Ever wondered Mutual fund kya hota hai? What is the definition of a mutual fund? What are the types of best mutual fund to invest in India? Categories of mutual funds? etc. If you're also exploring modern investment alternatives, check out our detailed analysis of the best cryptocurrencies to invest in for the long term.
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Achha, Return chahiye aur confused ho kis mutual fund mein paisa lagaye? Don't worry- hum hain, guide krne k liye!
What is a Mutual Fund?
A mutual fund invests money alongside many other investors in a diversified portfolio including equities (stocks), bonds, and other money market instruments.
Finding the best mutual funds is essential because the gains are the investor's income. The profits generated from these investments, such as dividends and capital gains, are distributed proportionally among all the investors.
This is done after deducting applicable expenses like management fees, brokerage fees, etc.
To understand the broader financial ecosystem that supports mutual funds, read about why finance is the lifeblood of business and how it impacts every investment decision.
Which is the Best Mutual Fund to Invest in India?
Choosing the right fund that offers high returns and low risk is crucial for any investor. Before making investment decisions, it's essential to understand what is business finance to better comprehend how fund management companies operate.
Here are the best mutual funds divided by some important mutual fund categories as per Dec 2025-
| Category | Fund Name | 5-Yr Annual Growth Rate | Risk Level | Expense Ratio (Direct) | Fund Size (AUM) |
|---|---|---|---|---|---|
| Equity -- Infrastructure | ICICI Prudential Infrastructure Fund Direct-Growth | ~38% | Very High | ~1.14% | ?7,900 Cr (approx) |
| Equity -- Mid Cap | Motilal Oswal Midcap Fund Direct-Growth | ~33% | Very High | ~0.67% | ?33,608 Cr |
| Equity -- Small Cap | Quant Small Cap Fund Direct-Growth | ~31% | Very High | ~0.71% | ?30,170 Cr |
| Equity -- Large Cap | Nippon India Large Cap Fund Direct-Growth | ~20.7% | Very High | ~0.66% | ?50,312 Cr |
| Equity -- Large Cap | HDFC Large Cap Fund Direct-Growth | ~17.6% | Very High | ~0.97% | ?40,617 Cr |
| Equity -- Multi Cap | Nippon India Multi Cap Fund Direct-Growth | ~26.7% | Very High | ~0.71% | ?50,048 Cr |
| Hybrid Aggressive | ICICI Prudential Equity & Debt Fund Direct-Growth | ~22.8% | Very High | ~0.94% | ?49,222 Cr |
| Equity -- Focused | SBI Focused Fund Direct-Growth | ~18.2% | Very High | ~0.77% | ?42,773 Cr |
| Equity -- Small & Mid | Motilal Oswal Large & Midcap Fund Direct-Growth | ~24.2% | Very High | ~0.57% | ?38,002 Cr |
| ELSS (Tax Saver) | Quant ELSS Tax Saver Fund Direct-Growth | ~39.2% | Very High | ~0.50% | ?9,486 Cr |
These are the best mutual funds to invest for long-term, short-term, etc. However, you should select the top mutual fund for better guidance to achieve your ambitious financial goal. For those individuals interested in alternative investment avenues, consider exploring real estate investment opportunities in India's top cities.
Want to know which mutual fund is right for you? So, First Start with Learning about the Categories of mutual Funds.
Explore the Best Mutual Fund to Invest: Categories For Smart Investing
Before investing, you must know about the mutual fund categories, which are available in the investment market, so let's start the journey of the best mutual fund to invest in India with the mutual fund categories. Understanding the difference between public and private finance can also help you make informed decisions about fund selections.
What is an Equity Mutual Fund Investment?
Among all mutual fund types, equity mutual funds remain the best mutual fund option for those investors who want to invest in stocks and shares of companies. This type of mutual fund is a preferred investment choice for individuals seeking long-term growth.
In 2025, investors are closely eyeing the best mutual funds, which include a mix of Large-cap, mid-cap, small-cap, multi-cap, focused, and ELSS tax saver funds.
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Below are the types of best equity mutual funds in 2025:
What is a Large-Cap Equity Mutual Fund Investment?
