Best Mutual Funds to Invest

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Best Mutual Funds to Invest in 2019

Best mutual funds to invest in India

As an investor, have you ever wondered- what are the best mutual funds to invest in India?

Well, the surefire way to come across the best mutual fund scheme is having patience and monitoring the market.

Before you invest in mutual funds, monitor the performance of various mutual funds. It will help you get a hang of the factors that affect the performance of mutual funds and how do they affect the performance of mutual funds in India.

Before we walk down the best mutual funds to invest road, we have decoded mutual funds below:

What are Mutual Funds?

A mutual fund is an investment instrument. Under a mutual fund plan, a pool of money is collected from various investors who invest in securities such as money market instruments, stocks, bonds, and other assets. 

Mutual fund investment is managed by an asset management company (AMA). An AMA manages a group of investors and invests their money on their behalf in bonds, stocks, and other avenues.

When you invest in a mutual fund, you get mutual fund units under your name. These units indicate your contribution to a specific fund. As per your preference, you can purchase or redeem the units at the prevailing Net Asset Value (NAV).

Did you know?

Usually, Net Asset Value of mutual fund changes on a daily basis as per the underlying assets of a particular fund.

Regulatory Body

While mutual funds are subject to market risks, they are considered as a safe investment havens. Don’t get confused. It is because mutual funds are registered and operated as per Securities and Exchange Board of India’s regulations.

The main benefit of mutual fund investment is that the investor gets access to professional fund management as well as diversified portfolios at a nominal charge.

Which are the Best Mutual Funds to Invest in 2019?

As an investor, it’s perfectly normal to have this query. Before you start investing in mutual funds, knowing best mutual funds will help you opt for a fund that will fulfill your investment expectations.

At times, potential investors don’t know what the best mutual fund to invest in India is and they keep on postponing mutual fund investment. 

There is a wide range of best mutual funds to opt for. The selection of funds depends on various factors such as your investment goals, your risk-appetite, your age, your investment horizon etc. For you, the best mutual fund to invest in is the one that fulfils your individual investment expectations.

Time is an Important Factor

When it comes to selecting the best mutual funds to invest in India, time plays an important role. If you want to accomplish your short-term investment goals i.e. the investment goals you want to accomplish in less than 5 years, you can opt for debt mutual funds. If you want to accomplish your long-term investment goals i.e. the investment goals you want to accomplish in more than 5 years, you can opt for equity mutual funds or hybrid mutual funds.

Types of Mutual Funds

Mentioned below are the various types of mutual funds offered under various mutual fund categories. Based on your investment objective, you can select the best mutual funds to invest in India.

1. Asset Class-Based Mutual Funds

  • Equity Funds:  Also known as stock funds, equity funds invest in stocks. Under equity funds, the money is pooled in from investors coming from varied backgrounds and is invested into shares offered by different firms. The performance of the shares (price-hikes/ price-drops) in the market is the determinant of the returns/ losses. 

Note- Since equity funds offer instant growth of the fund, they come with a high-risk factor. The instant growth makes equity fund one of the top-performing mutual funds in India.

  • Debt Funds: These are best mutual funds to invest in India for passive investors having a low-risk appetite who want a small but regular source of income. These funds make an investment in securities providing fixed-income such as securities, bonds, treasury bills, Monthly Income Plans etc.
  • Money Market Funds: Usually, money market funds are offered by the government, corporations or banks by issuing dated securities, T-bills, certificate of deposit, bonds etc. If the investor opts for a short-term plan for up to 13 months, the risk is neutralized to a certain extent. The diminished risk makes it best mutual funds to invest in India.
  • Hybrid Funds: Also known as balanced funds, hybrid funds are the perfect blend of bonds & stocks. The balanced funds bridge the gap between debt funds and equity funds. These are the best mutual funds to invest in India for investors having a high-risk appetite.

