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Many new investors are planning to start investing in mutual funds in the new year. Are you a new mutual fund investor? If so, don’t start your investments with a search Of ‘top 10 mutual funds’ on the internet. Most new mutual fund investors ask this question – to friends or colleagues or some mutual fund forums – while starting their investment journey.

But the search for top schemes poses some serious problems. Read this article to understand why.

For example, an online search would take you to some websites with ready-made lists. Most often, the schemes may be shortlisted on the basis of their short-term performance. Sometimes, schemes from a single category may dominate the list because that happens to be the flavor of the season. Some may follow a faulty methodology.

Some people never proceed beyond collecting names of top funds because looking for the top funds becomes their favourite pastime. A lingering doubt about the veracity of the names always holds them back. No wonder, many investors keep visiting mutual fund forums for validation for years – even after they start investing.

That is why ETMutualFunds decided to put out a list of top 10 mutual fund schemes. We have chosen two schemes from five different equity mutual fund categories – aggressive hybrid, large cap, mid cap, small cap and flexi cap schemes – which we believe should be enough for regular mutual fund investors. There are caveats: read till the end to ensure you are picking up the best scheme for you.

Here is the list of top 10 schemes:
Here are some pointers you should keep in mind while investing in these schemes. First, find out about each category and whether it is suited to your investment objective and risk profile.

Aggressive hybrid schemes (or erstwhile balanced schemes or equity-oriented hybrid schemes) are ideal for newcomers to equity mutual funds. These schemes invest in a mix of equity (65-80%) and debt (20-35). Because of this hybrid portfolio they are considered relatively less volatile than pure equity schemes. Aggressive hybrid schemes are the best investment vehicle for very conservative equity investors looking to create long-term wealth without much volatility.

Some equity investors want to play safe even while investing in stocks. Large cap schemes are meant for such individuals. These schemes invest in top 100 stocks and they are relatively safer than other pure equity mutual fund schemes. They are also relatively less volatile than mid cap and small cap schemes. In short, you should invest in large cap schemes if you are looking for modest returns with relative stability.

A regular equity investor (one with a moderate risk appetite) looking to invest in the stock market need not look beyond flexi cap mutual funds( or diversified equity schemes). These schemes invest across market capitalisations and sectors, based on the view of the fund manager. A regular investor can benefit from the uptrend in any of the sectors, categories of stocks by investing in these schemes.

What about aggressive investors looking to pocket extra returns by taking extra risk? Well, they can bet on mid cap and small cap schemes. Mid cap schemes invest mostly in medium-sized companies and small cap funds invest in smaller companies in terms of market capitalisation. These schemes can be volatile, but they also have the potential to offer superior returns over a long period. You can invest in these mutual fund categories if you have a long-term investment horizon and an appetite for higher risk.

Finally, any search starting with the word ‘best’ is unlikely to offer you the best solution. You should always choose a scheme that matches your investment objective, horizon, and risk profile.

If you do not understand these basic mutual fund concepts or are totally new to mutual funds and investing, you should always seek the help of a mutual fund advisor.

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