Mutual funds have brought a significant change in the investment preferences as compared to how it was earlier understood by most investors. Investors are now willing to take a certain degree of risk and invest their corpus in Mirae Asset Large Cap Fundmarket-linked funds to accrue higher returns.
With investments in top mutual funds, investors are benefited with better returns than bank deposits and management of investment by professionals. However, there are so many funds from so many different categories which make it difficult to select the right investment. In this article, you will read about the top 10 mutual funds, how to select the right fund and how to invest:
List of top 10 Mutual Funds
Here are 10 best mutual funds according to the trailing returns of last 10 years, which can be considered for investments this year:
| Fund Name | Category | AUM (Crores) | 5 Year Returns | 7 Year Returns |
| Mirae Asset Large Cap Fund | Equity: Large Cap | Rs.13,209 | 6.61% | 13.78% |
| DSP Tax Saver Fund | Equity: ELSS | Rs.4,667 | 6.11% | 13.01% |
| Axis Bluechip Fund | Equity: Large Cap | Rs.10,998 | 8.60% | 12.75% |
| Axis Focused 25 Fund | Equity: Multi Cap | Rs.8,185 | 9.03% | 12.66% |
| DSP Equity & Bond Fund | Hybrid: Aggressive Hybrid | Rs.5,118 | 6.69% | 11.63% |
| ICICI Prudential Bluechip Fund | Equity: Large Cap | Rs.18,892 | 4.38% | 10.40% |
| ICICI Prudential Long Term Bond Fund | Debt: Long Duration | Rs.839 | 10.08% | 9.63% |
| HDFC Short Term Debt Fund | Debt: Short Duration | Rs.11,204 | 8.27% | 8.61% |
| Nippon India Low Duration Fund | Debt: Low Duration | Rs.3,268 | 7.84% | 8.33% |
| Axis Small Cap Fund | Equity: Small Cap | Rs.1,879 | 7.73% | – |
(The funds in the table are arranged in descending order according to their 7-year returns. Data as on 27th April, 2020; Source- Value Research)
Top 10 Mutual Funds – Risk Involved, Tax Implications and Who should invest?
1. Mirae Asset Large Cap Fund
This is an open-ended equity scheme investing more than 80% of its total assets under management in equity securities of large cap companies with an aim to bring stability in the portfolio.
| Risk Involved | Moderately High |
| Who should Invest? | Investors with medium to high risk appetite |
| Investors with minimum 4 to 5 years investment horizon | |
| Investors who are willing to invest in companies with large capitalisation | |
| Tax Implication | If you withdraw or redeem the units before one year of investment, Short Term Capital Gains Tax of 15% is levied. |
| Long Term Capital Gains Tax above ₹1 lakh will be taxed at 10% after completion of 1 year of investment. |
2. DSP Tax Saver Fund
This is an equity-linked saving scheme (ELSS) which aims to generate medium to long-term capital appreciation with a diversified portfolio consisting of equity & equity related securities and also offer tax rebate under Section 80C. It has a statutory lock-in period of 3 years.
| Risk Involved | Moderately High |
| Who should Invest? | Investors who are willing to invest their money for at least 3 years. |
| Investors seeking additional tax benefits. | |
| Investors with medium to high risk appetite. | |
| Tax Implication | If you withdraw or redeem the units before one year of investment, Short Term Capital Gains Tax of 15% is levied. |
| Long Term Capital Gains Tax above ₹1 lakh will be taxed at 10% after completion of 1 year of investment. |
3. Axis Bluechip Fund
This is an equity mutual fund scheme investing the major amount of the fund in equities and equity related securities including derivatives. Axis Bluechip Fund invests in large companies to achieve long term capital appreciation.
| Risk Involved | Moderately High |
| Who should Invest? | Investors with long-term growth and investment objectives (min. 5 to 7 years) |
| Investors with medium to high risk appetite | |
| Investors looking for higher returns than FDs | |
| Investors looking for safer options in equity investment | |
| Tax Implication | The short-term capital gains made on sale of units within 1 year from the date of allotment will be taxed at the rate of 15%. |
| The long term capital gains, over and above Rs 1 lakh, made on sale of units after 1 year from the date of allotment will be taxed at the rate of 10% (without indexation). |
4. Axis Focused 25 Fund
This is an open-ended mutual fund scheme that predominantly invests in equity and equity related instruments of top performing companies that deliver high return on investments, but in a maximum of 25 stocks.
| Risk Involved | Moderately High |
| Who should invest? | Investors with moderate risk appetite |
| Investors with long-term investment goals | |
| Investors who are willing to keep themselves invested for at least 5 years | |
| Tax Implication | If the units of the fund are sold within 1 year of investment, the entire amount of gains are taxed at 15%. |
| The long term capital gains, over and above Rs 1 lakh, made on sale of units after 1 year from the date of allotment will be taxed at the rate of 10% (without indexation). |
5. DSP Equity & Bond Fund
This scheme seeks to generate long-term capital appreciation and current income with a portfolio consisting of equity & equity related instruments and fixed income securities.