2. Structure-Based Mutual Funds

  • Open-Ended Funds: OE funds don’t come with any restriction when it comes to units or time period. As per their convenience, the investor can buy/sell funds and exit at the current NAV (Net Asset Value).  Since these funds impose no restriction, they are the top performing mutual funds in India.
  • Closed-Ended Funds: Beforehand, these funds come with fixed unit capital to invest. As a result, the funds can’t be opted for more than the pre-agreed units. Few close-ended funds come with a timeframe to buy units.
  • Interval Funds: Having traits of open-ended as well as closed-ended funds, interval mutual funds (IMF) can be bought or exited during particular intervals only. The intervals are selected by the fund house.

3. Goal-Based Mutual Funds

  • Growth Funds: Usually, growth funds invest a huge part of the investment in shares and growth sector. The funds are best mutual funds to invest in India for investors having a high-risk appetite and a fair share of idle money.
  • Income Funds: Belonging to the family of debt mutual funds, the funds distribute money in a mix of bonds, securities, certificate of deposits etc. These funds are managed by professional fund managers. Historically, the funds have earned better returns as compared to the deposits.
  • Liquid Funds: These funds belong to the category of debt funds. They invest in debt and money market instruments having investment tenure of up to 91 days. The investment is capped at Rs. 10 lakhs.
  • Tax-Saving Funds: Equity Linked Saving Scheme (ELSS) offers dual benefits- wealth generation and tax-saving. Additionally, it comes with the lowest lock-in period i.e. 3 years. These funds are one of the top performing mutual funds in India for salaried investors having long-term investment goals.
  • Aggressive Growth Funds: While these funds offer steep monetary gains, these funds are susceptible to market performance. Having said that, the investor can opt for the fund according to the beta i.e. a tool to measure the movement of the fund. The funds are best mutual funds to invest in India for investors having a high-risk appetite.
  • Capital Protection Funds: True to its name, capital protection funds protect the principal while earning smaller returns up to 12%. The fund manager invests the money in CDs, bonds and the remaining money in equities.
  • Fixed Maturity Funds: In order to enjoy triple indexation, investor opts to invest in these funds at the end of the financial year. These funds come with a fixed maturity period ranging from 1 month - 5 years. The Fund Manager invests the money in an investment option having the same term, to earn accrual interest by the time FMP matures.
  • Pension Funds: The funds invest a part of investor’s income in an opted Pension Fund to accumulate over a period of time. Investment in these funds secures investor and their family’s financial future and provides a source of income after their retirement. These funds are one of India’s top performing mutual funds for investors looking forward to securing their retirement.

4. Risk-Based Mutual Funds

  • Very Low-Risk Funds: Ultra Short-term Funds range from 1 month -1 year and Liquid Funds and are the least risky funds. As a result, it offers low returns up to 6%. These funds are the top performing mutual funds in India for investors wanting to accomplish their short-term financial goals.
  • Low-Risk Funds: Low-risk funds offer up to 8% return and the flexibility to switch when valuations offer stability. The funds are best mutual funds to invest in India for investors investing at the time of unexpected crisis (national) or rupee depreciation.
  • Medium-risk Funds: These funds come with medium risk factor as the fund manager invests a part off investment money in debt funds and the remaining money in equity funds. The NAV is not that turbulent, and the average returns can be up to 12%. The funds are best mutual funds to invest in India for investors having a moderate risk appetite.
  • High-risk Funds: These funds are highly prone to market volatility. As a mandate, their performance is reviewed on a daily basis. These funds offer up to 30% returns. These funds are best mutual funds to invest in India for investors having a high-risk appetite.

