Mutual funds are a prevalent form of investment vehicle that are overseen by skilled professionals known as fund managers, who dedicate their time and expertise to selecting securities that have the potential to yield significant returns.
In addition, mutual funds can serve as a viable substitute for individuals who are averse to the potential risks inherent in directly investing in equities. To identify the most optimal mutual funds, it is advisable to consider a variety of factors that can help you to narrow down your choices and select the top performers that can offer consistent and elevated returns on your investments.
Equity mutual funds are a type of mutual fund that primarily invests in the stocks or equities of various companies.
These funds aim to provide capital appreciation to investors by investing in a diversified portfolio of equity shares of companies across various sectors and industries.
Professional fund managers manage equity mutual funds, analyzing market trends and individual company performance to make investment decisions. Equity mutual funds seek to generate higher long-term returns than other investment options such as fixed deposits or bonds, but they also carry a higher level of risk due to market volatility.
Investors who are looking for higher returns and are comfortable with taking risks may consider investing in equity mutual funds
These funds have investments mainly focused on fixed income instruments such as corporate and government bonds, money markets, etc. They bear less risk but that comes at the cost of average returns. Debt funds are suitable for conservative investors who generally have a low risk appetite. The returns in debt mutual funds are relatively more stable than equity mutual funds.
| Fund | AUM (In Crs) | Expense Ratio | 3 Yr Return (%) | 5 Yr Return (%) | Invest Now |
|---|---|---|---|---|---|
| Aditya Birla Sun Life Liquid Direct Plan Growth | 30,552 | 0.20 | 4.87 | 5.76 | |
| SBI Liquid Fund Direct Plan Growth | 59,531 | 0.18 | 4.76 | 5.65 | |
| Aditya Birla Sun Life Government Securities Fund Direct Plan Growth | 1,036 | 0.28 | 9.29 | 8.15 | |
| ICICI Prudential Gilt Fund Direct Plan Growth | 3,308 | 0.56 | 9.58 | 7.71 | |
| Axis Banking & PSU Debt Fund Direct Plan Growth | 16,121 | 0.33 | 8.16 | 7.91 | |
| SBI Banking and PSU Fund Direct Plan Growth | 9,442 | 0.34 | 8.04 | 7.79 | |
| Kotak Bond Short Term Plan Direct Growth | 18,545 | 0.34 | 8.52 | 7.79 | |
| Axis Short Term Fund Direct Plan Growth Option | 12,635 | 0.30 | 8.51 | 7.83 | |
| Aditya Birla Sun Life Corporate Bond Fund Direct Plan Growth | 19,774 | 0.30 | 8.65 | 7.92 | |
| HDFC Corporate Bond Fund -Direct Plan - Growth Option | 28,656 | 0.30 | 8.92 | 7.96 |
Hybrid Mutual funds are a combination of equity and debt mutual funds which invest in a diversified portfolio of both equity and debt securities. People who have a moderate risk appetite and are looking for a diversified portfolio should invest in hybrid funds rather than several individual securities.
| Fund | AUM (In Crs) | Expense Ratio | 3 Yr Return (%) | Returns since Inception (%) | Invest Now |
|---|---|---|---|---|---|
| Kotak Debt Hybrid Direct Growth | ₹1818 Cr | 0.44 % | 13.91 % | ▲11.75% | |
| SBI Conservative Hybrid Fund Direct Plan Growth | ₹7569 Cr | 0.57 % | 14.03 % | ▲10.86% | |
| ICICI Prudential Regular Savings Fund Direct Plan Growth | ₹3238 Cr | 0.99 % | 11.2 % | ▲8.78% | |
| ICICI Prudential Equity Savings Fund Direct Growth | ₹4584 Cr | 0.45 % | 11.96 % | ▲7.37% | |
| Kotak Equity Savings Fund Direct Growth | ₹2171 Cr | 1.02 % | 13.7 % | ▲10.63% | |
| Aditya Birla Sun Life Equity Savings Fund Direct Plan Growth | ₹457 Cr | 1.25 % | 12.82 % | ▲8.98% | |
| Kotak Equity Hybrid Direct Growth | ₹3468 Cr | 0.54 % | 26.73 % | ▲13.26% | |
| Mirae Asset Hybrid Equity Fund -Direct Plan-Growth | ₹7188 Cr | 0.43 % | 21.82 % | ▲12.87% | |
| Canara Robeco Equity Hybrid Fund Direct Plan Growth | ₹8624 Cr | 0.58 % | 20.28 % | ▲12.62% | |
| Tata Balanced Advantage Fund Direct Growth | ₹6705 Cr | 0.28 % | 17.84 % | ▲12.02% | |
| Kotak Balanced Advantage Fund Direct Growth | ₹14422 Cr | 0.48 % | 17.12 % | ▲11.85% | |
| ICICI Prudential Balanced Advantage Fund Direct Plan Growth | ₹45584 Cr | 0.95 % | 18.38 % | ▲10.89% |
There are a number of parameters that you can use to evaluate all the mutual funds and choose the best ones to invest in. We have our in-house algorithm called IND Ranking to identify the best Mutual Funds within a category.