| Risk Involved | Moderately High |
| Who should invest? | Investors who are not willing to invest entirely in volatile equity funds |
| Investors with moderate risk appetite | |
| Individuals who are not inclined to hold too many funds | |
| Tax Implications | If the mutual fund units are sold or redeemed before completion of 1 year of investment, the entire capital gains are taxed at 15%. |
| If the mutual fund units are sold or redeemed after 1 year of investment, the capital gains up to Rs. 1 lakh are exempt from taxes. And, capital gains above Rs. 1 lakh are taxed at 10%. |
6. ICICI Prudential Bluechip Fund
ICICI Prudential Bluechip Fund is an open ended mutual fund scheme that invests more than 85% of the total assets in equity stocks of large cap companies, with the investment objective of long term capital appreciation.
| Risk Involved | Moderately High |
| Who should invest? | Investors with medium risk appetite |
| Investors with minimum investment horizon of 4-5 years | |
| New investors can opt for this fund to invest in India’s leading companies instead of independently selecting stocks | |
| Tax Implications | If you withdraw or redeem the units before one year of investment, Short Term Capital Gains Tax of 15% is levied. |
| Whereas, Long Term Capital Gains Tax above ₹1 lakh will be taxed at 10% after completion of 1 year of investment. |
7. ICICI Prudential Long Term Bond Fund
This fund seeks to generate regular income by allocating 75% of the total assets under management in debt instruments and the remaining in money market instruments. The aim is to maintain the balance between safety, yield and liquidity.
| Risk Involved | Moderate |
| Who should invest? | Conservative investors with low-risk appetite |
| Investors who are willing to invest for a period of 7 years | |
| Investors who do not want to risk their capital in equity markets and want to invest in debt funds | |
| Tax Implications | If you withdraw or redeem the units within 3 years of investment, the entire amount of gains is added to the income and taxed according to the applicable slab rate. |
| If you withdraw or redeem the units after 3 years of investment, gains are taxed at the rate of 20% after indexation. |
8. HDFC Short Term Debt Fund
An open-ended short-term debt mutual fund investing in debt and money market instruments such that the Macaulay Duration of the portfolio is between 1 year and 3 years. The objective of the scheme is to generate income/capital appreciation with a well-diversified portfolio of debt and other instruments.
| Risk Involved | Moderately Low |
| Who should invest? | Investors with low risk appetite |
| Investors who are willing to keep invested for at least 1-3 years | |
| Tax Implications | If you withdraw/redeem/sell the units of a mutual fund after completion of 3 years of investment, 20% Long Term Capital Gains Tax is levied after indexation. |
| If you sell the units of a mutual fund within 3 years of investment, Short Term Capital Gains Tax would be levied on the entire amount of gains as per the tax slab. |
9. Nippon India Low Duration Fund
This scheme seeks to generate regular income with moderate risk and liquidity by investing primarily in debt securities and money market instruments.
| Risk Involved | Moderately Low |
| Who should invest? | Investors with low risk appetite |
| Investors willing to invest in debt securities | |
| Investors looking for short-term funds for 6 months to 1 year | |
| Tax Implications | If you withdraw/redeem/sell the units of a mutual fund after completion of 3 years of investment, 20% Long Term Capital Gains Tax is levied after indexation. |
| If you sell the units of a mutual fund within 3 years of investment, Short Term Capital Gains Tax would be levied on the entire amount of gains as per the tax slab. |
10. Axis Small Cap Fund
An open-ended equity scheme, predominantly investing in small cap stocks, Axis Small Cap Fund is focused at generating alpha with a diversified portfolio of stocks. The fund follows a bottoms up approach to invest in small cap companies while identifying long term businesses.
| Risk Involved | Moderately High |
| Who should invest? | Investors who are seeking capital appreciation over the long term |
| Individuals willing to invest in a diversified portfolio consisting of equity and equity related instruments of small cap companies | |
| Investors with moderate to high risk appetite | |
| Tax Implications | The short term capital gains from the investments in this fund are taxed at 15% if the units are sold within the time period of 1 year from the date of allotment. |
| The long term capital gains made on the sale of units priced at over Rs. 1 lakh, within a year from the date of allotment are taxed at 10% without indexation. |
Things to be considered before investing in Mutual Funds
As market-linked schemes, all Mutual funds are exposed to a certain amount of risk which may vary from one fund to another. In order to choose the right fund which suits your investment needs and is best to achieve your financial goals, you must keep a check-list for the following factors:
- Identification of Investment Goal/Objective
This is the first step towards any kind of investments- What is your investment goal/objective? Whether you are willing to invest for a long-term period or short term investment would be fine? Do you want to save for educational requirements or are you starting your retirement planning? It is very important to identify the exact goal before making investment decisions.
Each mutual fund category functions to serve a certain type of investor. For instance, investors with long term goals such as child’s wedding, higher education, etc. would prefer investing in long-duration mutual funds. On the other hand, an investor who is saving to buy property or a car would like to invest in a medium term fund (3 to 5 years). Investors with tax-saving objectives would prefer Equity-linked saving schemes (ELSS).
- How risk tolerant are you?
