It is a popular investment option among individuals to invest their money in mutual funds. It is worth noting that an investor has the option of investing in thousands of mutual fund schemes in India.
In spite of this, it is not easy to choose which mutual fund is the best, or which of the top 10 mutual funds is the best. The best mutual fund for you will depend on how much risk you feel comfortable taking and what your time horizon is for your investment goals.
Your risk profile depends on how willing and capable you are to take on risks. It is because of this that, a person who is willing to take more risk might invest in high-risk funds that are not suitable for investors who are unable to handle risks.
One major factor that determines the success of an investment is the time horizon of its purpose, i.e., the duration of time in which the investment will be held to accomplish that purpose. Investing in high-risk funds can be a good investment strategy if you are planning to invest for the long run instead of for short-term gains.
The funds managed by the AMCs are pooled investments. The professionals in this group have a strong track record of investing and managing a portfolio. Bonds, stocks, and other investments can be made by mutual funds that pool the assets of several investors.
According to the quantum of investment, mutual fund investors receive units of the fund. Net asset value (NAV) is the price at which fund units can be purchased or redeemed by investors.
Mutual fund NAVs fluctuate daily, based on their underlying investments. Investing in mutual funds is safe thanks to the well-regulated Securities and Exchange Board of India (SEBI).
Mutual funds are popular among investors because they enable them to diversify their portfolios for a relatively low investment amount.
List of Top Performing Mutual Funds for long term Investment In India
Name of the Fund | 3 year return | 5-year return |
|---|---|---|
Tata Digital India Fund Direct-Growth | 30.79% | 30.06% |
Quant Small Cap Fund - Direct Plan-Growth | 41.92% | 20.84% |
Tata Digital India Fund Regular Growth | 39.65% | 34.23% |
Aditya Birla Sun Life Digital India Fund Direct-Growth | 31.79% | 27.85% |
Motilal Oswal NASDAQ 100 ETF | 36.92% | 29.59% |
PGIM India Midcap Opportunities Fund Regular Growth | 36.71% | 22.23% |
SBI Technology Opportunities Fund Direct-Growth | 27.92% | 25.41% |
Quant Mid Cap Fund Direct-Growth | 31.21% | 20.82% |
Axis Small Cap Fund Direct-Growth | 28.04% | 20.76% |
BOI AXA SMALL CAP FUND Direct Plan-Growth | 35.1% | - |
Who should invest in mutual funds for the long term?
It is my opinion that everyone at some point in their life should consider investing in mutual funds at some point in their life.
In the case of investing in mutual funds, you are more likely to achieve your financial goals because this is one of the best ways you can achieve them.
Each mutual fund has specific objectives that it strives to attain. It is therefore very important that when you plan to invest in mutual funds, you make sure that your objectives are aligned with the goals of that fund.
Investing via a SIP minimises the hassle of arranging a lump sum investment in the future. Therefore, if you begin investing with a small amount, you can begin your journey with confidence.
Investing a sum as low as Rs 100 a month through a monthly systematic investment plan is possible with a few mutual fund schemes.
In contrast, most other investment options do not offer this method. There is a risk associated with every investment option.
There is no such thing as an absolutely safe investment, and the same goes for deposits. Various types of mutual funds have varying levels of risk, as the risk level is influenced by the underlying assets that are held.
Therefore, it is best to invest in a mutual fund scheme if you are willing to accept the risks associated with it.
Why are Equity Funds in India considered best for long term investment?
Choosing an investment product that grows your capital faster than inflation is one of the most important factors to consider.
Goods and services become more expensive annually as a result of inflation. If you can't cross it with the investment you make, you'll lose money even if you get a positive return on investment.
Building a portfolio that keeps you on track is essential to reaching a long-term financial goal. You want a portfolio with a perfectly balanced risk-reward ratio.
Diversifying your portfolio by investing in different types of equity funds with different risks and rewards by investing in equity mutual funds can help you diversify your portfolio.
The tax benefits that equity funds enjoy are another important factor that drives investors to invest in these funds for long-term purposes.
In this example, the capital appreciation is less than one lakh, and the long-term capital gains tax is zero. The rest of the gain is taxed at 10%.
Debt funds are liable for LTCG tax according to their income tax slab, which may be more than 10% if you earn more than Rs 7.5 Lac in a year.
Further, a debt fund has to be held for at least three years to be considered a long-term investment. Equity funds have a much shorter time period - one year.
Benefits of investing in a long term mutual fund scheme
There are several benefits associated with investing in a long-term mutual fund scheme. A good financial plan is one of the benefits.
A long-term investment with the power of compounding will provide significant market-beating returns. It takes several years to invest.
- Being financially prepared
Planning out the future financial goals ahead of time is an important aspect of investing for the long term.
The purpose of investing is to set short-term, medium-term, or even long-term goals. They need to put effort into achieving their goals once they have a clear understanding of them.
By doing so, they can prepare for the future financially. All of their life goals can be achieved without any hiccups and they can live a stress-free life.