To identify best performing funds we rank them on the following parameters.
Ratios used for ranking are dependent on the category being ranked. For Equity we have different sets of ratios & for debt we have different sets of ratios.To go one level deep & fine tune our ranking , we use different sets of ratios within a category as well. For example- Index fund which is a subcategory of Equity, its performance score is arrived at by looking into the previous years’ Tracking error as this is the most important metric for an Index fund.
We put AUM cut- off and years in existence cut - off for a fund. For Equity funds we don't rank any fund whose AUM < 100 Cr & is less than 3 years old. Similarly, For a Debt Fund we don’t rank any fund whose AUM < 500 Cr & is less than 1 year old.
Performance Score - This is composed of several ratios such as information ratio, up capture ratio, YTM etc. This helps in measuring a fund’s consistency in generating returns, outperformance with respect to the Benchmark, consistency in beating the benchmark & expected return for a debt fund if held till maturity.
Risk Management Score - Risk management score includes ratios like Sortino, standard deviation, down capture ratio, credit rating etc. This helps in assessing the fund's probability of downside risks, whether the fund is able to control its losses during market correction & its creditworthiness.
Cost Score - This takes into account the expense ratio of a fund.
We calculate scores for each of these parameters & normalise these scores for a category. We assign weightages to each of the Performance Score, Risk Score & Cost Score and arrive at a final score. These final scores are then used to do the ranking of a fund within its category.
Although mutual fund investments are generally made for the long term, as an investor, you should ensure whether the fund scheme allows you to redeem the units in the near future if needed. However, it is recommended that you should remain invested for long. The returns earned along with the principal invested amount compound over the years of investment. The longer you stay invested, the higher you will earn.
A mutual fund’s performance depends on its fund manager’s investment strategy, i.e; securities in which the funds are going to be invested, tactics to lower risks, finding the best opportunities to earn higher returns, etc. The best mutual funds in India have highly expert and experienced fund managers who always strive to beat the performance of the fund’s benchmark index. Thereby, choose the mutual fund that goes with your expectations and has outperformed its benchmark index in the past.
No, equity mutual funds cannot guarantee returns. The returns from equity mutual funds are subject to market fluctuations and the performance of the underlying stocks. However, historically, equity mutual funds have provided higher returns than other asset classes over the long term.
The holding period for equity mutual funds depends on the investor's financial goals and risk tolerance. However, it is generally recommended to hold equity mutual funds for at least 3-5 years to benefit from the power of compounding and reduce the impact of short-term market fluctuations.
Expense Ratio: It is a commission charged by the asset management company from the investors. The expense ratio is levied to cover up the costs incurred in the proper management of the investors’ fund which includes fund managers’ salaries, cost of advertising the fund scheme, general expenses incurred by the fund house, etc.
Entry and Exit Load: Entry load is levied while making an investment in a mutual fund, while exit load is charged when the investor redeems the purchased mutual fund units, i.e; exiting from the fund. Exit load is charged by the fund house only when the investor makes an early exit from the fund.
The best part about mutual funds is that they allow both high and low capital investors to put their money and earn profits. There are two ways of investing in mutual funds, i.e; lump sum investment and SIP investment
It is a way of putting a big amount of money at once in a mutual fund scheme. Lump sum mode of investing in mutual funds is suitable for investors who have a substantial amount of money at their disposal, which they want to grow rather than keep idle. Once invested, the investor does not have to manage his/her investment periodically.
Systematic Investment Plan or SIP is a mutual fund investment method wherein the investor can invest periodically, i.e; monthly, quarterly, etc. SIP investments can be as little as Rs 500. It is preferred by individuals who do not have a huge amount of money to make a lump sum investment. You can invest a part of your monthly savings regularly in a fund and see your money grow over a long period of time. The investment made through SIP in a mutual fund scheme compounds over time into higher returns.
Systematic Transfer Plan (STP) is a method where an investor having a lumpsum amount can park money in one fund and systematically transfer it to another scheme as per his financial goal. One of the differences between STP and SIP is the source of investment. In case of the STP, money is transferred from one fund to another (usually from a debt fund to an equity fund if the markets are doing good or vice versa) while in case of the SIP it is from the investor's bank account. Since an STP is spread over a period, it tends to average out an investor's purchase price providing him the rupee cost averaging.
Equity mutual funds carry several risks, such as market risk, company-specific risk, liquidity risk, and concentration risk. Market risk refers to the risk of loss due to fluctuations in the stock market. Company-specific risk refers to the risk of loss due to factors specific to a company, such as poor management or financial problems.
Mutual funds are a popular investment option for individuals who want to diversify their portfolio without having to pick individual stocks or bonds. Here are some benefits of buying mutual funds:
Overall, buying mutual funds can provide investors with a diversified portfolio, professional management, convenience, affordability, and transparency.