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Mutual Funds: Definition, Types, Top 10 Mutual Funds in India

People are becoming well-informed about what is going on in the business sector and like to stay aware that way. Just decades ago, few people were not interested in investing in anything other than land or gold, but as the times passes by, people are educating themselves about the various other modes of investment they can choose from. 

Although many risk-takers diligently invest in stocks, some people like to play it safe. They do not like to take major risks and so they look for a way in which they can indulge in risk-free investment. Gaining experience is a good way to learn, but many times that lesson can be hard on the finances. One of how you can invest in the market safely, without the fear of major financial losses is mutual funds.

There are ways in which you can educate yourself on the various ways you can invest your finances in the market, one of them being a financial advisor. The financial advisor takes care of all your investments and maintains a regular check-in of your finances so that your net worth can be assessed and you may not face any losses majorly.

Mutual Funds

Understanding Mutual Funds

Mutual funds are assets that can be traded in the market, that collect money from various investors. The money collected from investors can be invested in stocks like companies, government bonds, and corporate bonds, et cetera. Instead of directly owning a company’s stocks, as an investor, you face the profit and losses incurred by the company with a selected group of investors, who invested in the same fund as you, mutually. 

Investing in mutual funds is believed to be the easiest way in which one can accumulate more wealth. It can be very difficult for the investors to choose the right portfolio as investing in mutual funds is not only offered by one fund house, but many, and that too with various schemes. 

To save themselves from the hassle of going through every scheme, that every fund house proposes, it is better to consult a professional fund manager. That way investors can save their time along with the assurance that their money is invested in the funds that will offer them the maximum returns in the future.

Types of Mutual Funds

Types of Mutual Funds

As stated earlier, Mutual funds are offered with various schemes, by various fund houses. To know which portfolio works best for you, investors should first know the various types of mutual funds that are categorized based on class, risk, et cetera.

  1. Asset Class – The first category under mutual funds is asset class. These investments have similar characteristics as each other and are bound under the same rules and regulations in the market. There are four types of mutual funds in this class. The funds are, equity funds, debt funds, money market funds, and hybrid or balanced funds.
  2. Structure – The second category under mutual funds is structure. This category determines the sale or purchase of a fund. There are three types of mutual funds in this class. The funds are open-ended mutual funds, close-ended mutual funds, and interval funds.
  3. Investment Objectives – The third category under mutual funds is investment objectives. These funds are classified according to the goals you want to accomplish from the investments you put in. There are eight types of mutual funds in this class. The funds are growth funds, income funds, liquid funds, tax-saving funds, aggressive growth funds, capital- protection funds, pension funds, and fixed maturity funds.
  4. Risk Profile – The fourth category under mutual funds is the risk profile. These funds are classified according to the amount of risk each of the funds carries, high-risk funds being the funds that carry the most risk and very low-risk funds that carry the least amount of risk. There are four types of mutual funds in this class. The funds are high-risk funds, medium-risk funds, low-risk funds, very low-risk funds.
  5. Specialized Funds – The last category under mutual funds is specialized funds. These funds focus on various sectors of the market like goods or regions. There are twelve types of mutual funds in this class. The funds are index funds, sector funds, fund of funds, foreign or international funds, global funds, emerging market funds, real estate funds, market neutral funds, asset allocation funds, gift funds, and exchange-traded funds.

Top 10 Mutual Funds in India

Investing in mutual funds is not an easy feat. There are a lot of schemes to choose from and various fund houses offering the best returns investors can find out there. It is important to take help by consulting a professional if you are an amateur investor or an aggressive investor. There are many fund houses, however, the following ones offer the best return and thus are the best options to invest in.

