Best mutual funds to invest in India for long term

What is Mutual Fund?

When an asset management firm (AMC) pools the funds from several individual and institutional investors to buy securities like stocks and bonds, a mutual fund is created. Mutual Funds are considered as a safe investment for beginner as it is managed through proper research done by professionals.

The pooled investment is managed by fund managers employed by the AMCs. These are finance experts with a proven track record of managing an investing portfolio. Simply said, mutual funds pool money from different individuals to invest in bonds, equities, and other comparable products. Investors in mutual funds are given fund units based on their investment amount. Investors may only buy or redeem fund units at the current net asset value (NAV).

Depending on how well the underlying assets perform, mutual fund NAV changes daily. Mutual funds can be thought of as a safe investment option because they are well regulated by the Securities and Exchange Board of India (SEBI). The ability to diversify one’s portfolio at a relatively lower investment level is a key benefit of participating in mutual funds.

How Do I Choose the Best Mutual Funds?

When choosing the top-performing funds, the following criteria must be taken into account: Check the track record of the fund. An outstanding track record of delivering better returns over the previous three and five years is typical of a top-performing fund. These funds would have outperformed their benchmark and peer funds in terms of performance. The performance of the fund throughout the previous few business cycles must be examined. Examine the fund’s performance in particular during bear markets. A top-performing fund’s performance is not greatly impacted by market fluctuations. You should be aware that past results may not guarantee future
results.

Expense Ratio

When selecting a mutual fund plan, expense ratio must be carefully considered. The cost that fund companies charge to handle your investment is known as the expense ratio. It is stated as a percentage of the fund’s returns. It is subtracted from the potential returns for an investor. It goes without saying that a larger expense ratio lowers the take-home pay for investors. The Securities and Exchange Board of India has imposed a cap on the fees that fund firms may charge.

A fund scheme’s expense ratio needs to be appropriate for the returns offered. Your cost of investment (expense ratio), which is increased by the fund manager’s higher transaction expenses, rises when the assets in the portfolio are frequently changed. Direct schemes with lesser expense ratio for the same scheme are available. Nifty Index fund
which is a passive fund managed by AMC (Asset Management Company) offers a stable rate of return with inclined to returns of Index, also they charge low expense on investment made by investor. They are also known as low cost mutual funds.

Performance of Fund Manager

The effectiveness of a fund is greatly influenced by the fund management. Fund managers are in charge of the investors’ money, and it is their knowledge that enables them to turn a profit. The fund would experience good returns if the fund management could spot the chances to make beneficial investments. Consequently, the fund manager needs to have a solid background. The average return of mutual funds in India is around 15% – 20% of top
performing Mutual funds.

Check Financial Ratios

Returns and risk are inextricably linked. Returns are the increase in the total value of the invested capital. Risk is described as the unpredictability connected with an investment, which includes the potential for earning no returns at all or receiving negative returns for a variety of causes. Any investor must therefore evaluate the risk-return potential, and financial ratios have made risk-return analysis practicable.

The Sharpe and Alpha ratios offer crucial information. The fund’s excess return on each additional unit of risk it has taken is represented by the sharpe ratio. In light of this, funds with higher Sharpe ratios are regarded as being superior to those with lower Sharpe ratios. Alpha displays the extra profits the fund manager has produced in comparison to the benchmark. Funds with higher Alpha are considered better.

Investment Purpose

Investments should only be made after thoroughly evaluating one’s life goals. Once the demands have been determined, you must compare them to the goals of a mutual fund plan to determine whether investing in it would produce the intended outcome. Like people, mutual funds have certain goals, and it is up to investors to determine whether their goals align with those of the mutual fund scheme in which they plan to invest. For e.g. A person who is retired from his profession would like to invest his savings in low risk mutual fund with high dividend payment. A blue chip fund which invests most of the capital in large market capitalised and good performing companies, tend to give decent return on the investment made in mutual funs.

Top Performing Mutual Funds in India

Based on data available as on 30th June 2022, here are some funds that have delivered consistently higher returns than peers as well as the respective benchmarks over the 3 year and 5 years periods. This is an exercise in identifying performing funds and should not be construed as advice.

Best Performimg Equity Mutual Funds

 

Best Performimg Debt Mutual Funds

investors can periodically make tiny investments through systematic investment plans (SIPs). Investors have the freedom to select the frequency and amount of their SIP investments. The automated mutual fund investing will start as soon as you specify the SIP mandate. Here are some mutual funds which performed well in SIP investment.

Best performing Mutual Funds for SIP

 

Taxation of Mutual Funds

How equity funds are taxed is as follows:

You will see short-term capital gains if you sell your equity fund units within a year of the purchase date. No matter what income tax bracket you are in, you will only pay a flat tax of 15% on these gains. When you redeem your equity fund units after a year of owning them, you realise long-term capital gains. Up to Rs 1 lakh in annual long-term capital gains (LTCG) are now exempt from taxes. There is no benefit of indexation and all LTCG over Rs 1 lakh per year is taxed at a fixed rate of 10%.

How debt funds are taxed is as follows:

Short-term capital gains are gains realised on sales of debt fund units during a holding period of three years. These gains are taxed in accordance with your income tax bracket and added to your entire income. After holding your debt fund units for three years, you sell them for long-term financial gains. After indexation, these profits are taxed at a flat rate of 20%. Choosing a mutual fund may seem like a difficult undertaking, but with some study and knowledge of your goals, it becomes simpler. You’ll improve your chances of success if you perform due research before choosing a fund.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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