The mutual fund industry in India is growing at an exponential pace. The Indian mutual fund industry recorded an Average Assets Under Management (AAUM) of Rs. 23.16 trillion as on February 28, 2019. The AAUM of the industry stood Rs. 5.09 trillion on February 28, 2009, which means the Indian mutual fund industry has registered a more than 4 ½ fold increase in a period of 10 years.
There are as many as 44 AMFI (Association of Mutual Funds in India) registered fund houses in India which together offer more than 2,500 mutual fund schemes. The wide array of funds often make it a little difficult for investors to choose the best scheme for them. To ease this process, we list out the 10 most popular mutual fund houses in India along with the 10 most popular schemes across all mutual fund categories namely equity, debt and hybrid.
What Are Mutual Funds?
A mutual fund is an investment instrument which pools in money from different investors and invests the collected corpus in a set of different asset classes such as equity, debt, gold, foreign securities etc. Mutual funds are becoming increasingly popular in India due to the various benefits they come with. Mutual funds feature an attractive performance history of returns higher than those earned on conventional instruments of investment. Mutual funds enable investors to create diversified investment portfolios with investments as low as Rs. 500.
Another feature which makes mutual funds a preferred choice among investors is the professional management of funds. A mutual fund is managed by a fund manager who is an expert carrying vast experience in the investment industry. This provides an assurance to the investors that their money is in safe and secure hands. Another fact which further strengthens investors’ confidence in mutual fund is that they are regulated by capital markets regulator SEBI (Securities and Exchange Board of India) and AMFI (Association of Mutual Funds in India).
Types of Mutual Funds in India
As per SEBI, mutual funds can be broadly classified into 3 categories – Equity Funds, Debt Funds and Hybrid Funds.
Equity Funds : An equity fund is a mutual fund which invests a minimum of 65% of its assets in equity and equity related instruments. It can invest the balance 0%-35% in debt or money market securities. Equity funds are capable of giving relatively high returns as they primarily invest in stocks of companies which are responsive to changes in the stock market and the economy. Due to this reason, equity funds also come with a relatively higher risk quotient. As per SEBI classification, there are 11 types of equity funds. Among them one of the most popular ones is ELSS – Equity Linked Savings Scheme. An ELSS invests a minimum of 80% of its total assets in equities. An ELSS is the only equity fund which is eligible for a tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act. An ELSS comes with a lock-in period of 3 years.
Debt Funds: A debt fund is a mutual fund which invests a majority of its assets in debt and money market securities. According to the Income Tax Act, a mutual fund which invests less than 65% of its total assets in equities is termed as a debt fund. Debt funds are preferred by investors mainly because they come with relatively lower levels of risk. Since they undertake lower risk, debt funds in India yield returns which though higher than returns offered by fixed return investments, tend to be lower than those provided by equity funds in the long term. As per SEBI classification, there are as many as 16 types of debt funds.
The most popular type of debt fund in terms of AUM (Assets Under Management) is liquid fund as they are often used by corporations to park their excess cash for short periods. A liquid fund predominantly invests in debt and money market securities with maturities of up to 91 days. Due to the shorter maturity period, liquid funds feature the least amount of risk among all debt funds. Liquid funds generally give returns that are higher than savings accounts and at par with fixed deposits while being a lot more liquid than the latter.
Hybrid Funds: As the name suggests, a hybrid fund is a mutual fund which invests its assets in two or more asset classes including equities, debt, money market instruments, gold, overseas securities, etc. A hybrid fund generally invests in only two asset classes namely equity and debt. The blend of equity and debt enables a hybrid fund to give returns similar to those generated by equity funds while undertaking relatively lower risk levels like debt funds. As per SEBI classification, there are 7 types of hybrid funds.
The most popular type of scheme in this category is the Dynamic Asset Allocation Fund. A Dynamic Asset Allocation Fund has the flexibility to invest any amount between 0%-100% of its assets in either equity or debt. Typically this type of fund aims to sell equities and book profits in overvalued equity market conditions while doing the reverse when equity market valuations are attractive. A Dynamic Asset Allocation Fund decreases its debt exposure in undervalued markets and increases its debt holding during a bull run.