Large-cap funds offer income stability by investing in top-performing, established companies, making them ideal for conservative investors. For a detailed analysis of specific large-cap stocks, check out our Jio Finance share price analysis.
Examples of Top Large-cap Mutual Funds are:
- Kotak Bluechip fund
- HDFC Large Cap Fund
- Nippon India Large Cap fund
- ICICI Prudential Bluechip fund
What is a Mid-cap Equity Mutual Fund Investment?
Mid-cap mutual funds are a type of equity mutual fund that primarily invests in mid-sized companies. These companies have shown strong performance and are ideal for investors who aim for greater returns and are willing to accept moderate risk.
Examples of Top Mid-Cap Mutual Funds:
- Motilal Oswal Mid Cap mutual fund
- HDFC Mid Cap fund
- Nippon India Growth Fund
- SBI mid-cap fund
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What is a Small-Cap Equity Mutual Fund?
Small-cap mutual funds are equity mutual funds primarily investing in small company stocks. These companies have higher growth potential, but also carry higher risks than larger companies.
Examples of Small-Cap Equity Mutual Funds:
- Bandhan Small Cap Fund
- Tata Small Cap Fund
- HDFC Small Cap Fund- Direct Growth Option
- Nippon India Small Cap Fund
What is a Multi-Cap Equity Mutual Fund?
A Multi-cap fund is a Top equity mutual fund that strategically invests across Large-Cap, Mid-Cap, and Small-Cap companies. Simply put, a Multi-cap fund is an investment plan focusing on mid-sized companies ranked between 101 and 250 by market capitalization.
Examples of Multi-cap Mutual Funds:
- Nippon India Multi cap fund
- ICICI Prudential Multi-cap fund
- Quant Active Fund
- Mahindra Manulife Multi Cap Fund
What is a Focused Equity Mutual Fund?
Simply put, a focused mutual fund is an equity mutual fund that invests in a limited number of stocks, typically 20 to 30. The main aim of these types of funds is to generate higher returns by choosing high-potential stocks rather than selecting across a large number of other security options.
Examples of Focused Mutual Funds:
- ICICI Pru Focused Equity Fund
- Kotak Focused Fund
- Sundaram Focused Fund
- Tata Focused Fund Direct Growth
Debt Mutual Funds
A debt fund is an investment plan primarily investing in fixed-income securities like government and corporate bonds, treasury bills, debentures, and other money market instruments. This type of mutual fund carries lower risk and aims for stable results.
Below are the types of Best Debt Mutual funds:
What are Gilt Debt Mutual Funds?
A gilt mutual fund is a type of debt mutual fund that focuses on investing in government securities like bonds, which are also known as G-secs.
These securities are those securities that are issued by the central and state governments to fund various projects and operations.
A gilt fund is the best debt mutual fund option because of its government backing, so there will be fewer chances of credit risk. However, they are
Top Examples of Gilt Debt Mutual Funds:
- ICICI Prudential Gilt Fund
- Baroda BNP Paribas Gilt Fund
- SBI Magnum Gilt Fund
- Aditya Birla Sun Life Government Securities Fund
What are Credit-Risk Funds?
Credit risk Funds are top debt mutual funds that invest in lower-rated corporate bonds to earn higher returns. However, these funds carry a higher credit risk than traditional debt funds because they mainly focus on securities rated below AAA, such as AA and A-rated bonds.... Understanding bond ratings is crucial for debt fund investments. For broader financial literacy, explore our resource on network marketing opportunities in India.
Soch rhe ho AAA, AA, A-rated bonds kya hai? To aao Jante hai-
- AAA-rated bonds are suited for those investors who prioritize safety and capital preservation instead of taking high risks for higher returns.
- AA-rated bonds are best for investors looking to balance safety and higher returns and those willing to take a slightly increased risk.
- A-rated bonds are highly recommended for investors looking for low credit risk with high credit quality.
Examples of Credit Risk Funds:
- HSBC Credit Risk Fund
- Axis Credit Risk Fund
What are Corporate Bond Debt Funds?