5. Specialization Based Mutual Fund

  • Sector Funds: True to its name, these funds invest only in a specific sector. As a result, it comes with a high-risk factor. These funds are also known as theme-based mutual funds. The investor opting for Sector Funds ought to keep up with the latest sector-related trends. It will help them know when to exit the fund. The funds are the best mutual funds to invest in India for investors wanting to invest in a specific sector.
  • Index Funds: As the name suggests, these funds invest money in a specific index by identifying stocks and market index’s corresponding ratio and investing the money in a similar proportion of the similar stocks. These funds are the best mutual funds to invest in India for passive investors.
  • Funds of Funds: Also known as Multi-Manager Mutual Funds, Funds of Funds offer diversification in an investment portfolio by investing money in diverse categories of funds. Simply put, these funds invest in one fund that further invests in various funds. The funds are the best mutual funds to invest in India for investors who want diversification in their investment portfolio.
  • Emerging Market Funds: Since India is an ever-changing and emerging market, these funds invest in the domestic stock market. These funds offer a high return on investment and they are susceptible to market risk. The funds are the best mutual funds to invest in India for investors who want to invest in the domestic stock market.
  • Foreign/ International Funds: These funds can offer good returns regardless of the performance of the Indian stock market. These funds are the best mutual funds to invest in India for investors wanting to invest in foreign funds. The investor can opt for a theme-based allocation approach, feeder approach, or hybrid approach.
  • Global Funds: Global Funds are not as same as International Funds. While Global Funds invest in global markets, they also invest in the investor’s home country. International Funds invest purely in foreign markets. Due to various policies, currency and market variations Global Funds can attract a high-risk level. That being said, they provide a hedge against inflation. The funds are India’s top performing mutual funds for investors who want a hedge against inflation.
  • Real Estate Funds: These funds can be the best investment option as the investor invests their money in acclaimed real estate firms instead of projects. These funds are the best mutual funds to invest in India for investors having a long-term investment horizon. When an investor purchases a property, it nullifies legal hassles and risks and provides liquidity to certain limits.
  • Commodity-based  Stock Funds: These funds offer an opportunity to invest in diverse and multiple trades. The offered returns are not regular but performance-based of commodity or stock company. In India, gold is the sole-commodity that mutual fund investors can invest directly in. These funds are India’s top performing mutual funds for the investors having a sufficient risk-tolerance who want to diversify their investment portfolio.
  • Market Neutral Funds: These funds offer a hedge against unfavourable market tendencies along with good returns. These funds are India’s top performing mutual funds for investors who don’t want to stretch their portfolio limits.
  • Leveraged/ Inverse Funds: These funds offer returns when an investor sells their shares when their stock value is down, only to purchase them at a lesser price. After that, the investor holds the units until the stock price increases. These funds are the best mutual funds to invest in India for investors who enjoy trading. 
  • Asset Allocation Funds: These funds provide flexibility to the investor by combining equity, debt, and gold in the perfect ratio.  These funds can regulate debt-equity distribution on the basis of the fund manager’s inferences of the latest market trends or a pre-set formula. These funds are best mutual funds to invest in India for investors who want to allocate their funds in equity, debt, and gold.
  • Gift Funds: These funds are gifted to the loved ones of fund buyer. These are the best mutual funds to invest in India for investors who want to ensure the security of the financial future of their loved ones.
  • Exchange-traded Funds: Belonging to the family of Index Funds, these funds are traded on exchanges. Exchange-traded Funds have unleashed new investment prospects that have enabled investors to have an exposure to specialized sectors along with international stock markets. These are the best mutual funds to invest in India for investors who want to invest in specialized sectors as well as international stock markets. Now that you know best mutual funds to invest in India amongst the different type of mutual funds offered in India, let’s move to the methodology for mutual funds.

Methodology for Mutual Funds

Mentioned below is the methodology for different mutual funds:

1. Methodology for Equity Funds

Here are the parameters that will help you opt for the equity mutual fund plans. 

