Investing in mutual funds offers individuals a lucrative route to make their wealth grow, which is the key reason for their popularity in recent times. This new found popularity has been further compounded by the fact that traditional investment routes such as FDs, PPF, NSC, etc. have witnessed sustained ROI decrease in recent years due to multiple interest rate cuts. However, investing in the right fund is vitally important in order to ensure that the principal amount invested grows in the desired fashion over time.
How to Choose the Best Mutual Funds to Invest
Some of the key features an investor needs to consider before choosing the best mutual funds to invest in are –
- Investment Objective – Knowing whether you want consistent returns or high capital appreciation. The risk to the principal amount will vary accordingly, as potentially higher returns indicate a higher level of risk.
- Past Performance – How the proposed investment has performed in the past 3-5 years. Though this is no guarantee of future performance, it does help gauge the possible direction of the fund and how capable its management it.
- Fund Type and Fund House – Equity, Debt or Hybrid and whether to go with a reputed fund house or an upcoming one. Equity funds are the riskiest option with the highest potential of returns, debt funds are considered the least risky hence their returns also tend to be lower. Hybrid funds, on the other hand, lie somewhere in between in terms of both risk and return. Going with a reputed fund house as compared to a lesser known one might be beneficial as established AMC often have dedicated teams in place that are capable of managing the fund’s requirements no matter what the eventuality.
- Expense Ratios/Exit Load – Higher expense ratios and exit loads decrease payout benefits even if marginally, so are they worth it? Most investors prefer to seek out funds that have lower expense ratios and if possible no exit load. Alternately, you might choose to stay invested for the period during which the exit load applies, if the scheme is providing the desired/expected returns.
Top 10 mutual funds to invest in 2018 in India
Based on the criteria mentioned above, the following in no particular order are the top 10 mutual funds that you should consider investing in.
Table1. Table Showing Key Details of top 10 mutual funds on the list*
|Fund Name||Fund Type||1 Year Returns||3 Year Returns||5 Year Returns||Risk Grade||Return Grade|
|ICICI Prudential Focused Bluechip Equity Fund||Equity: Large Cap||19.99%||13.25%||18.83%||Below Average||Above Average|
|Franklin India Prima Plus Fund||Equity: Multi cap||16.77%||17.26%||21.10%||Low||Average|
|ICICI Prudential Value Discovery Fund||Equity: Multi cap||12.09%||14.22%||22.59%||Below Average||Above Average|
|DSP BlackRock Opportunities Fund||Equity: Multi cap||23.92%||18.39%||22.17%||Average||Above Average|
|Axis Long Term Equity Fund||ELSS||16.80%||16.57%||24.52%||Low||Above Average|
|DSP BlackRock Tax Saver Fund||ELSS||22.02%||17.16%||22.49%||Below Average||Above Average|
|ICICI Prudential Corporate Bond Fund||Debt: Credit Opportunities||9.88%||9.85%||9.29%||Low||Average|
|Franklin India Ultra Short Bond Fund – Super Institutional Plan||Debt: Ultra Short Term||9.31%||9.61%||9.75%||Below Average||High|
|Reliance Dynamic Bond Fund||Debt: Dynamic Bond||10.93%||10.74%||9.74%||High||Average|
|Birla Sun Life Short Term Fund||Debt: Short Term||9.10%||9.56%||9.49%||Average||Average|
*The above figures are based on data obtained till July 24, 2017 and are subject to periodic change.
ICICI Prudential Focused Bluechip Equity Fund
Bluechip stocks usually refer to large cap funds that are among the most valuable and least volatile on the stock exchange. The ICICI Prudential Focused Bluechip Equity Fund is thus mainly invested in stocks that have a track record of consistent returns and low volatility. It is, therefore, no surprise that the fund’s performance till date is nothing short of stellar. In 2016, the ROI of this equity fund was twice that of its benchmark and few is any mutual funds in India can stake claim to such an achievement. Going forward, this strong performance is only expected to continue which makes this scheme one of the top mutual funds for SIP as well as lump sum investments.
Franklin India Prima Plus Fund
The first thing that might strike you about this fund is how long it has been around. With a track record of over 20 years, the Franklin India Prima Plus Fund is truly the epitome of consistency. In the recent past, this fund has continued to consistently outperform not only its benchmark but also most of its peers in the category. The strategy for this scheme has been to focus on companies with potentially high future returns due to their inherent competitive advantage in the chosen marketplace. With large cap exposure of over 75% and a track record of consistent returns over the medium as well as long term, it definitely deserves its place on the top 10 mutual funds list.