Corporate Bond Funds are a type of debt equity mutual fund that invests in those bonds that corporations or companies issue. A corporate bond is a loan that a company takes from investors, where the company promises to pay a regular interest and return at maturity.
Examples of Corporate Bond
- Axis Corporate Bond Fund
- ICICI Prudential Corporate Bond Fund
- Nippon India Corporate Fund
What are Short Term/ Mid Term/ Long Term Mutual Funds
Short-Term Debt Mutual Funds: Short-term-duration debt funds are the best investment option for providing debt to a company for 1-3 year goals with low interest rate risk. For example- ICICI Prudential Short Term Fund, SBI Short Term Debt Fund
Medium-Term Debt Mutual Fund: Medium-term-duration funds are debt Funds that invest mainly in bonds and debt securities with a maturity period of 3 to 5 years. It is less risky than stocks or shares and aims to give better returns than your bank's savings account. For example- HDFC Medium Term Fund
Long-Term Debt Mutual Funds: A long-term-duration debt fund is a type of debt mutual fund that invests in bonds and debt instruments with a long maturity period of more than 7 years.
Typically, these try to earn higher returns but can be more sensitive to interest rate changes, such as the Aditya Birla Sun Life Long Duration Fund and the Kotak Long Duration Fund.
Latest Updates November 2025
SEBI Regulatory Overhaul-
The Securities and Exchange Board of India (SEBI) has proposed a comprehensive review and redrafting of the SEBI (Mutual Funds) Regulations, 1996. Key changes effective from 2025 include:?
- Equity allocation increased: Equity mutual funds must now invest at least 75% in equities (up from 65%)?
- Expense ratio changes: The additional 5 basis point expense charge has been eliminated, and all statutory levies (GST, STT) are now excluded from Total Expense Ratio (TER) limits?
- Brokerage caps reduced: Permissible limits for brokerage charges dropped to 2 bps for cash and 1 bps for derivatives (from 12 bps and 5 bps, respectively)?
- Employee "skin in the game": Senior AMC employees must invest a portion of their compensation in the schemes they manage?
- New fund categories: Introduction of Specialized Investment Funds (SIFs) with a minimum investment of ?10 lakh, and up to six goal-based target date funds?
- Enhanced nomination flexibility: Investors can now nominate up to 10 nominees per mutual fund holding
Best Equity and Debt Mutual Fund in this Year
Top Equity Mutual Funds
| Category | Fund Name | 5-Year Annual Growth Rate | Risk Level | Expense Ratio | Fund Size (AUM) |
|---|---|---|---|---|---|
| Equity -- Small Cap | Quant Small Cap Fund (Direct -- Growth) | 30.80% | Very High | 0.75% | ?30,170 Cr |
| Equity -- Infrastructure | ICICI Prudential Infrastructure Fund (Direct) | 30.50% | Very High | 1.13% | ?8,160 Cr |
| Equity -- PSU | SBI PSU Fund (Direct -- Growth) | 29.44% | Very High | 0.85% | ?5,763 Cr |
| Equity -- PSU | Aditya Birla Sun Life PSU Equity Fund (Direct) | 29.30% | Very High | ~0.75% | ~?5,000 Cr |
| Equity -- Small Cap | Nippon India Small Cap Fund (Direct -- Growth) | 28.23% | Very High | ~0.70% | ~?12,000 Cr |
| Equity -- Small Cap | Bandhan Small Cap Fund (Direct -- Growth) | 27.62% | Very High | 0.42% | ?17,380 Cr |