Benefits of Mutual Fund Investments
The following are the benefits of investing in mutual funds:
Flexible Investment Amounts
A mutual fund investment can be started with an amount as low as Rs. 500 while there is no limit on the maximum amount you can invest. But do keep in mind that in case of ELSS investments, you get the tax benefit only up to the Rs. 1.5 lakh 80C limit in a financial year.
Professional Management of Funds
With mutual fund, an investor can benefit from the professional management of his/her funds by an expert fund manager. Fund houses charge a nominal fee for the administration and management of a mutual fund scheme called Expense Ratio. The expense ratio of a mutual fund generally ranges between 0.5% to 1.5% and cannot exceed the limit of 2.5% set by SEBI. Fund houses always mention the returns generated by a mutual fund scheme after deducting the applicable expense ratio.
Mutual funds offer long term returns that range from 7% (in lowest risk carrying liquid funds) and 15% or higher in case of most equity funds over a 5 year period. These inflation beating returns provided by mutual funds are one of the key reasons why many are choosing these market-linked investments over fixed income instruments such as fixed deposits.
Mutual funds allow investors to access a wide and diversified investment portfolio that can include equities of varying market capitalisations as well as debt and money market instruments for an investment amount which can be as low as Rs. 500. The diversified investment portfolio allows a mutual fund to provide an unmatched balance between risk and return.
Systematic Investment Option
A systematic investment plan (SIP) is a method of investing in mutual funds which allows investors to invest a fixed sum in a mutual fund scheme at predetermined intervals (daily, weekly, monthly, bi-annual or annual). SIP investments reduce the potential financial risk associated with a lump sum investment. It also enables an investor to increase/decrease the investment in line with the current financial situation of the investor.
An Equity Linked Savings Scheme (ELSS) is a type of mutual fund which helps an investor in getting a tax benefit in addition to the above-mentioned benefits. An ELSS comes with a lock-in period of 3 years and every ELSS investment qualifies for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Even in the case of other (non-ELSS) equity schemes, capital gains from unit redemption up to Rs. 1 lakh in a fiscal are exempt from tax.
Know more about tax on mutual funds.
How Do Mutual Funds Work?
While you might have heard many experts say that investing in mutual funds is one of the best ways to grow your wealth, it is perhaps even more important to know how mutual funds work. Let’s understand the working of mutual funds right from the time an Asset Management Company (AMC) or fund house decides to launch a mutual fund till it starts giving attractive returns:
- The process begins when a fund house identifies a potential money-making opportunity in the market subject to key risks.
- The fund house then weighs the newly identified opportunity against existing investment opportunities and analyses how it can add further value for current investors.
- The fund house then appoints a fund manager who creates a portfolio of different asset classes including equities, debt and money market securities. The asset allocation of the scheme decides under which mutual fund category the scheme will fall – Equity Fund, Debt Fund or Hybrid Fund.
- The fund manager then compiles all the details including the scheme’s asset allocation, risk level, etc in a document and files the draft with market regulator SEBI for its approval.
- After receiving SEBI’s approval, the fund house makes the scheme available to the public for subscriptions through a New Fund Offer (NFO). An NFO generally lasts for 7-10 days.
On the basis of the subscription period, mutual fund schemes can be classified as open-ended and close-ended schemes. An open ended mutual fund scheme allows investors to enter and exit the fund anytime even after the closure of the NFO period. Whereas, a close-ended fund allows investors to enter into the scheme only during the NFO period and does not allow them to exit it until maturity which is typically 3-4 years from the launch date.
- After receiving the initial subscription, the fund manager manages the scheme actively or passively depending on the scheme’s requirements as well as market/economic conditions.
- A mutual fund investment provides earning to its investors in the form of dividend payouts and capital gains.
Dividends Payout by Mutual Funds in India
Two key variants of a typical mutual fund are – dividend option and growth option. If you opt for the dividend option, the fund house may declare and pay you a dividend as and when there is a distributable surplus (profit). Whereas, if you opt for the growth option, the fund house reinvests these profits and increases the fund’s NAV (Net Asset Value) in the long term instead of paying out dividends.
Capital gains refer to the difference between the amount invested and the redemption value of the mutual fund scheme. Capital gains are paid to investors at the time of redemption of a mutual fund scheme and are subject to applicable capital gains taxation rules.