  • Mean Rolling Returns- It should be rolled on a daily basis for the last 3 years. 
  • Consistency in the last 3 years - Hurst Exponent- H is used for calculating the consistency of a mutual fund. The H exponent is a measure of randomness of a fund’s NAV series. The funds with high H are prone to low-volatility and vice versa. 
    • When H is below 0.5, the return series is mean reverting.
    • When H is equal to 0.5, the return series a geometric Brownian time series. This type of time series is slightly difficult to forecast. 
    • When H is above 0.5, the return series is persistent. The greater value of H indicates a stronger trend of the series. 
  • Downside Risk- Considering specifically the negative returns on the mutual fund scheme for this measure, here are the results: 
    Returns less than 0 = X 
    Sum of all squares of X = Y  
    Y divided by the number of days taken for computing the ratio = Z
    Downside risk = Square root of Z 
  • Outperformance- Using Jensen's Alpha for the last 3 years, outperformance is measured. Jensen's Alpha shows the returns (risk-adjusted) offered by a mutual fund plan relative to the potential market return as predicted by the Capital Asset Pricing Model (CAPM).
    • Higher the Alpha, higher the portfolio performance has outstripped the market predicted returns. 
    • Here is how average returns offered by the mutual fund are computed:
    • Risk-Free Rate plus Beta of the Mutual Fund multiplied by {(Average return of the index minus Risk-Free Rate} 
  • Asset size- The threshold asset size for equity funds is Rupees 50 crore. 

2. Methodology for Debt Funds

Here are the parameters that will help you opt for the debt mutual funds. 

  • Mean Rolling Returns- It should be rolled on a daily basis for the last 3 years. 
  • Consistency in the last 3 years - Hurst Exponent- H is used for calculating the consistency of a mutual fund. The H exponent is a measure of randomness of a fund’s NAV series. The funds with high H are prone to low-volatility and vice versa. 
    • When H is below 0.5, the return series is mean reverting.
    • When H is equal to 0.5, the return series a geometric Brownian time series. This type of time series is slightly difficult to forecast. 
    • When H is above 0.5, the return series is persistent. The greater value of H indicates a stronger trend of the series. 
  • Downside Risk- Considering specifically the negative returns on the mutual fund scheme for this measure, here are the results: 
    Returns less than 0 = X 
    Sum of all squares of X = Y  
    Y divided by the number of days taken for computing the ratio = Z
    Downside risk = Square root of Z 
  • Outperformance- It is calculated by subtracting Fund Return from Benchmark Return. Fund return is computed on the basis of rolling returns daily, benchmark return, and fund’s active return.
  • Asset size- The threshold asset size for debt funds is Rupees 50 crore. 

3. Methodology for Hybrid Funds

Here are the parameters that will help you opt for the hybrid mutual funds. 

  • Mean Rolling Returns- Rolled on a daily basis for the last 3 years. 
  • Consistency in the last 3 years - Hurst Exponent- H is used for calculating the consistency of a mutual fund. The H exponent is a measure of randomness of a fund’s NAV series. The funds with high H are prone to low-volatility and vice versa. 
    • When H is below 0.5, the return series is mean reverting. 
    • When H is equal to 0.5, the return series a geometric Brownian time series. This type of time series is slightly difficult to forecast. 
    • When H is above 0.5, the return series is persistent. The greater value of H indicates a stronger trend of the series. 
  • Downside Risk- Considering specifically the negative returns on the mutual fund scheme for this measure, here are the results: 
    Returns less than 0 = X 
    Sum of all squares of X = Y  
    Y divided by the number of days taken for computing the ratio = Z
    Downside risk = Square root of Z 
  • Outperformance- Outperformance is calculated specifically for the equity portion as well as the debt portion. Here is how outperformance is calculated:
  • For Debt Portion- It is calculated by subtracting Fund Return from Benchmark Return. Fund return is computed on the basis of rolling returns daily, benchmark return, and fund’s active return.
  • For Equity Portion- Using Jensen's Alpha for the last 3 years, outperformance is measured. Jensen's Alpha shows the returns (risk-adjusted) offered by a mutual fund plan relative to the potential market return as predicted by the Capital Asset Pricing Model (CAPM).
    • Higher the Alpha, higher the portfolio performance has outstripped the market predicted returns.
    • Here is how average returns offered by the mutual fund are computed:
    • Risk-Free Rate plus Beta of the Mutual Fund multiplied by {(Average return of the index minus Risk-Free Rate} 
  • Asset size- The threshold asset size for hybrid funds is Rupees 50 crore. 