| Equity -- Flexi Cap | HDFC Flexi Cap Fund (Direct -- Growth) | 24.51% | Very High | 0.68% | ?94,069 Cr |
| Equity -- Large & Mid Cap | ICICI Prudential Value Fund (Direct -- Growth) | 24.04% | Very High | ~0.80% | ~?18,000 Cr |
| Equity -- Flexi Cap | Parag Parikh Flexi Cap Fund (Direct -- Growth) | 20.92% | Very High | 0.63% | ?129,783 Cr |
Top Debt Mutual Funds
| Category | Fund Name | 5-Year Annual Growth Rate | Risk Level | Expense Ratio | Fund Size (AUM) |
|---|---|---|---|---|---|
| Debt -- Credit Risk | Bank of India Credit Risk Fund -- Direct Growth | 26.33% | Moderately High | 0.98% | ?107 Cr |
| Debt -- Medium Duration | Aditya Birla Sun Life Medium Term Plan -- Direct Growth | 12.61% | Moderately High | 0.82% | ?2,864 Cr |
| Debt -- Short Duration | Bank of India Short Term Income Fund -- Direct Growth | 10.59% | Moderately High | ~0.85% | ~?500 Cr |
| Debt -- Credit Risk | Aditya Birla Sun Life Credit Risk Fund -- Direct Growth | 10.07% | Moderately High | ~0.90% | ~?1,200 Cr |
| Debt -- Dynamic Bond | UTI Dynamic Bond Fund -- Direct Growth | 9.13% | Moderate | 0.73% | ?456 Cr |
| Debt -- Medium Duration | Nippon India Medium Duration Fund -- Direct Growth | 9.43% | Moderately Low | ~0.60% | ~?2,500 Cr |
| Debt -- Credit Risk | Nippon India Credit Risk Fund -- Direct Growth | 9.21% | Moderately High | 0.70% | ?1,001 Cr |
| Debt -- Corporate Bond | HDFC Corporate Bond Fund -- Direct Growth | 6.31% | Moderate | 0.36% | ?36,382 Cr |
| Debt -- Liquid | SBI Liquid Fund -- Direct Growth | 5.81% | Low to Moderate | 0.19--0.21% | ?69,048 Cr |
If you read the mutual fund categories and examples of the best mutual funds in this year, this is the time to level up. Now you will read about SIP and Lumpsum Investments. Are both best, or is one of them better? Best mutual fund to invest lumpsum and best mutual fund to invest So let's dive into other Investments in Mutual Funds.
Understanding SIP vs. Lumpsum Investments in Mutual Funds
Before understanding whether SIP is good for you or a Lumpsum Investment, you must learn what SIP is and what is Lumpsum Investments? For those new to systematic investing, discover what is cryptocurrency explains similar systematic approaches in digital assets.
Definition of SIP
A Systematic Investment Plan (SIP) is a method of investing money in mutual funds, in which an individual invests a fixed amount at regular intervals, such as:
- Quarterly
- Annually
- Monthly
- Semi-Annual
Definition of Lumpsum investments
A lumpsum investment is a one-time investment plan in which an investor invests a significant amount in a mutual fund scheme, rather than in small instalments like SIP.
Top 10 Mutual Fund Investment Plan? SIP or Lumpsum Investment Plan?
Both investment plans are suitable in their place. Still, from a beginner's point of view:
- SIP is a better option because it allows you to start investing with a small amount and have the flexibility to invest regularly, monthly, or annually.
- A lumpsum investment plan is suitable for those individuals who are investment experts and risk bearers because it provides them with only one option: to invest a large amount of money at one time.
Top 10 SIP mutual Funds - Category, 3Y-5Y Returns, AUM (Assets Under Management), Minimum SIP, and Risk Level.
