Best Mutual Funds to Invest in India

Investors who wish to optimise their financial portfolio can start with Mutual Funds (MFs). These funds are more versatile and accessible as compared to other investment options. In this list of the Top 5 Mutual Funds, we have considered potential returns, investor goals and the performance of the funds. This list will guide investors to make well-informed and rewarding investment decisions.

List of the best Mutual Funds to invest in India

1. ICICI PRU BHARAT 22 FOF-G 

ICICI Pru Bharat 22 FOF-G has offered a high annual return in the last five years. This mutual fund equity is among the top performers with no exit load and no lock-in period. 

2. Quant Focused-G 

This mutual fund produces 20% more returns for every unit of risk. Quant Focused-G is a high-risk mutual fund with a zero-lock-in period. 

3. ICICI Pru Bluechip-G 

The ICICI Pru Bluechip has been named one of the best mutual funds for protecting against market fluctuations. It offers consistent returns with no lock-in period. 

4. Nippon India Large Cap-G 

The Nippon Large Cap fund is a high-risk mutual fund. The fund is decent for generating consistent returns with an exit load of 1% when redeemed within 7 days. 

5. DSP Nifty 50 Equal Weight Index Reg-G 

The DSP Nifty 50 Equal Weight Index fund has no lock-in period and no exit load. Its performance is decent, and it has a high-risk profile.

Factors to consider before investing in the Best Mutual Funds

Before investing, it is important to keep certain factors in mind. These include -

1. Your financial goals

Identifying your financial goals is the first step towards investing. It determines whether you need debt or equity-oriented funds to meet your goals. Tools like spreadsheets can be used to create scenarios based on potential outcomes.

2. Your investment horizon

Understanding how long you plan to invest is crucial. Mutual Fund investments fall into two categories: short-term and long-term. Tailoring your fund choices based on your investment horizon aligns your portfolio with your financial objectives.

3. Risk tolerance

Assessing your risk tolerance is important. This determines the kind of returns you can expect from the market. Considering market volatility beforehand helps in selecting funds that align with your risk appetite. This ensures a balanced and sustainable investment approach.

4. Fund performance

While past performance does not guarantee results in the future, evaluating a Mutual Fund’s historical performance is important. Consistently good returns over the past few years indicate the fund's ability to navigate market conditions effectively. A track record of success increases confidence in the fund's management.

5. Expense Ratio

Expense Ratio refers to the cost of managing a fund. Ideally, this ratio should be below 1%. A lower Expense Ratio implies that investors will receive more returns from the funds, enhancing the overall profitability of the investment.

6. Fund manager experience

The fund manager's experience is important for the fund's success. An experienced fund manager will have valuable insights and a successful track record of managing funds through various market conditions. Longer managerial tenures are indicative of stability and expertise.

7. Tax considerations

Taxes can significantly impact your investment returns. Understanding tax implications of different funds is necessary. Some funds are taxable while others offer tax benefits. Aligning your investments with your tax planning strategy ensures the best returns.

Advantages of Investing in Best Mutual Funds in India

1. Liquidity

Investing in the best mutual funds available in India gives you the benefit of liquidity. It means that you can always exit when the market is volatile. On the other hand, when the market is high, you can surely earn profits.

2. Diversification

Diversification is a key benefit of investing in mutual funds. It means spreading your investments across multiple sectors, such as IT, pharma, medical, finance, etc., which helps you overcome losses when the market fluctuates. 

3. Ability to invest in small denominations 

The best mutual funds in India ensure you can invest in smaller denominations, as low as Rs. 500 for each SIP investment monthly. This is better than a one-time investment because these smaller denominations reduce the average cost of investment spread across the market lows and highs. 

4. Easy process 

Mutual fund investment is an easy process. Investors can begin with a single fund and later diversify into other funds according to their investment goals. 

5. Tax benefits 

Mutual funds in India offer tax benefits. You can choose ELSS, which offers tax deductions up to Rs 1.5 lakh annually under Section 80C of the Income Tax Act. 

How to pick the Best Mutual Fund for you?

When you start investing in mutual funds, it is a healthy habit and gives you immense benefits. However, selecting the best mutual funds to invest in can be tricky with so many types of funds available in the market. Read these key factors below that can help choose the best mutual funds in India:

1. Ability to invest in small denominations 

The best mutual funds in India ensure you can invest in smaller denominations, as low as Rs. 500 for each SIP investment monthly. This is better than a one-time investment because these smaller denominations reduce the average cost of investment spread across the market lows and highs. 

2. Know Your Investment Objective 

The first factor is understanding your investment goal. Every mutual fund has a set of strategies and objectives that work for certain investing styles and preferences of investors. Analyse these aspects and then proceed. 

3. Risks and Benefits 

Since there are many types of mutual funds available, each has unique perks and risks. Investors should analyse these risks and returns before choosing the best mutual fund for themselves. 

4. Investment Target 

Investors must know their goals, whether it is for tax saving or capital appreciation. When you know this, you can easily choose your preferred mutual fund. 

Taxation of Top Mutual Funds

Mutual fund taxation in India can seem confusing, but understanding how it works is essential for making informed investment decisions.

1. Tax on Dividend Income

• Dividend income from mutual funds is taxable and falls under 'Income from Other Sources'.

• If your total dividend income exceeds Rs 5,000 in a financial year, the fund deducts a 10% TDS.

2. Tax on Capital Gains

• Mutual fund capital gains are subject to Capital Gains Tax, with Short-term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) classifications.

• Equity funds: STCG (holding 1 year) taxed at 15%, LTCG (holding ≥1 year) taxed at 10% on gains over Rs 1,00,000.

• ELSS offers tax benefits under section 80C, with a three-year lock-in period.

• Debt fund gains are taxed according to the income tax slab for STCG, and LTCG is taxed at 20% with indexation after 36 months.

Conclusion

Investing in Mutual Funds is a popular way to achieve financial prosperity. However, aligning investment decisions with your financial goals, risk tolerance and investment horizon is crucial. By doing this, you can pave the way for a successful financial future.