Best Equity Mutual Funds 2025
List of the top-performing equity mutual funds sorted by returns, with their AUM and expense ratios.
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AUM ₹8232 Cr •
Expense 1.13%
- ▲ 34.64%
AUM ₹30504 Cr •
Expense 0.71%
AUM ₹5658 Cr •
Expense 0.57%
- ▲ 33.9%
AUM ₹2586 Cr •
Expense 1.08%
- ▲ 32.99%
AUM ₹1625 Cr •
Expense 0.87%
- ▲ 32.95%
AUM ₹5714 Cr •
Expense 0.85%
AUM ₹2454 Cr •
Expense 0.12%
- ▲ 32.82%
AUM ₹37501 Cr •
Expense 0.69%
- ▲ 32.8%
AUM ₹3303 Cr •
Expense 0.65%
AUM ₹32669 Cr •
Expense 0.66%
What are Equity Mutual Funds?
Equity mutual funds invest in stocks of different companies. The stocks these funds invest in are typically selected based on their market capitalisation as defined by SEBI (Securities and Exchange Board of India) or aligned with specific investment themes or tax considerations.
As per current SEBI Mutual Fund Regulations, an equity mutual fund is required to invest at least 65% of its investments in equity and equity-related instruments. Investors can choose to invest in a lump sum or set up a SIP in these funds. By investing in a diverse range of categories, equity mutual funds enable investors to diversify their portfolios across multiple industries.
How are Equity Mutual Funds categorised?
Equity mutual funds are categorised based on market capitalisation, investment strategies, etc, ensuring clarity for investors regarding the types of companies these funds invest in. Here are the different types of equity mutual funds:
Investment Strategy-Based Categories
Thematic or Sectoral Funds: If you're excited about a specific investment area like tech or healthcare, this might be for you. These funds focus on a particular industry or theme, but remember, this comes with higher risk since you're not spreading your investment across different sectors.
- Focused Equity Fund: Here, the fund invests in a small group of about 30 companies. The idea is that by focusing on fewer stocks, the fund can concentrate on finding the best opportunities.
- Contra Equity Fund: Think of this as a "rebel" fund. It goes against the grain, to invest in companies that are currently underperforming, with the belief that they will bounce back in the long run.
- Dividend Yield Equity Fund: This equity fund invests primarily in stocks of companies known for consistently paying high dividends. And provides a steady stream of income through dividend payouts.
Market Capitalisation-Based Categories
SEBI has defined companies to be ordered according to their market capitalisation. These include:
- Large-Cap Funds: These funds invest in the top 100 biggest companies. These 100 companies and others are ranked on the basis of their market capitalisation. Since these are well-established businesses, it's a safer bet for those looking for steady, long-term growth. Fund managers are required to invest at least 80% of their funds in large-cap stocks.
- Mid-Cap Funds: Here, the focus is on medium-sized companies ranking 101st to 250th on the stock exchange. These funds come with a bit more risk than large-cap funds but also offer the potential for higher returns. Under this category, the fund manager is required to invest at least 65% of their funds in mid-cap stocks.
- Small-Cap Funds: Small-cap funds invest in smaller companies ranked 251-500. These are riskier but can deliver significant gains if the companies grow. In small-cap funds, at least 65% of the funds are required to be invested in stocks of small-cap companies.
- Multi-Cap Funds: A good mix of large, mid, and small-cap companies. These funds give you the best of all worlds by diversifying across company sizes, balancing risk and reward.
- Large and Mid-Cap Funds: A blend of large and mid-sized companies, giving you a mix of stability and growth potential.
Tax Treatment-Based Categories
- Equity Linked Savings Scheme (ELSS): This is a tax-saving option where you can invest in equity funds and save on taxes. It has a lock-in period of three years and is great if you’re looking for both tax benefits and long-term growth.
Investment Style-Based Categories
- Active Funds: In these funds, a fund manager actively picks and chooses stocks to buy, aiming to outperform the market.
- Passive Funds: These funds just track a particular market index, like the Nifty 50. The fund manager's job here is to replicate the picked stocks actively.
Advantages of Equity Mutual Funds
To provide a clearer perspective, we have listed the advantages and disadvantages below.
- Potential for High Returns: Equity mutual funds have the potential to generate substantial returns over the long term because they invest primarily in stocks. This happens because of the growth of companies and the overall economy, which can lead to an increase in stock prices.