ICICI Prudential Value Discovery Fund
When it comes to multi-cap equity funds, the ICICI Prudential Value Discovery Fund is definitely one of the investor’s favorites. Most experts agree that this scheme follows a style of investment that can be best described as “contrarian”. Even though the name suggests a “value discovery” approach, in reality, the fund has focused more on companies that are currently trading at a discount as compared to their intrinsic value and are recognized to have exceptional future growth potential. Till very recently, this fund featured mid-cap exposure of over 40%, which made it seem a bit of a risky investment, however, now it seems to have changed tactics and decreased its mid cap investments to just 20% of the portfolio. The tactic seems to have worked out quite favorably as the 3 to 5-year track record puts the ROI of the fund significantly ahead of others in the category and of course the benchmark. It should, therefore, come as no surprise that this is one of the best mutual funds to invest in at this point of time.
DSP BlackRock Opportunities Fund
As a multi-cap equity fund, the DSP BlackRock Opportunities Fund mostly invests in equities and equity-related schemes with a sector and capitalization-agnostic approach. The stated primary objective of this scheme since inception has been to provide capital appreciation on their investment over the long term with the secondary objective of income generation and dividend distribution for its investors. Since inception, DSP BlackRock Opportunities Fund has significantly outperformed equity funds with a more classical approach thanks to its highly diversified portfolio, which provides the additional advantage of reduced risk to the overall. From a performance perspective, this scheme is definitely among the top 10 mutual funds to invest in and the popularity of this investment is evident from its AUM of over Rs. 2771 crores as of June 2017.
Axis Long Term Equity
A list proposing the best mutual funds to invest in will definitely be considered incomplete unless it includes a few tax saving ELSS funds. Among the myriad ELSS funds available in India, Axis Long Term Equity Fund has definitely stood out and carved its own unique niche. Till date, this scheme has invested in a range of equities and equity-related schemes with a strong focus on companies that offer a sustainable business model and robust growth potential. This fund has been a consistently good performer since launch and this is evident from the fact that since its launch, its AUM has grown from Rs. 4 crores in December 2009 to over Rs. 13,500 crores in June 2017. The mix of high growth during market bull-run and its ability to control losses during sustained bear-run has earned this scheme its place on the top 10 mutual funds list. In the past couple of years some might say that this fund has underperformed as compared to many of its peers, however, one should always remember that form is temporary while class is forever, so consider it as one of the top mutual funds for SIP.
DSP BlackRock Tax Saver
Till a couple of years back, DSP BlackRock Tax Saver Fund was considered to be a conservative ELSS ideally suited for risk-averse investors of ELSS. All that changed in 2015 after a new fund manager was brought in and since then there has been no looking back. Even during its conservative phase, this ELSS fund has outperformed its benchmark in 8 out of 9 years since its launch, while simultaneously holding its own among peers since inception. Though this tax saver mutual fund had a sizeable mid and small –cap exposure in the past, this has changed in recent years as it has increased its large cap investments significantly in lieu of a smaller mid-cap and marginal small cap portfolio. As a result of this portfolio reorganization, many market experts have commented that previous performance can no longer be a good indicator of its future performance. However, considering how this mutual fund performed in 2016, a difficult year for equity funds of all varieties, it does emerge as one of the top mutual funds for SIP investments in the current market scenario.
Top 10 Debt Mutual Fund Investments in 2018
All the previous mutual funds in the list were equity fund and the risk-averse investor might not be inclined to consider those to be appropriate investments for their requirement. For investors seeking a more conservative approach along with consistent returns, even if those are lower, debt funds are the obvious investment choice. There are a few score debt funds currently available in India across sub-types such as liquid, accrual, ultra short term, short term and more. Though most experts suggest that debt funds are not ideal for the SIP route, the following debt schemes might just be among the top mutual funds for SIP due to their overall consistent returns. In the following section, we will discuss the best mutual funds to invest in if you are exclusively looking for debt investments.
ICICI Prudential Corporate Bond Fund
Classified as a credit opportunities debt investment, ICICI Prudential Corporate Bond Fund is mainly focused on investing in various debt as well as money market investments. Traditionally, these have included instruments of varying maturity so as to ensure a reasonable degree of liquidity for the scheme while maximizing the income for the individual investor. Looking at the track record data, the fund is far ahead of its peers with respect to income generation and capital appreciation, while simultaneously ensuring an optimum degree of safety to the principal amount invested. The minimum lump sum investment required for investors entering into this scheme is Rs. 5000, while there is a 1% exit load to contend with in case you redeem/switch from the scheme prior to completion of 1 year from the date of unit allotment.