In order to find out the return from investments, one can use SIP calculators and lumpsum mutual fund calculators. - Compounding is powerful
Compounding is an inherent benefit of long-term investing. Long-term investments become more valuable as time passes.
Interest on interest is compounding. Compounding increases investment growth over a period of 5, 10, 30 years. SIP investing enhances compounding even further.
Compounding is one of the most powerful tools for achieving financial goals in the long run.
If you are interested in knowing the potential return on your investment, you can always use the SIP calculator and compounding calculator.
How to Select the Top Performing Mutual Funds?
When selecting top-performing funds, one must take into account the following parameters:
- Track record of the fund
Over the last three to five years, the top-performing funds typically have provided excellent returns. Funds in these categories would have performed better than their benchmarks and peers.
The fund's performance over the last few cycles needs to be examined. Check the fund's performance, especially during market downturns. - Assess its financial strength.
Prior to deciding if a fund is a top performer in its category, it is important to evaluate its financial ratios, such as beta and alpha.
The relationship between risk and returns can never be underestimated. Invested capital increases in value as a result of returns.
An investment has risk if it is uncertain whether it will produce positive or negative returns for various reasons. - Review the expenses.
When choosing a mutual fund plan, the expense ratio must be considered very carefully. Fund houses charge you an expense ratio for managing your investments.
The expense ratio corresponds to a percentage of the fund's return. An investor's returns are reduced by the expense ratio.
The take-home return of an investor is reduced by a higher expense ratio. Securities and Exchange Board of India limits what fund houses can charge. - Investing goal
It is important to carefully assess life goals before investing in any scheme. In order to determine whether investing in a mutual fund scheme will yield the desired result, an assessment of the needs must be made alongside the scheme's objectives.
The objective of mutual funds, like individuals, varies, and it's up to investors to see if the objectives of the mutual funds they intend to invest in align with theirs. - History of the fund.
The fund history can be used as a guide to selecting mutual funds. A fund with a longer history is considered to be more reliable.
Additionally, mutual fund performance over a long period of time is evaluated, especially when the markets are sluggish.
Newly launched funds do not have this information available. Before making any investment-related decisions, investors should consider the fund's history for at least five years. - Fund manager performance
An important part of a fund's success is the performance of the manager. Investors' money is in the hands of fund managers, who profit from their expertise.
A fund manager who is able to recognize investment opportunities that would make a profit could bring good returns to the fund. For this reason, he or she must have experience.
What is the difference between long term and short term investment?
Wealth is created through investments. Investing in mutual funds provides long-term returns. Mutual funds offering equity investments are suitable for investors willing to take on some risk.
Investors should be patient over the long run, and panicking only results in a loss. Retirement, buying a home, and the education of your children are all appropriate long-term investments.
Typically, a short-term investment lasts a few days or a couple of years. Long term debt mutual funds, as well as short term debt mutual funds, are among the investment options for short-term investments.
A debt mutual fund is the best choice for short-term investments, which is better than a fixed deposit.
FD rates (fixed deposits) can be higher than the post-tax returns from debt mutual funds. These are long-term mutual funds that offer the highest returns.
Debt funds offer long-term investment opportunities, however. One of them is a gilt fund, the other is a dynamic bond fund.
The risks associated with gold funds are their investment in government securities and the risk of interest rate fluctuations.
In a dynamic bond fund, equity and debt are held simultaneously and the asset allocation changes based on market conditions.
Corporate bonds and government bonds are the most common types of bond funds.
Like equity mutual funds, short term debt mutual funds also have risks like credit risk and interest rate risk, and therefore, their returns are not guaranteed.
Investments in the short term can be used for travelling, buying a motorcycle or two-wheeler, etc.
Savings accounts are not as liquid as liquid funds, which is why they're preferred over saving accounts. Debt funds like this are often used by companies over the weekend to park money.
Mutual fund investments can be made for long or short periods of time, depending on the investor's objectives. Long-term funds are best suited to investors who are willing to expand their investment horizon over time.
A short-term fund is suitable for investors without an interest in equities because it's low risk.
How are long term investments in Equity Funds taxed?
Types of Mutual funds to invest
Choose a fund type that will help you achieve your financial goals
- Top SIP Mutual Funds
Investors can invest small amounts periodically through systematic investment plans (SIPs). Investors have the choice of when and how much they want to invest through SIP. - Top Equity Mutual Funds
Equities are the most common type of equity mutual fund investments. They are among the most profitable mutual funds available. - Top Small-Cap Mutual Funds
An equity mutual fund that invests primarily in equity shares of companies with small market capitalization is called a small-cap mutual fund. - Top Large-Cap Mutual Funds
Large-cap funds are equity funds that invest primarily in large-cap companies. Market fluctuations have a limited impact on these companies. - Top Multi-Cap Mutual Funds
Mutual funds that invest in multiple market caps hold equity shares in a variety of companies. Diversification of your portfolio can be achieved through multi-cap funds. - Top Tax Saving Mutual Funds
Section 80C of the Income Tax Act makes these funds tax-saving funds because they are equity-oriented. The tax benefits of investing in these funds can be up to Rs 1,50,000 a year. - Top Mid-Cap Mutual Funds
An equity fund with a market capitalization between Rs 500 crores and Rs 10,000 crores invests primarily in equity shares of companies with these market values. - Top Liquid Funds
A liquid fund invests in treasury bills, which are a type of high-rated debt instrument. A savings account is a better place to park idle cash than a regular savings account. - Top Debt Mutual Funds
Corporate bonds, government bonds, treasury bills, etc., that are regularly dividend-paying instruments, are included in debt mutual funds. - Top Short-Term Mutual Funds
Investors who are risk-averse should consider short-term mutual funds. Most of these funds have a maturity period of 15 to 91 days. - Top Income Funds
These funds invest primarily in securities with a high dividend yield. Bonds, debentures, and preferred shares are generally the investments they make. - Top Balanced Mutual funds.