Name of Fund

Type of Fund

Returns

Return Level

Risk Level

Investment Tenure

5 Year

1 Year

Birla SL Frontline Equity Fund

Equity Fund-Large Cap

10.93 per cent

5.63 per cent

Above average

Below average

Long-term

ICICI Prudential Value Discovery Fund

Equity  Fund-  Open-ended

10.59  per cent

2.40 per cent

Below average

Below average

Long-term

HDFC Mid-cap Opportunities Fund

Equity Fund-  Open-ended

13.60  per cent

-2.58 per cent

Above average

Below average

Long-term

DSP Micro Cap Fund

Equity Fund-  Open-ended

15.52 per cent

-5.71  per cent

Average

Average

Long-term

Axis Long Term Equity Fund

Equity Fund-  Open-ended

15.30  per cent

5.98  per cent

Above average

Low

Long-term

L&T Mid Cap Value Fund

Equity Fund- Mid-Cap

16.30  per cent

-7.28  per cent

High

High

Long-term

Reliance Gilt Securities Fund

Debt Fund- Gilt

11.58  per cent

15.55  per cent

Moderate

Very low

Medium to long-term

Franklin India Ultra-Short Bond Fund – Super Institutional Plan

Debt Fund- Ultra Short Term

9.30 per cent

9.86  per cent

Moderate

Low

Ultra-short-term

Aditya Birla SL Short Term Opportunities Fund

Debt Fund- Short Term

8.92  per cent

9.81  per cent

Moderate

Moderate

Short-term

Axis Liquid Fund

Debt Fund- Liquid

7.67  per cent

7.55 per cent

Moderate

Low

Very-short term

Disclaimer- Updated on 01.07.2019, the listed top 10 mutual funds are in no particular order/ rank.

Top 10 Mutual Funds

Listed below are the top 10 mutual funds.

Now, let’s explore the top 10 mutual funds in details:

1. Birla SL Frontline Equity Fund

Birla SL Frontline Equity Fund has a track record of more than 15 years. No wonder, it has been consistently performing well in the market. It ensures good returns by investing in top fast-growing industries of India such as Finance, FMCG, Oil & Gas, IT etc. This fund is one of India’s top performing mutual funds for investors who want long-term capital growth in equity.

2. ICICI Prudential Value Discovery Fund

This fund is one of the best mutual funds to invest in India as it is renowned for following the contrarian investment style. This fund is popular among the investors and advisors for offering a high return on investment. It offers return by investing in stocks having attractive estimations.

3. HDFC Mid-cap Opportunities Fund

HDFC Mid-cap Opportunities Fund is one of India’s top performing mutual funds for investors who can endure market volatility. It generates long-term capital appreciation. Currently, it invests 56% of its corpus in various medium scale organizations.

4. DSP Micro Cap Fund

This fund is one of the best mutual funds to invest in India since it is renowned for having a low Portfolio Turnover Ratio of 13%. DSP Micro Cap Fund invests approximately 65% of its corpus in small-cap stocks. In addition to that, it follows buy and hold investment strategy.

5. Axis Long Term Equity Fund

This fund can be considered as a flexi-cap fund that offers tax benefits. It is one of India’s top performing mutual funds as it attracts a low level of risk and offers high returns.

6. L&T Mid Cap Fund

Rated as one of the best mutual funds to invest in India offered in the mid-cap category, L&T Mid Cap Fund is a direct fund plan. Ever since its launch, the fund has returned approximately 20% p.a.

Since the year 2018 was rough for companies offering funds in small-cap and mid-cap space, L&T Mid Cap Fund has registered negative return. That has set the return trend for the small-cap and mid-cap based funds. As per the 3 years & 5-years returns, the fund has outperformed itself along with the category average approximately 5 per cent.

7. Reliance Gilt Securities Fund

Ever since its launch in the year 2008, Reliance Gilt Securities fund has a track record of delivering returns at 10.70 per cent. For gilt fund category, the offered returns are remarkable. The offered returns make this fund India’s top performing mutual fund.