- Professional Management: When you invest in equity mutual funds, you benefit from the expertise of professional fund managers. These managers are skilled professionals who analyse market trends, evaluate companies, and make informed investment decisions on behalf of the fund's investors. They have access to research, tools, and resources that individual investors may not have.
- Liquidity: Equity mutual funds offer high liquidity, meaning that you can easily buy or sell your units whenever you need to access your money. Unlike certain investments, such as real estate or fixed deposits, which may take time to liquidate, mutual funds allow you to redeem your units on any business day at the current Net Asset Value (NAV).
Disadvantages of Equity Mutual Funds
- Market Risk: Equity mutual funds are subject to market risk, so the value of the fund can fluctuate based on the performance of the underlying stocks. When the stock market experiences volatility, equity mutual funds can see significant swings in their NAVs. This volatility is particularly impactful in the short term, as the market can react quickly to news and events. So be prepared for the possibility of losses, especially if you need to redeem the units during a market downturn.
- Management Fees: Investing in equity mutual funds comes with certain fees to cover the expenses associated with running the fund, administrative expenses, etc. The expense ratio is typically expressed as a percentage of the fund's assets and is deducted from the fund's returns before they are distributed to you. While the fees may seem small, they can have a significant impact on long-term returns, especially in low-return environments.
- Short-Term Volatility: Equity mutual funds can experience significant price swings in the short term because of the volatility of the stock market. This volatility can be unsettling, especially if you are new to the market or have a low tolerance for risk.
Frequently Asked Questions
Can I start investing in equity funds with a small amount through SIP?
Yes, most equity mutual funds let you begin with SIPs as low as ₹100 or ₹500. This makes it easy to start investing gradually, build discipline, and grow wealth over the long term.
Are equity mutual funds good for beginners?
Yes, equity mutual funds can be suitable for beginners because they offer diversification and professional management. Through SIPs, new investors can start small and benefit from rupee-cost averaging while gradually building long-term wealth.
What is the best time to invest in equity mutual funds?
There’s no perfect time to enter the market. Starting early and investing regularly through SIPs helps smooth out market ups and downs. Staying consistent matters more than trying to time the market.
Do equity funds come with dividends?
Many equity funds do distribute dividends to their investors. However, dividend policies can vary from fund to fund. Some funds may reinvest dividends for potential long-term growth, while others may pay out dividends regularly. Also remember as per the income tax act u/s 194K, there is a 10% TDS on the dividend income. When you file your income tax, show that the fund house has already paid this tax, so you don't have to pay it again.
Why are equity mutual funds considered riskier than debt or hybrid funds?
Equity mutual funds invest largely in stocks and hence are exposed to market fluctuations, company-specific risks and sectoral shifts. According to risk-return theory: higher potential returns come with higher risk. For example, in a market downturn, equity-oriented schemes may drop significantly, whereas debt funds tend to be more stable.
Why is the expense ratio of an equity mutual fund higher compared to others?
Equity mutual funds have higher expense ratios because managing stocks requires deeper research, active monitoring, and frequent trading. Fund managers spend more time analysing companies, sectors, and market trends, which increases overall management costs compared to simpler debt-based strategies.
What should be the ideal allocation of equity mutual funds in my portfolio?
Your ideal equity allocation depends on your risk appetite, age, and long-term goals. A common guideline is the “100 minus your age” rule, which suggests how much of your portfolio can stay in equities. If you’re comfortable with higher risk and seeking long-term growth, you can allocate more to equity mutual funds; if you prefer stability, keep the equity portion lower.
How long should I stay invested in equity mutual funds?
Equity markets are cyclical, so staying invested for at least 5-7 years, and preferably 10 years or more, gives your investment time to ride through downturns and recover. Shorter horizons increase the risk of locking in a loss just because you happened to invest right before a market drop. Fundamentals of investing emphasises on a long-term view.
If equity mutual funds carry more risk, why invest in them at all?
Equity mutual funds offer greater growth potential over long periods and can help beat inflation and build real wealth. While they carry higher ups and downs, they also are one of the more effective instruments for long-term wealth creation, especially when you begin early and stay invested.
What special risks are unique to equity mutual funds I should be aware of?
Equity mutual funds carry a few key risks investors should keep in mind. The main one is market risk, where stock prices can fluctuate sharply in the short term. There’s also sector and company-specific risk, which can impact returns if certain industries or businesses underperform. Since equities react quickly to economic and global events, returns can be volatile, especially over shorter periods.