Balancing equity and debt investment is what balanced funds do. A portfolio can be diversified by investing in these funds.
Advantages of Investing in Best Mutual Funds
- Management of money expertly
The odds of making a profit from mutual funds are higher since they are managed by a fund manager.
A fund manager's research and selection of top-performing instruments for a fund's portfolio is conducted by its own team of analysts and experts. This means market knowledge isn't necessary. - Investments of small amounts can be made periodically
When you opt for a systematic investment plan, or SIP, it allows you to stagger your investments over time. This is one of the major advantages of investing in mutual funds.
As low as Rs 100 can be invested through SIPs on a regular basis. To get started with your investment journey, you do not need to pay a lump sum. - Diversification
The diversification of your portfolio by investing in mutual funds is automatic. An investor who invests in a mutual fund can gain exposure to a diversified portfolio of securities because the fund invests in various securities. - Redeemable at any time
A mutual fund can be redeemed at any time. Consequently, you are free to sell your mutual fund units whenever you want to do so. The investors are therefore provided with hassle-free withdrawals at all times and have access to liquidity.
Risk Possessed by Best Mutual Funds
There are different types of mutual funds, resulting in varying levels of risk. Since equity funds invest mainly in equity shares of different market capitalization companies, they carry the highest level of risk. Market movements have a major impact on equity funds.
Equity funds are associated with the following types of risks:
- Risks in the market
The market risk is the risk of losing money if the market underperforms. The market is affected by several factors. For example; natural disasters, outbreaks of viruses, political unrest, and so on. - Risk of concentration
This occurs when a person emphasizes one particular thing. It is not a good idea to invest in one particular company.
You may benefit from investing in a sector that does well sometimes, but if something adverse happens, your losses may be greater. - Risk associated with interest rates.
Borrowers and lenders compete for credit based on the availability of credit. During the investment tenure, the rise in interest rates can cause the price of securities to decline. - Risk of Liquidity
There is a liquidity risk when it becomes difficult to sell a security at a loss. It usually happens when fund managers fail to sell securities. - Risk of credit defaults
When securities are issued with a credit risk, the issuer risks not paying the interest promised. Based on the credit ratings given by different credit rating agencies, you can estimate the credit risk.
Equity funds come with a number of risks associated with them, some of which are as follows: - Risks associated with investment.
A risk is the possibility that the interest rate may change over a period of time. The change may be caused by a number of factors.
Interest rates directly impact the returns offered by the underlying securities, since the change in interest rates impacts the interest rates. - Risk in the Credit Market
There is an extreme risk that the issuer of the securities is not going to meet its repayment obligations on the principal and not paying the interest at the rate that was agreed upon when the securities were issued. - Liquidity Risk
Fund managers face a variety of risks, among which the illiquidity of underlying securities is one of the most prevalent, and one that could cost them their livelihood in the event they could not sell the securities under the portfolio.
Conclusion
In search of a good mutual fund to invest in, do you have any recommendations?
It is important to note that what mutual fund is considered to be the best mutual fund right now, or the top 10 mutual funds to invest in, is determined by your financial goals, your level of risk tolerance, and the length of time you want to spend investing.
Frequently Asked Questions
Q1. Which SIP is best for 10 years?
A1. Compared to the average growth fund in its category, the Nippon India Small Cap Fund has outperformed it during the last decade.
Small-cap funds have provided an annual return on SIP investments of 28.25 percent over the last five years. However, the fund has reached an absolute return of more than 100 percent in this period.
Q2. Which fund gives the highest return?
A2. Here is a list of the best performing mutual funds in the last ten years. Here are a few things you should keep in mind. You will have a higher rate of return. Consider the funds carefully. Think twice before investing.
Q3. Which mutual fund is safest for the long term?
A3. There are a lot of debt fund options that are perfect for those who do not want to be exposed to risks, or even for those who are new to investing.
Q4. What are the 4 types of mutual funds?
A4. Equity mutual funds invest in stocks, fixed-income mutual funds invest in bonds, money market funds (short-term debt), and balanced and hybrid mutual funds invest in both stocks and bonds simultaneously.
Q5. Which mutual fund is best for 2022?
A5. Stocks with high growth potential. Stocks with high growth potential are the Ferraris of the stock market.