The first year return- 15.55 per cent and third year return- 11.13 per cent makes this fund one of a kind in the category. Investment in this fund is relatively safer as 97% of its assets are invested in the sovereign category bonds.

8. Franklin India Ultra-Short Bond Fund – Super Institutional Plan

The fund invests in money market instruments as well as debt. For the investor, investment in the mix ensures fund high-liquidity. This fund is one of the best mutual funds to invest in India since it offers high-liquidity.

Categorized as an ultra-short-term debt fund, this fund makes an investment with the maturity period of 180 days. Having said that, the fund comes with an option of investing in shorter as well as longer maturity period. The period is based on market requirements.

9. Aditya Birla SL Short Term Opportunities Fund

The fund is managed by Aditya Birla Sun Life Mutual Fund. ABSLMF takes pride in being one of the biggest fund houses in of Indi. True to its name, Aditya Birla SL Short Term Opportunities Fund invests specifically in short-term debt securities along with money market.

The fund is invested in AAA credit rated and Sovereign debt instruments. Such instruments are one of the safest investment options offered in the debt market. Being one of India’s top performing mutual funds, this fund is ideal for investors having a low-risk appetite.

10. Axis Liquid Fund

Ever since its launch in the year 2013 Axis Liquid Fund has augmented assets worth 33,000 crores. Consistently, the fund has outperformed its own returns.

The fund has invested approximately 85 per cent of its assets in papers having A1+ rating. The fund has delivered fairly stable returns in 1, 3 and 5 years framework

With an average mean at 7.6 per cent, the fund has delivered stable returns in the framework of 1 year, 3 years and 5 years. The stability of the returns makes this fund is one of the best mutual funds to invest in India.

How to Select the Best Mutual Funds to invest in India?

Ideally, every investor wants to invest in best mutual funds to invest in India so that they can enjoy high returns on investment. The key to select the best mutual funds to invest in India is to shortlist the mutual funds keeping the following factors in mind.

1. Objective of Investment

Opt for a mutual fund that helps you accomplish your personal financial goals. For that, you ought to assess your financial need first. Each mutual fund fulfills an investment objective that might or might not help you accomplish your goal. The fund that helps you accomplish your investment goal is the best mutual fund to invest in India.

2. Investment Horizon

If you have a short-term investment horizon, opting for a long-term mutual fund will be of no good and vice versa. That is why mutual fund experts advise opting for a mutual fund as per your investment horizon.

3. Risk Appetite

Every investor wants to opt for a mutual fund that offers them high returns. Mutual funds offering a high return on investment attract high risk. As an investor, you should opt for one of India’s top performing mutual funds keeping your risk-appetite in mind.

4. Expense Ratio

At the time of selecting a mutual fund, analyzing its expenses ratio is of utmost importance. For managing investor’s money, the fund house charges an annual fee as a percentage. The charged expense ratio can affect the returns generated by the fund. Higher the expense ratio, low the returns the investor will be.

5. Fund History

The mutual fund you opt for should stand the test of time. Since mutual funds are subject to market risks, you must be wondering how to ensure that your preferred fund will offer good returns.

This is where fund history kicks in. The performance of the fund that is recent is yet to be tracked. Having said that, a fund having a good track record of consistent performance is more likely to offer good returns. To ensure the safety of your mutual fund, track the history of your preferred fund for a minimum period of 5 years.

6. Fund Manager’s Performance

The fund manager has an important role to play when the performance of a fund is concerned. While mutual fund investment is process oriented, the responsibility of ensuring good performance of the fund falls on the shoulder of the fund manager.

That’s why it’s good to check the track record of the fund manager. You can check the performance of the fund during the market slump and rally. A fund that has generated consistent returns during the bear runs is a result of robust fund management.

Over to you

We hope now you know everything about mutual funds and how to invest in mutual funds in India. When it comes to selecting India’s top performing mutual funds, this knowledge will help you make an informed investment decision and diminish the risk to a certain extent.