Top Mutual Funds for Investment in India
| Category | Fund Name | 3-Year Returns (%) | 5-Year Returns (%) | AUM (Rs. Crores) | Minimum SIP (Rs.) | Risk Level |
|---|---|---|---|---|---|---|
| Large Cap | SBI Bluechip Fund | 16% | 14% | 45,000 | 500 | Moderate |
| Large Cap | ICICI Prudential Bluechip Fund | 17% | 15% | 48,000 | 1,000 | Moderate |
| Flexi Cap | Parag Parikh Flexi Cap Fund | 20% | 19% | 65,000 | 1,000 | Moderate-High |
| Flexi Cap | HDFC Flexi Cap Fund | 18% | 16% | 55,000 | 500 | Moderate-High |
| Mid Cap | Kotak Emerging Equity Fund | 22% | 20% | 40,000 | 1,000 | High |
| Mid Cap | Axis Midcap Fund | 21% | 18% | 22,000 | 500 | High |
| Small Cap | SBI Small Cap Fund | 25% | 23% | 30,000 | 500 | Very High |
| Small Cap | Nippon India Small Cap Fund | 27% | 24% | 45,000 | 100 | Very High |
| Hybrid (Aggressive) | HDFC Hybrid Equity Fund | 15% | 14% | 70,000 | 500 | Moderate |
| ELSS (Tax Saving) | Mirae Asset Tax Saver Fund | 19% | 17% | 28,000 | 500 | Moderate-High |
Best 10 Lumpsum Mutual Funds- Fund Name, Category, Assets Under Management (AUM), and 3-Year CAGR
| Category | Fund Name | AUM (Rs. Crores) | 3-Year CAGR (%) |
|---|---|---|---|
| Equity -- Thematic/PSU | SBI PSU Fund Direct -- Growth | ~4,703 | ~33.27 |
| Equity -- Midcap | Motilal Oswal Midcap Fund Direct -- Growth | ~18,604 | ~33.19 |
| Equity -- Thematic/Infrastructure | ICICI Prudential Infrastructure Direct -- Growth | ~data not precise | ~31.68 |
| Equity -- PSU/Thematic | Aditya Birla Sun Life PSU Equity Fund Direct -- Growth | ~data not precise | ~31.59 |
| Equity -- Infrastructure | LIC MF Infrastructure Fund Direct -- Growth | ~data not precise | ~31.39 |
| Equity -- FoF/Global | Invesco India PSU Equity Fund Direct -- Growth | ~data not precise | ~31.34 |
| Equity -- Flexi Cap | HDFC Mid Cap Fund Direct -- Growth | ~92,168 | ~25.5 |
| Equity -- Multi Cap | ICICI Prudential BHARAT 22 FoF Direct -- Growth | ~data not precise | ~25.33 |
| Equity -- Small Cap | Invesco India Smallcap Fund Direct -- Growth | ~9,000 | ~24.99 |
| Equity -- Sector/Healthcare | SBI Healthcare Opportunities Fund Direct -- Growth | ~data not precise | ~24.9 |
Top SIP Mutual Funds for a 3-Year Investment Goal
For investors targeting a 3-Year Investment Horizon, a Systematic Investment Plan (SIP) in high-growth equity and thematic mutual funds can offer strong, risk-adjusted returns.
Below are the 10 top-performing SIP options, ranked by 3-Year CAGR (Compound Annual Growth Rate):
Mutual Funds Performance -
| Category | Fund Name | 3-Year CAGR (%) |
|---|---|---|
| Large Cap | ICICI Prudential Bluechip Fund | 18.5% |
| Large Cap | SBI Bluechip Fund | 17.9% |
| Flexi Cap | Parag Parikh Flexi Cap Fund | 19.2% |
| Flexi Cap | HDFC Flexi Cap Fund | 18.7% |
| Mid Cap | Kotak Emerging Equity Fund | 22.4% |
| Mid Cap | PGIM India Midcap Opportunities Fund | 23.1% |
| Hybrid (Aggressive) | ICICI Prudential Equity & Debt Fund | 16.8% |
| Hybrid (Aggressive) | HDFC Hybrid Equity Fund | 16.3% |
| ELSS (Tax Saving) | Mirae Asset Tax Saver Fund | 21.6% |
| ELSS (Tax Saving) | Axis Long Term Equity Fund | 20.9% |
These funds have delivered a 30% CAGR over 3 years, reflecting the company's growth and performance across small-cap, mid-cap, PSU, and Infrastructure themes.
Top Lumpsum Mutual Fund Picks for Maximum Returns
Analyzing the previous year's returns for a one-time investment is essential to determine if investing in the fund is worth it....
| # | Category | Fund Name | 3-Year CAGR (%) | 5-Year CAGR (%) |
|---|---|---|---|---|
| 1 | International Fund of Fund | Mirae Asset NYSE FANG+ ETF Fund of Fund | 50.71 | Not Applicable |
| 2 | ELSS | Motilal Oswal ELSS Tax Saver Fund | 33.41 | Not Applicable |
| 3 | ELSS | SBI Long Term Equity Fund | 30.95 | Not Applicable |
Let's start by understanding the key metrics and make it easy for you to pick the best mutual fund to invest in in India.
