Best Mutual Funds

What are Best Mutual Funds?

Mutual funds are one of the most popular investment instruments. They are managed by experts called fund managers who put their effort into choosing securities that can offer high returns. Mutual funds also serve as alternatives to investors who do not wish to bear the risks associated with investing directly in equities. The best mutual funds are ones that offer you higher and consistent returns on your investment. If you are looking for the best mutual funds to invest in, you should consider a number of factors to shortlist the top mutual funds for your investment portfolio.

How to Choose Best Mutual Funds in India (2022)?

IND Ranking

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.

  • Performance
  • Risk
  • Cost

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.

Equity Mutual Funds

These funds have portfolios focused primarily on equities. Thereby, the returns that an investor earns from his/her equity mutual fund investments depend majorly on the performance of the equity holdings of the fund. Equities hold a fair amount of risk, thanks to market volatility. The risk is subsequently reflected in the equity mutual funds as well. However, the volatility in mutual funds returns remains only for a short period. Equity based mutual funds have an excellent performance history in terms of returns in the long run.

Best Mutual Funds to invest in 2022 (Equity Mutual Funds)

Debt 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.

Best Mutual Funds to invest in 2022 (Debt Mutual Funds)

Hybrid Mutual Funds:

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.

Best Mutual Funds to invest in 2022 (Hybrid Mutual Funds)

Liquidity of the Mutual Fund Scheme

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.

Investment Plan of the Fund House/Asset Manager

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.

Costs Associated wit h Investment and Redemption

There are a few fees/charges associated with the mutual fund investment.

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.

An investor should choose the mutual funds that levy minimal or no charges.

Ways to invest in Mutual Funds in 2022

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

Lump Sum 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.

SIP Investment

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.

STP Investment

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.

Benefits of Investing in Top 10 Mutual Funds in India

There are a number of reasons why you should consider the best mutual funds to invest in 2022. The best mutual funds 2022 give you the opportunity to let your money grow at a higher pace.

Higher Returns

The top mutual funds in India have generated higher returns over the years. They allow you to invest any amount of money and save you from the worry of continuously monitoring the investments. You can enjoy substantially higher returns than most other investment instruments by investing in top mutual funds.

Pool of Investment Choices

There are a wide variety of mutual fund schemes available to choose from. You can choose mutual funds based on your risk tolerance, investment goals, expectations, preference for any specific sector/stocks, etc. If you can take risks to enjoy higher returns, you can choose from the list of top equity mutual funds. In case you wish to keep risks at bay, there are a plethora of debt funds at your disposal. There are IT-heavy, bank-heavy, and other sector based mutual funds as well to meet your expectations. Besides, you can also make a diversified portfolio of funds in order to earn steady returns for long.

Liquidity

Except ELSS, all mutual fund schemes are highly liquid investment schemes. You can exit from the fund or redeem the units anytime you want. You do not have to pay any extra charge for mutual fund withdrawal. Although some schemes come with exit load, the same is exempted if the units are held at least for a specific period. The high liquidity of mutual funds enables you to manage finances in an event of financial urgency or crisis.

Managed by Experts

Mutual funds are managed by fund managers who have high expertise in the stock market. They pick up high quality stocks so that the portfolio generates higher returns. The holdings are also managed actively and effectively to avert risks during market fluctuations. Thanks to expert management, the best mutual funds in 2021 have outperformed their benchmark indices by a greater margin.

Allows Tax Exemptions

Long term capital gains of up to Rs 1 lakh from investments made in mutual funds are exempted from taxation. Furthermore, as per the provision laid under Section 80C of the Income Tax Act, you can enjoy a tax deduction of up to Rs 1.5 lakh through the investments made in an equity-linked saving scheme (ELSS).

Can Start With Low Capital

Mutual funds are preferred by low capital investors like students, part time workers, etc, and other low income groups. One can start a mutual fund investment even with Rs 100 and keep adding more whenever possible. You can choose the top mutual funds to invest in even with very limited capital. In case you save some amount every month, you can opt for SIP mode to start a recurring investment.

The best mutual funds have a high potential to generate higher returns. They are less risky than direct equity investments and more profitable than standard savings schemes. With the proper knowledge, you can shortlist the best mutual fund to invest now and start your profitable investment journey.

FAQs:

  • Which mutual funds are best for long term
  • How to find the best mutual funds in India?
  • How to invest in best mutual funds?