Top 5 Mutual Funds to Invest in December 2025

Starting an investment journey can be overwhelming. Many new and relatively inexperienced investors are constantly on the lookout for the "best" mutual funds to invest in. To find answers, they often turn to friends, colleagues, or online mutual fund forums, asking for top recommendations to park their extra money.

However, most beginners are rarely satisfied with the answers they get. An online search usually leads to websites offering ready-made lists, but these can be misleading. Often, schemes are shortlisted based only on short-term performance, or a specific category dominates the list simply because it is the current "flavour of the season." This makes it difficult to decide what is truly right for your financial goals.

Top Funds to Explore

To help narrow down the search, we have looked at funds highlighted by the INDmoney ranking system. These rankings take into account returns, expense ratios, and other critical parameters.

Here are 5 funds you can consider exploring for December 2025:

1. HDFC Flexi Cap Fund
2. Nippon India Large Cap Fund
3. Bandhan Small Cap Fund
4. HDFC Mid Cap Fund
5. SBI Magnum Children's Benefit Fund

Understanding the Categories

Before investing in any of the schemes mentioned above, it is vital to understand their categories. You must ensure the category aligns with your personal investment objective and risk profile.

Large Cap Funds
If you are an investor who wants to play it safe while still investing in stocks, Large Cap schemes are designed for you. These funds invest in the top 100 companies. They are relatively safer than other pure equity mutual fund schemes and are generally less volatile than mid-cap or small-cap funds.

Flexi Cap Funds
For a regular equity investor with a moderate risk appetite, Flexi Cap funds (or diversified equity schemes) are a great option. These schemes invest across all sectors and market sizes (large, mid, and small) based on the fund manager's view. This allows investors to benefit from growth in various sectors without being tied to just one type of company.

Mid Cap and Small Cap Funds
Are you an aggressive investor looking to earn extra returns by taking on extra risk? You might look at Mid Cap and Small Cap schemes. Mid Cap schemes invest in medium-sized companies, while Small Cap funds invest in smaller companies. These schemes can be volatile, but they have the potential to offer superior returns over a long period. These are best suited for those with a long-term horizon.

How Were These Funds Evaluated?

To ensure the selection wasn't based on guesswork, specific methodologies were used to analyse these funds. Here is a simple breakdown of the technical factors considered:

1. Mean Rolling Returns
Instead of looking at a single point in time, the performance was analysed using "rolling returns." This involves looking at the daily performance rolled over the last three years to get a more accurate picture of average returns.

2. Consistency
Consistency is key in investing. A metric called the "Hurst Exponent" (H) is used to measure the randomness of a fund's performance.

• High H: Indicates the fund has low volatility and stronger, more persistent trends.
• Low H: Indicates the fund is unpredictable or "mean reverting."
• Basically, a higher value suggests the fund follows a stronger trend and is less random.

3. Outperformance (Jensen's Alpha)
This measures how much "extra" return the fund generated compared to what was expected given the market risk. This is calculated using "Jensen's Alpha." A higher Alpha indicates that the portfolio performed better than the market predictions (based on the Capital Asset Pricing Model).

Conclusion

Selecting the right mutual fund goes beyond just looking at the highest return from last year. By looking at consistency, risk-adjusted returns, and understanding the specific category of the fund, you can make a more informed decision.

Disclaimer: The content is meant for education and general information purposes only.  Past performance is not indicative of future returns. Mutual Funds are non-exchange traded products, and INDstocks is merely acting as a mutual fund distributor. All disputes with respect to distribution activity, would not have access to the exchange investor redressal forum or arbitration mechanism. Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing. INDstocks Private Limited (formerly known as INDmoney Private Limited) 616, Level 6, Suncity Success Tower, Sector 65, Gurugram, 122005, SEBI Stock Broking Registration No: INZ000305337, Trading and Clearing Member of NSE (90267, M70042) and BSE, BSE StarMF (6779), AMFI Registration No: ARN-254564, SEBI Depository Participant Reg. No. IN-DP-690-2022, Depository Participant ID: CDSL 12095500, Research Analyst Registration No. INH000018948 BSE RA Enlistment No. 6428.