Performance Metrics and Selection Criteria of Best Mutual Funds in India
Investors depend on the company's past performance and future growth predictions to evaluate and select the top mutual fund to invest in. For entrepreneurs interested in building wealth through business, check out our comprehensive guide on what is network marketing.
Several performance metrics and selection criteria should be considered to identify the best option:
Compound Annual Growth Rate (CAGR)
CAGR measures the annualized growth rate of an investment over a defined period. It smooths out market fluctuation for a clearer picture of long-term performance. For calculating CAGR Performance, the formula is:
Assets Under Management(AUM)
AUM refers to the total market value of all assets a fund manages. And also, AUM is a key indicator of fund trust.
Expense Ratio
Expense Ratio is the annual charge imposed by mutual funds to finance their expenses, which includes yearly operating costs, Management fees, allocation charges, advertising costs, etc.
The formula to calculate the Expense Ratio is:
Risk Rating(SEBI Riskometer)
SEBI's Riskometer classifies mutual fund risks into five level categories.For understanding regulatory frameworks in other investment areas, read about cryptocurrency legality in India.
Below are the Explanation of the five level categories of SEBI Riskometer:
Low Risk- Low-risk investments typically offer safety and stability, and this type of investment is ideal for investors who prioritize preserving their capital over seeking high returns.
Low to Moderate Risk- Low to moderate-risk investments carry higher risks than low-risk funds but offer relative stability.
Moderate- Moderate risk investment offers a balance between risk and return. This type of investment suits investors willing to take calculated risks for potential high returns.
Moderately High Risk- Moderate-risk investments maintain a balance between stability and growth potential, and it is ideal for those investors who are comfortable with taking calculated risks
High Risk- High-risk investments carry very high risk compared to any other level of risk but offer the potential for high returns, which is suitable for aggressive investors.
***"SEBI Riskometer guidelines: https://www.sebi.gov.in/ ["]{.underline}***
Sharpe Ratio
In the finance sector, the Sharpe ratio is also known as the Sharpe index. Sharpe ratio measures the performance of an investment and tells how much excess return an individual receives for the extra risk. It is calculated as:
Key Performance Indicators of Top Mutual Funds in India
Choosing the right mutual fund can be complicated---but understanding the key performance indicators (KPIs) makes it easier to choose your desired mutual fund. Whether you're a new investor or looking to optimize your portfolio, tracking metrics like returns, risk ratios, expense ratios, and AUM (Assets Under Management) helps you compare the best-performing mutual funds in India. In this section, we'll break down these essential KPIs and show you how to use them to pick top mutual funds that match your goals.
Understanding 1-Year to 10-Year CAGR Performance Analysis
Mutual fund performance metrics always begin with the Compound Annual Growth Rate (CAGR), representing the geometric mean return. CAGR provides a consistent measure of growth over specific periods. Analyzing CAGR across various outlooks offers insights into different aspects of fund performance:
The 1-Year CAGR reflects market adaptability.
The 3-Year CAGR indicates medium-term consistency through market cycles, and
The 5-Year and 10-Year CAGRs highlight a fund's potential for long-term wealth creation.
Things You Need to Know About Rolling Returns of Mutual Funds
Rolling returns improve performance analysis by calculating returns over overlapping periods. It can effectively remove the timing bias found in traditional point-to-point return calculations. This method offers a clearer picture of the fund's consistency, highlighting performance trends regardless of the investor's entry point into the market.
Where:
NAV(start) = Net Assets Value at the beginning of the rolling period.
NAV(end) = Net Assets Value at the end of the rolling period.
N = The Number of years.
Understanding Maximum Drawdown Risk Assessment
Maximum Drawdown (MDD) measures the most significant decline in a fund's value from its peak value to its deepest drop. MDD highlights the worst-case loss during a given period. It is a critical indicator of downside risk, especially in volatile or high-risk markets.
The Formula to Calculate Maximum Drawdown is:
MDD calculates the steepest drop in fund value, which helps investors understand the potential risk of capital loss during adverse market conditions.