  1. Mirae Asset Large Cap Fund – The best mutual fund out there to invest in is the Miriae Asset Large Cap Fund. It was launched on 4 April 2008 and is a moderately high-risk fund. It is an equity fund. It offers a whopping 14.27% return on the investment of three years and a 16.11% return on the investment of five years.
  2. Axis Bluechip Fund – The second best mutual fund out there to invest in is the Axis Bluechip Fund. Its fund house name is Axis Mutual Fund. It has provided a return of 16.98% since its launch. It was launched on 1 January 2013 and is a fund with moderately high risk. It is an open-ended fund. Its assets have amounted to 27,142 crores since its launch and carry an expense of 0.50%. This again is an equity fund. This mutual fund offers a 15.74% return on investment of three years and a 16.48% return on investment of five years.
  3. ICICI Prudential Bluechip Fund – The third best option to invest in mutual funds is ICICI Prudential Bluechip Fund. It was launched on 23 May 2008 and is a very high-risk fund. This is an equity fund and it offers a 12.71% return on investment of three years and a 14.48% return on investment of five years.
  4. SBI Bluechip Fund – The fourth option that will be good to invest in is SBI Bluechip Fund. It is from the fund house SBI Mutual Fund. It was launched on 1 January 2013. It has provided a return of 16.08% since its launch. It is an open-ended fund. This fund runs a very high risk. This is an equity fund. It offers a good percentage of 12.77 on investment of three years while a percentage of 13.06 is offered on the investment of five years.
  5. SBI Flexi Cap Fund – The last equity fund that will be best to invest in the mutual funds would be the SBI Flexicap Fund. Its fund house is SBI Mutual Fund. It was launched on 1 January 2013 and is a very high-risk fund. It has provided a return of 17.47% since it was launched. It is an open-ended type of fund. Its assets have amounted to 13,367 crores since it was launched and have an expense of 0.89%. It offers a percentage of 13.27 on investment of three years and a percentage of 14.62 on investment of five years.
  6. Nippon India Low Duration Fund – The best debt fund to invest in is Nippon India Low Duration Fund. It was launched on 1 January and is an open-ended fund. It carries moderate risk. It has provided a return of 8.21% since its launch. Its assets amount to approximately 9,137 crores and expenses are around 0.35%.  It is a debt-equity fund and offers a good 7% on an investment of three years and 6.99% on an investment of five years.
  7. UTI-ST Income Fund-Inst – The next mutual fund to invest in is UTI-ST Income Fund-Inst. It was launched on 22 May 2009. It runs low to moderate risk. It has provided a return of 6.59% on a 1-year plan and 3.85% on a 3-year plan since it was launched. Its assets amount to 3,409.74 crores on average and have 11,198 folio accounts. It runs a direct expense of 0.34% and a regular expense of 0.95%. It is a debt fund and offers a good percentage of 3.97 on an investment of three years and 5.22 on an investment of five years.
  8. Aditya Birla Sun Life Savings Fund – Aditya Birla Sun Life Savings Fund is a good option to invest in. Its fund house name is Aditya Birla Sun Life Mutual Fund. It was launched on 1 January 2013. It has provided a return of 7.30% since it was launched. It runs a moderate risk and is an open-ended fund. Its assets amounted to 30,047 crores and have an expense of 0.21%. This is also a debt mutual fund. It offers a percentage of 7.33 on an investment of three years and 7.42 on an investment of five years.
  9. HDFC Short Term Debt Fund – Investors can invest in the HDFC Short Term Debt Fund. Its fund house name is HDFC Mutual Fund. It was launched on 1 January 2013. It has provided a return of 8.79% since it was launched. It runs a moderate risk and is an open-ended mutual fund. Its assets have amounted to 18,117 crores since it was launched, and the expense is 0.24%. This is a debt fund. It offers a percentage of 9.09 on the investment of three years and 8.23 on the investment of five years.
  10. DSP Credit Risk Fund – The last mutual fund that is deemed to be among the top ten mutual funds is the DSP Credit Risk Fund. Its fund house name is DSP Mutual Fund. It was launched on 1 January 2013. It has provided a return of 7.00% since it was launched. It is a very high-risk fund and an open-ended fund. Its assets have amounted to 276 crores and expenses are 0.79%. It is a debt fund and offers a percentage of 2.3 on investment of three years and 4.15 on the investment of five years. 

How to Invest in Mutual Funds?

With time many people have taken to consider investing in mutual funds but have a lack of knowledge when it comes to knowing how to invest in mutual funds. There are a lot of factors that should be considered before investing in mutual funds.

