Progressive Direct Plan-Growth

16.82 %

11.47 %

HDFC Retirement Savings Fund- Hybrid Equity Plan -Direct Plan-Growth

16.55 %

14.32 %

Mirae Asset Hybrid – Equity Fund – Direct Plan-Growth

16.07 %

15.45 %

Canara Robeco Equity Hybrid Fund – Direct Plan-Growth

15.83 %

15.53 %

ICICI Prudential Thematic Advantage Fund (FOF) – Direct Plan-Growth

15.79 %

14.53 %

ICICI Prudential Equity & Debt Fund – Direct Plan-Growth

15.69 %

14.21 %

Principal Hybrid Equity Fund – Direct Plan-Growth

15.38 %

10.67 %

DSP Equity & Bond Fund – Direct Plan-Growth 15.05 %

14.8 %

Mutual Funds: Why Should You Invest?

Benefits

  • Low Cost & Expense
  • Investment Handled by Fund Managers & Financial Experts
  • No Lock-in Period
  • Diversification
  • Flexibility
  • Liquidity
  • Seamless Process
  • Systematic Investment Plan (SIP)
  • Switch Fund Option
  • Goal-Based Funds
  • Tax-Saving Tool
  • Rupee Cost Averaging
  • No Need to Time Markets
  • Regulated and Trustworthy
  • Ease of Tracking

You Can Also Read, 23 Genuine Ways For You To Make Money Online

Mutual Funds: Who Should Invest?

Mutual Funds: Who Should Invest?

Each and every individual who has a specific financial aim, be it presently or over a long period of time, must think about putting his investments into mutual funds. Investing in mutual funds is a superb method to achieve your objectives quicker. 

There are many mutual fund plans that suit all types of situations. Financial investors need to evaluate their risks, investments, and objectives prior to beginning with their mutual fund plans.

For instance, in case you are not a risk-taker and plan to buy a car in the next 5 years, then you should consider investing in gilt mutual funds. If you are a risk-taker and plan to own a house in the next 15-20 years, then you should consider investing in equity funds. 

In case your investment period is less than 2 years and you are aiming at higher gains than a savings bank account, then you can keep your surplus funds in a liquid fund.

Mutual Funds: When Should You Invest?

Time To Invest

In contrast to stocks, you must not wait for any specific period of time to allocate your investments in mutual funds. Since the fund & asset managers and their analysts choose the right assets & securities most of the time and benefit its investors, irrespective of the market fluctuations. Even when you are investing through a SIP, then you will gain from the down and high market cycles as well. 

As the markets are on a downside, you start buying more fund units since the stock prices have gone to their fresh lows. On the contrary, when the markets are up, you purchase lesser units. This is known as the rupee cost averaging. 

This benefit exists only with investing in mutual funds through SIP. All in all,  you must not wait for any specific period of time to put your investments in mutual funds. What’s the ideal time to invest in mutual funds? The best time is now!

Mutual Funds: How to Save Taxes?

Save Tax

You can save around Rs. 46,800 per year in taxes via an equity-linked savings scheme (ELSS) investment. The ELSS mutual funds asset allocation is inclined towards equity and equity-linked securities.

Under Section 80C of the Income Tax Act 1961, ELSS mutual funds are one of the best tax-saving investments. They have a lock-in period of just 3 years, which is the shortest when compared to all other tax-saving investments. Moreover, these ELSS mutual funds have the ability to give returns from 12%-15%.

ELSS mutual funds are the sole tax-saving investment with the ability to provide anti-inflation returns. Thus, ELSS mutual funds investments offer you the gains via tax deductions and wealth creation over the years.

Final Say!

This post is an informative guide for anyone looking to invest in mutual funds. Each and every significant piece of information is included in the content. Also, the structured content is in such a way that you won’t find any difficulty in understanding the pros and cons of investing in different types of mutual funds. All in all, call it a wise investment decision or not! It is not on us. But we have helped you to assist you in making your decisions better. 

Time to ask for a leave. Hope you like our way of binding the investment thoughts with you. For any more assistance, you can reach out to us anytime you need.  

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