Expense Ratio and AUM: Importance of Best Mutual Funds in India
When picking the best mutual funds in India, two key terms often come up: Expense Ratio and AUM (Assets Under Management). These terms may sound technical, but they play a big role in your overall mutual fund returns. A lower expense ratio means less money going toward fees, while AUM gives insight into a fund's popularity and stability. In this section, we'll explain impact on net returns, why they matter, and how they help you make smarter mutual fund choices.
Expense Ratio Impact on Net Returns of Mutual Funds
The Expense Ratio represents annual fees charged by Asset Management Companies(AMC) to manage a mutual fund. It is deducted daily from the fund's assets and directly affects investor returns. These ongoing costs play a crucial role in long-term wealth generation; even slight differences in expense ratios can significantly impact long-term returns due to the power of compounding.
For example, consider two funds with identical 8% gross annual returns:
- Fund A with a 0.5% expense ratio grows to ?42,47,851 over 20 Years
- Fund B with a 0.1% expense ratio grows to ?38,78,267 in the same period.
So there is a difference of ?3,78,167, which was caused entirely by a higher expense ratio, even though both funds had the same gross returns.
Understanding AUM's Impact on Mutual Fund Performance
Assets Under Management (AUM) play a crucial role in mutual fund performance by enabling economies of scale. When a Fund's AUM increases, fixed operations costs are spread across a larger asset base, which can effectively reduce the Total Expense Ratio (TER) and improve net returns for investors.
However, the impact of AUM varies by fund category:
- In small-cap and mid-cap funds, very high AUM can limit performance because fewer quality stocks are available to invest in at scale.
- On the other hand, large-cap funds often gain from high AUM because high AUM in large-cap companies leads to better liquidity, smoother execution, and broader diversification.
The formula to calculate the Total Expense Ratio is:
Risk Profiles and Asset Allocation of Mutual Funds
Every mutual fund comes with a certain level of risk and knowing your risk profile is key to choosing the right one. Along with that, asset allocation (how a fund divides money between equity, debt, and other assets) plays a big role in how the fund performs. In this section, we'll explain how risk and asset allocation work together, and how to pick mutual funds that match your comfort level and financial goals.
Understanding Mutual Fund Risk Profile
Discovering the nature of the top mutual fund risk profile helps an investor match fund choices with individual risk appetite and financial goals. For those looking to diversify beyond traditional investments, explore opportunities in digital marketing jobs that can provide additional income streams.
SEBI's uniform risk-o-meter classifies schemes into five levels- Low, Low to Moderate, Moderate, Moderately High and Very High- based on limiting portfolio volatility or risk and asset mix.
Below are the Most Important Risk Levels classified by SEBI:
- Low-risk funds invest primarily in high-quality debt and money market securities, returning stable outcomes with little price volatility. These funds suit the conservative investors whose primary aim is capital preservation and short/short-term liquidity.
- Medium-risk funds represent a mix of debt and equity securities, in most cases, a hybrid debt-oriented or balanced advantage scheme\--with a medium level of trade-off for growth potential or volatility control for medium-term horizons.
- High-risk funds put at least 65 per cent in equity, including mid- and small-cap stocks, with aggressive growth for long periods, with drawdowns so blatant during market downturns.
Aligning Equity Risk with Investment Horizon
Returns from low-risk funds should be meant for short-term goals (1-3 years) because capital preservation is prioritized, with liquidity or near-term debt market instruments being preferred.
Medium-risk funds (3-7 years) invest somewhat or moderately in equity, or in other words, invest mostly through balanced hybrid or dynamic asset allocation funds with a technical approach adjusting equity exposure.
Those wishing to invest for a long time (7+ years) may invest in riskier equity funds such as diversified large-cap mutual funds, mid-cap mutual funds, or thematic funds, to earn from compounding and market recovery cycles.