Franklin India Ultra Short Bond Fund – Super Institutional Plan
As per the scheme’s stated objectives, the Franklin India Ultra Short Bond Fund – Super Institutional Plan invests in a mix of debt and money market instruments that ensure a high level of liquidity for the investor. Classified as an ultra short term debt fund, investments made by the scheme are mainly those that mature within a period of 180 days, however, the fund does have the option of investing in longer or shorter maturity investments as per the requirements of the market. A majority of the investments included in Franklin India Ultra Short Bond Fund – Super Institutional Plan are high-quality securities rated in the range of A+ to AAA by renowned rating agencies, which is one of the main reasons it is one of the best mutual funds to invest in. The minimum lump sum investment amount required for entry into this scheme is Rs. 10,000 and the exit load of this scheme are nil.
Reliance Dynamic Bond Fund
The Reliance Dynamic Bond Fund has been around since 2004 and managed by Reliance mutual fund AMC over more than a decade, it has established a performance track record that will be difficult for any other fund in the same category to replicate. In case you are wondering how they have managed this, their scheme objective does provide a few clues. Classified as a dynamic bond debt fund, the focus of this fund is for the generation of regular income as well as providing capital appreciation by investments made into various debt instruments as well as debt-based securities. The mandate also specifies that the scheme may choose to invest in various money market investments in case the market conditions necessitate such an action. A closer look at the portfolio reveals why most experts have rated this investment as one of the least risky debt mutual funds currently available in the market. The ratings of these instruments are either AAA while others are sovereign bonds that are guaranteed by the Government of India and bear little to no risk. Hence it is an ideal addition to the list of top 10 mutual funds. The minimum lump sum investment required for entry into this scheme is Rs. 5000 and in case you decide to redeem scheme units before completing 1 year from date of allotment, you are liable to pay 1% exit load.
Birla Sun Life Short Term Fund
Birla Sun Life Short Term Fund is the premier debt fund offering from Birla Sun Life Mutual Fund AMC, one of India’s largest fund houses. Categorized as a short term debt investment, this scheme invests exclusively in the money market as well as debt securities. Through these investments, the debt fund aims to provide both capital appreciation as well as current income to its investors. In terms of investment quality, the fund is exclusively invested in Sovereign and AAA credit rating debt instruments – which are among the safest investments available in the debt market. The above reasons, as well as others, make it evident that among debt schemes, this is definitely one of the best mutual funds to invest in. The minimum investment required for first timers investing in this fund is Rs. 1000 and even better investors don’t have to worry about an exit load no matter how long or how short a time they are invested in the scheme.
- Are returns of mutual funds guaranteed?
Ans. No. Mutual funds are market linked instruments, hence returns are not guaranteed. That said, over time, capital markets have created significantly more wealth than any other investment route currently available in the country.
- Which are the best mutual funds to invest in India?
Ans. Mutual funds are good investments as long as the investor chooses a fund that suits their unique investment needs. The investor should also consider their risk tolerance when deciding which is the best mutual fund to buy. On average, equity schemes offer the highest returns however, these investments require significantly higher risk tolerance as compared to debt or hybrid schemes that offer potentially lower returns but at the same time require considerably lower risk tolerance on the investor’s part. Hence the best mutual funds to invest in India would depend on multiple factors including investor’s risk tolerance, potential returns as well as track record of the fund.
- What are the different types of mutual funds and how do they differ?
Ans. There are three major categories of mutual funds – equity, debt and hybrid. Equity schemes invest mainly in equities and equity-derivatives, while debt funds invest in debt schemes such as bonds and money-market instruments. Hybrid schemes on the other hand invest in both equity and debt/money market investments.
- Which is better, mutual funds or ULIPs?
Ans. Mutual funds are pure investment instruments whereas ULIPs combine life insurance with their investment feature. According to most experts, the combination of insurance with investment makes ULIPs an inherently poor choice as they provide low life insurance benefit along with potentially low investment benefits. Thus, from an investment perspective, mutual funds with their potentially higher returns, superior transparency and excellent flexibility score above ULIPs.
- How much can I invest in mutual funds?
Ans- All a potential investor needs to start investing in mutual funds are a free investment account, an Indian bank account and KYC documents such as Aadhaar, PAN etc. At present investors also have to option of completing the online eKYC that can be completed from the comfort of their home with minimal paperwork.