The next question you must ask yourself is- how risk tolerant are you? Do you have high, low or moderate risk tolerance? This decision further structures your investment decisions. Most of the investors are reluctant to invest in high-risk mutual funds whereas there are investors who have high risk tolerance and focus on generating higher returns.
New investors with no to low knowledge of market functioning are suggested to invest their corpus in funds which are not too risky such as Large Cap Equity Funds and Debt funds. Large Cap funds primarily invest in companies with Large market capitalization and hence, they are less affected by market volatility. And, Debt Funds invest in Government securities & corporate bonds which are comparatively less risky.
Elseways, investors who have some experience with market fundamentals and are more concerned about returns than market risk, can invest in funds which give higher returns such as Small Cap Equity Funds and Mid Cap Equity Funds.
Nonetheless, no mutual fund is entirely risk free. Even debt funds are prone to Credit Risk and Interest Risk. You can choose to diversify your portfolio to mitigate the overall risk involved.
- Evaluating the Past Performance of the Fund
Evaluation of the past performance of a fund is one of the most popular ways of judging the potential of a fund. Past performance must be observed to determine the consistency a fund has maintained over a period of time and how well has it accomplished the goals. However, it is to be noted that past performance is not entirely indicative of the future performance of a fund. Calculating the trailing returns over a period of time can help one compare the performance of the benchmark and returns accrued by the fund itself.
- Fund Management
Each Mutual fund is managed and monitored by professional fund managers. Some of the funds require active management and some can be passively managed. The investment strategy is also devised by the fund managers in order to achieve the set investment objectives. Before you finalise a scheme, you must determine how your fund will be managed.
These professional managers are responsible for critically analysing and evaluating different sectors, economic trends, companies, etc. while forming a good portfolio. The fund manager must be an expert and experienced enough to understand the market movements in order to place good bets and obtain sufficient returns. In case of bad management and overlooking downturns, the returns can suffer badly.
- Other factors- AUM & Costs involved
Assets Under Management (AUM) defines the size of the fund the total number of assets the fund holds, and subsequently invests in securities. This is indicative of the fund’s capability following which the investors are actively investing in that fund. Also, high AUM can expose a fund to market risks.
Moreover, there are certain costs associated with mutual fund investments such as Expense Ratio (ER), Entry Load and Exit Load. These costs must be carefully considered as these are drawn directly from your returns. Expense Ratio is the cost charged for portfolio management and Exit Load is the cost which is charged at the time of redemption of fund units. For some funds, the Expense ratio can be very high. According to SEBI, a maximum of 1.5% expense ratio is good. Investors must avoid the funds which have stringent exit loads.
- Direct Plan or Regular Plan
Mutual Funds are available under two plans- Direct Plan and Regular Plan. In Direct Plans, the investors directly invest their corpus in the desired scheme without any interference of brokers or intermediaries. Differently, in case of Regular Plans, the investors are supposed to reach out to a broker who is held responsible for further processing of the investment and transactions.
In order to avoid additional charges, investors are suggested to invest in Direct Plans as they help in eliminating the middle-men charges and thereby lowering expense ratio to give relatively higher returns.
Which one to choose- SIP VS Lump sum
Mutual fund investments can be made in two ways- Systematic Investment Plan (SIP) or Lump Sum investment, also known as one-time investment. Lump sum investments allow you to make a one-time deposit of the entire amount which you want to invest. Differently, Systematic Investment Plans (SIP) allow the investors to deposit a certain amount in the scheme at periodic intervals.
The choice between these two ways is completely dependent on your investment style and preferences. If you are comfortable with depositing the entire investment amount at once, you can go for lump sum investment. But, if you do not have enough funds, you can choose SIP and make small timely deposits.
SIPs also offer the benefit of power of compounding under which the interest capital on principal is reinvested. Consequently, the interest added will also earn interest when reinvested. And, you can also enjoy rupee cost averaging benefits. Under Rupee cost averaging, more units of a fund are bought when the market price of the stocks/shares is low and lesser units are bought when the prices are high. Hence, it enables you to lower the average cost of your investment. It is to be noted that SIPs are more suitable for long-term investments. So, SIP is definitely the better option for mutual funds investment.
How to invest in top mutual funds?
There are different methods through which one can invest in mutual funds:
Offline mode– Visiting the nearest branch office of the fund house and investing in the desired scheme. You must carry all the required documents such as Identity Proof, Address Proof, Cancelled Cheque, Passport size photos, PAN Card and KYC Documents handy. You can also invest offline through a broker. However, this would then be a regular fund and not a direct fund. Think of it like a charge brokerage which gets deducted from the total investment amount.
Online Portal– If you want a hassle free mode of investing with no commissions and brokerage, you can choose websites like Paisabazaar.com which allow the investors to compare more than 1,700 funds at one platform instead of visiting the website of each AMC and then searching for numerous funds. You can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment.
There are more than 1700 mutual funds available in India and each of these funds function to cater different investment objectives. These were the top 10 mutual funds which you may consider for your investments. But, while choosing the right fund, do not forget to view all the factors mentioned in this article and other strategies available at the hands of the investors. Moreover, as it is always quoted, read all the scheme related documents carefully before investing.