Step 1: First, you need to know that how much money you want to save. You may have a long-term goal or a short-term goal depending on your requirements. That way you will know what year plan will suit you the best.

Step 2: Next, you need to understand the various schemes that are offered by the fund houses. There are many schemes and you have to choose from them considering how much risk you are willing to take your investment horizon and the number of finances you have.

Step 3: Before investing in anything, absolutely anything, you should educate yourself fully about it. If you are a new investor, you should consult a professional before investing in any portfolio.

Step 4: You should keep your documents handy as you will need them to invest in mutual funds. Mutual funds are trustworthy and what makes them is the amount of security measures companies take while investors invest in the mutual funds.

Step 5: There are many plans and options offered by mutual funds. You should know if you want regular profits or large amounts of money at one time only. That way you will know whether to invest in growth or dividend options.

It is important to know that investors cannot assess the performance of mutual funds based on how they performed in the past. The funds can see a rise after a gain or vice-versa. What can be assessed are the schemes offered by the companies. That way you will know what works best for you as an investor.

Why should you Invest in Mutual Funds?

Mutual funds are a good investment option because they offer liquidity. Open-ended mutual funds are easy to buy and one can easily exit from the scheme too. The best part of investing in the mutual funds is that it is managed by experts. Investors do not need intensive knowledge about the workings of mutual funds to invest in them. There are professional fund managers, who take the majority workload off of the investors.

There are many varieties of mutual funds that offer good schemes. Investors can choose any scheme depending on their financial targets and gain the most out of it. Mutual funds are safe to invest in. They have gained popularity because their characters to be mostly risk-free. Just carefully assess the fund house and their schemes before investing to ensure that you are obtaining the best return on your investment.

How to Save Taxes with Mutual Funds?

Investing in mutual funds reaps a lot of benefits. One of the benefits of investing in mutual funds is that you can minimize your taxes if you carefully invest in mutual funds.

  • Mutual funds can be only redeemed after three years. You can even wait for more than that for your returns. The more you wait, the higher gains you will receive on your investment. 
  • To save taxes as much as you can, you should buy mutual funds from a traditional IRA or a Roth IRA. You will not face any taxes on growth, interest, or dividends at the age of 59 and a half plus keeping the IRA for at least five years.
  • You should buy mutual funds through your 401(k) account because you will be exempt from taxes until you withdraw your money.
  • To know to save taxes through mutual funds you should know what all investments the funds make before investing in them.
  • Lastly, consult a professional before investing anywhere. That way it will minimize your risk of investment as well as ensure minimal taxes.

Frequently Asked Questions

Q1. How can I ensure minimal taxation through mutual funds?
Ans. To save taxes as much as you can, you should buy mutual funds from a traditional IRA or a Roth IRA. You will not face any taxes on growth, interest, or dividends at the age of 59 and a half plus keeping the IRA for at least five years. You should buy mutual funds through your 401(k) account because you will be exempt from taxes until you withdraw your money.

Q2. Which mutual fund will be the best for me to invest in?
Ans. The best mutual fund out there to invest in is the Mirae Asset Large Cap Fund. It is an equity fund. It offers a whopping 14.27% return on the investment of three years and a 16.11% return on the investment of five years.

Q3. What role does specialization play in mutual funds?
Ans. Specialized funds focus on various sectors of the market like goods or regions. There are twelve types of mutual funds in this class. The funds are index funds, sector funds, fund of funds, foreign or international funds, global funds, emerging market funds, real estate funds, market neutral funds, asset allocation funds, gift funds, and exchange-traded funds.

Q4. Why should I invest in mutual funds?
Ans. Mutual funds are a good investment option because they offer liquidity. Open-ended mutual funds are easy to buy and one can easily exit from the scheme too. The best part of investing in the mutual funds is that it is managed by experts. Investors do not need intensive knowledge about the workings of mutual funds to invest in them. There are professional fund managers, who take the majority workload off of the investors.

Q5. What is meant by asset class in mutual funds?
Ans. Asset class investments have similar characteristics as each other and are bound under the same rules and regulations in the market. There are four types of mutual funds in this class. The funds are, equity funds, debt funds, money market funds, and hybrid or balanced funds.

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