10 Most Popular Mutual Fund Houses in India
Below is a list of the 10 most popular mutual fund houses in India on the basis of their total assets under management (AUM) as of March 31, 2019.
|S.No.||Name of Fund House||AUM (in Crore)|
|1||HDFC Mutual Fund||Rs. 3,42,525|
|2||ICICI Prudential Mutual Fund||Rs. 3,21,281|
|3||SBI Mutual Fund||Rs. 2,84,124|
|4||Aditya Birla Sun Life Mutual Fund||Rs. 2,46,696|
|5||Reliance Mutual Fund||Rs. 2,34,293|
|6||UTI Mutual Fund||Rs. 1,59,694|
|7||Kotak Mahindra Mutual Fund||Rs. 1,50,271|
|8||Franklin Templeton Mutual Fund||Rs. 1,19,933|
|9||Axis Mutual Fund||Rs. 89,768|
|10||DSP Mutual Fund||Rs. 78,363|
10 Most Popular Mutual Fund Schemes in India
The following is a list of the 10 most popular mutual funds in India based on their AUM as of February 28, 2019:
|S.No.||Name of Scheme||AUM (in Crore)||Type of Scheme|
|1||HDFC Liquid Fund||Rs. 69,397||Debt|
|2||ICICI Prudential Liquid Fund||Rs. 68,726||Debt|
|3||Aditya Birla Sun Life Liquid Fund||Rs. 57,548||Debt|
|4||HDFC Balanced Advantage Fund||Rs. 37,395||Hybrid|
|5||ICICI Prudential Balanced Advantage Fund||Rs. 28,499||Hybrid|
|6||SBI Equity Hybrid Fund||Rs. 27,907||Hybrid|
|7||Kotak Standard Multicap Fund||Rs. 21,628||Equity|
|8||Aditya Birla Sun Life Frontline Equity Fund||Rs. 20,664||Equity|
|9||HDFC Mid Cap Opportunities Fund||Rs. 20,539||Equity|
|10||HDFC Equity Fund||Rs. 20,465||Equity|
The 1 year, 3 year and 5 year return details of the above-mentioned 10 most popular mutual fund schemes are as follows:
|Name of Scheme||1 Year Return||3 Year Return||5 Year Return|
|HDFC Liquid Fund||7.33%||7.09%||7.70%|
|ICICI Prudential Liquid Fund||7.48%||7.20%||7.77%|
|Aditya Birla Sun Life Liquid Fund||7.51%||7.24%||7.81%|
|HDFC Balanced Advantage Fund||-1.30%||18.35%||15.16%|
|ICICI Prudential Balanced Advantage Fund||2.53%||12.78%||12.25%|
|SBI Equity Hybrid Fund||0.76%||12.66%||15.12%|
|Kotak Standard Multicap Fund||-0.19%||17.64%||18.30%|
|Aditya Birla Sun Life Frontline Equity Fund||-2.56%||14.25%||14.35%|
|HDFC Mid Cap Opportunities Fund||-10.69%||16.32%||19.33%|
|HDFC Equity Fund||-1.88%||19.38%||15.25%|
Who Should Invest in Mutual Funds?
A mutual fund is an ideal investment for all types of investors. The wide array of mutual funds has something to offer each type of investor no matter what their risk appetite or investment objective. Thus mutual fund investments can be made by individual retail investors as well as institutional investors alike.
When to Invest in Mutual Funds?
The right time to invest in a mutual fund scheme depends on the following factors:
- Availability of Funds
- Stock Market Conditions
- National Economic Conditions
That said, in case you are investing systematically, you should start investing immediately and stay invested as long as possible to get the maximum benefit.
How Can I Invest in Mutual Funds in India?
An investment in mutual funds can be made both offline and online. The following is the process for investing in a mutual fund scheme:
Step 1: If you are investing through the offline mode, you can visit either an asset management company (AMC) branch, the nearby Karvy/CAMS office or a registered mutual fund distributor/broker. If you want to go via the online mode, you can visit the website of either an AMC (for both direct and regular mutual fund schemes) but the option of funds available to you will be limited. Alternately you can log on to the website of a registered mutual fund distributor such as Paisabazaar and invest in leading mutual funds in India across top fund houses.
Step 2: After this, you need to complete the KYC (Know Your Customer) formalities as per SEBI guidelines.
Step 3: The next step is completion of In-Person Verification (IPV). IPV can be completed by either by visiting the nearby Karvy/CAMS office etc. or sending documents in paper/applicable digital format to the registered mutual fund intermediary.
