So after a lot of deliberation, you’ve finally decided to invest your money in mutual funds? Well, prepare yourself for a new dilemma – where should you invest? There is an astounding number of mutual funds in the market and if you don’t know which one is the best for you, you may end up making a decision that you’ll regret in the future.
The answer to the question “what are the best mutual funds to invest in?” seems easy enough. There are plenty of research and survey websites with ready-made lists of best-performing mutual funds in various categories. There are, however, some problems associated with this solution. Often, the schemes are shortlisted based on their short-term performance. It may also be the case that schemes from the same category may be dominating the list because that happens to be the trend at the time. Some websites may not even be following the proper methodology for ranking the schemes.
Let us, therefore, take a look at the best top 10 mutual fund schemes in 5 different categories. They are as follows:
• Axis Bluechip Fund
• Mirae Asset Large Cap Fund
• Parag Parikh Long Term Equity Fund
• Kotak Standard Multicap Fund
• Axis Midcap Fund
• DSP Midcap Fund
• Axis Small Cap Fund
• SBI Small Cap Fund
• SBI Equity Hybrid Fund
• Mirae Asset Hybrid Equity Fund
While these schemes have been proven to work, it is not recommended to jump headfirst into one without knowing what constitutes a mutual fund worth investing in. Let us take a look at different categories of mutual funds and the purpose they serve:
If you are an amateur investor, you can consider investing in aggressive hybrid schemes. Unlike pure equity schemes that invest the entire corpus in stocks, aggressive hybrid schemes invest in a mix of equity and debt. By diversifying the portfolio, they reduce the risk factor. Therefore, they are perfect for creating long-term wealth with minimum volatility.
If you want to play it safe, you can consider investing in large-cap schemes. These schemes invest in top 100 stocks; so naturally, they involve a lesser amount of risk and offer moderate returns.
If you have a high-risk appetite and you want high returns, you can consider investing in mid-cap and small-cap funds. While investing in small and medium-sized companies involves an extra bit of risk, it can also lead to an extra bit of reward. These schemes can be volatile, but they also have the potential to offer superior returns over a long period.
Now that we’ve gone through the small-cap, mid-cap, large-cap, hybrid funds, let us talk about multi-cap funds as they’re the most favorable option for a regular investor. It is also one of the most sensible ways of investing. In a multi-cap scheme, the corpus is divided over several market capitalizations and sectors, based on the view of the fund manager. The benefit of diversifying your portfolio in this manner means that you stand to benefit from the uptrend in any of the sectors. Typically, you should always consider diversifying your portfolio, as it reduces the risk and increases stability.
Now that you know what factors you should consider before investing in a mutual fund, perhaps you’ll have an easier time finding a scheme that suits your objective, investment profile, and risk appetite.
The author of this article is Rachit Chawla, CEO & Founder, Finway FSC
The views and opinions expressed are not of IIFL Securities, indiainfoline.com