Step 4: Select a mutual fund scheme on the basis of your investment time horizon, risk appetite, and other important factors. You can read more about how to select a mutual fund scheme here.
Step 5: Submit the mutual fund application form. This can be done after the completion of the IPV which usually takes 5-7 days. Along the application form, also submit the investment cheque amount. If you wish to invest via a SIP (Systematic Investment Plan), fill and submit the SIP form along with the application.
How are Mutual Funds Taxed in India?
It is very important to know and understand the tax implications on mutual funds. There are two types of earnings from a mutual fund investment – Dividends and Capital Gains – and both are taxed differently. While the mutual fund house deducts Dividend Distribution Tax (DDT) from the dividend paid to you at 10%, capital gains tax is taxable in the hands of the investor.
|Asset Class||Holding Period||Rate of Tax on Capital Gains|
|Equity Fund||Short Term (Less than 1 Year)||15%|
|Equity Fund||Long Term (1 Year and more)*||10%*|
|Debt Fund||Short Term (Less than 3 Years)||As per investor’s income tax slab|
|Debt Fund||Long Term (3 Years and more)||20% with indexation|
|Equity-Oriented Hybrid Funds||Aggressive hybrid funds are taxed like equity funds.|
|Other Hybrid Funds||If more than 65% of assets of these funds are invested in equity, then hybrid funds are taxed like an equity fund. Otherwise, they are taxed as debt funds.|
*Long-term capital gains on equity mutual funds are exempt up to Rs. 1 lakh per annum.
Get details of Mutual Fund Taxation Rules
Frequently Asked Questions
Q1. What are mutual fund cut-off timings?
Ans: Mutual fund cut-off timings refer to the timings which decide the NAV (Net Asset Value) at which the units of a mutual fund scheme will be purchased or redeemed. The purchase and redemption cut-off timings for mutual funds are as follows:
Purchase Cut-off time for mutual funds
|Mutual Fund Scheme||Purchase Cut-off Time||If submitted by cut-off time||If submitted after cut off time|
|Liquid Fund||2 pm||NAV of preceding day||NAV of same day|
|Equity/Debt Funds (Investment amount<Rs. 2 lakh)||3 pm||NAV of same day||NAV of next day|
|Equity/Debt Funds (Investment amount>Rs. 2 lakh)||3 pm||NAV of same day||NAV of next day|
The cut-off time for the redemption of all mutual funds (liquid, equity and debt funds) is 3 pm. Read more.
Note: In case of investments made through a third party intermediary such as Paisabazaar, the cut-off time is usually earlier to allow for settlement of orders. The cut off time is 1pm for all mutual fund investments made through Paisabazaar.
Q2. What is the minimum investment requirement in mutual funds?
Ans: The minimum investment requirement for mutual funds is generally Rs. 500 through the SIP option and Rs. 1,000/5,000 if an investor opts for the lump sum investment route.
Q3. What is the minimum and maximum duration for which I need to be invested in a mutual fund scheme?
Ans: There is no minimum or maximum duration for which an investor needs to remain invested in case of most mutual fund scheme. However, in the case of ELSS, it is mandatory to remain invested for a period of 3 years, while this mandatory lock-in period is typically 5 years in case of solution-oriented schemes such as children’s gift funds and retirement mutual funds.
Q4. What is New Fund Offer (NFO)?
Ans: A New Fund Offer (NFO) is the first time subscription offer for a new mutual fund scheme launched by an Asset Management Company (fund house). An NFO period generally lasts for a few weeks. During this period, the units of the scheme are usually available at a NFO price of Rs. 10, however, the minimum application amount for an NFO is generally Rs. 500. Read more.
Q5. What is the difference between regular and direct mutual fund schemes?
Ans: Regular and Direct plans are just the two options of a mutual fund scheme, run by the same fund managers who invest in the same stocks and bonds. The only difference between Direct vs. Regular mutual funds is that in case of a regular plan your AMC or mutual fund house does pay a commission to your broker as distribution expenses or transaction fee out of your investment, whereas in case of a direct plan, no such commission is paid.
The absence of commission in direct plans lead to a higher rate of return than regular plans. Thus, it is always wiser to invest in direct mutual fund plans as long as you have a clear understanding of how mutual funds work.