Understanding Hybrid Mutual Funds in Balanced Allocation
Looking for growth from equities and stability from debt? Hybrid mutual funds in a balanced allocation offer just that. These funds invest in a mix of stocks and bonds that helps in managing risk while aiming for steady returns. In this section, we'll break down how hybrid funds work, and best hybrid mutual funds for balanced growth.... Hybrid funds assure diversification by having different combinations of equity and debt to smooth premiums and contain downside risk:
Conservative Hybrid Funds (Debt-Heavy)
These hybrid funds usually invests in debt instruments such as bonds and fixed income securities with debt exposure of 70% to 90%, they keep a minimum equity allocation of 10%-30%, and would thus suit the conservative investor who seeks equity upside potential but mainly wants to preserve capital.
Balanced Hybrid Funds (50:50 Allocation)
Balanced Hybrid funds maintain an equal mix of 50:50. These funds offer a balanced approach to growth and stability. This type of Hybrid fund aims to provide moderate capital appreciation through equities while controlling volatility and debt instruments.
A Balanced Hybrid fund is suitable for investors looking for a fund with moderate risk and a medium-term investment horizon.
Aggressive Hybrid Funds (Equity-Heavy)
Aggressive Hybrid Funds, also known as Equity-Heavy Hybrid Mutual Funds, typically allocate 65% to 80% of assets in equities and 20% to 35% in debt instruments.
This balanced approach is designed for those investors who aim for long-term capital gain while maintaining protection from market fluctuations.
These funds are perfect for investors seeking to grow their wealth with a strategic mix of high-growth equities and stable debt holdings.
Best Hybrid Mutual Funds For Balanced Growth
| Hybrid Category | Fund Name | 3-Year CAGR (%) | Expense Ratio (%) |
|---|---|---|---|
| Aggressive Hybrid | ICICI Prudential Equity & Debt Fund | ~15.2 | ~1.00 |
| Aggressive Hybrid | HDFC Hybrid Equity Fund | ~14.6 | ~0.95 |
| Aggressive Hybrid | SBI Equity Hybrid Fund | ~14.1 | ~1.05 |
| Aggressive Hybrid | Kotak Equity Hybrid Fund | ~13.8 | ~0.98 |
| Balanced Advantage | ICICI Prudential Balanced Advantage Fund | ~12.9 | ~0.90 |
| Balanced Advantage | HDFC Balanced Advantage Fund | ~12.5 | ~0.88 |
| Balanced Advantage | Edelweiss Balanced Advantage Fund | ~12.3 | ~0.85 |
| Conservative Hybrid | HDFC Hybrid Debt Fund | ~8.2 | ~0.70 |
| Conservative Hybrid | ICICI Prudential Regular Savings Fund | ~7.9 | ~0.75 |
ELSS and Tax-Saving Strategies
Looking to save on taxes while growing your wealth? Equity Linked Saving Schemes (ELSS) offers a smart way to do both saving and wealth creation. In this section, we'll break down how ELSS works, why it's a popular tax-saving option, and also explore a few other simple strategies to help you make the most of your money.
Before Learning the process and strategies, first you must understand the meaning of ELSS.
What is an ELSS Mutual Fund?
Equity-linked savings schemes are a type of mutual fund in India that helps you save taxes while giving you a chance to grow your money through the stock market. For entrepreneurs looking to optimize their business taxes, discovering local business directories in India can help increase visibility and potential tax benefits.
ELSS remains India's most attractive tax-saving mutual fund, combining equity-oriented growth potential with tax incentives under Section 80C.
Investors can claim deductions up to ?1.5 Lakh annually on ELSS investments.
The ELSS tax saver mutual fund is the best mutual fund for long-term wealth creation investors, alongside tax efficiency.
What are the Benefits and Features of Investing in an ELSS Mutual Fund?
Equity Linked Saving Scheme (ELSS) is different from other tax-saving investments under section 80C in a few crucial ways:
- Shortest Lock-In Period... ELSS funds have the shortest lock-in period of 3 Years among all Section 80C tax-saving options. The lock-in period is counted from the date of each investment, which encourages disciplined investing through SIPs. ELSS funds offer better liquidity than long-term instruments like the PPF(Public Provident Fund).
- Higher Growth Potential with Equity Exposure: ELSS funds invest at least 80% in equities, potentially generating superior long-term returns. Compared to traditional debt-based options like PPF or NSC, ELSS has historically delivered a higher CAGR (Compound Annual Growth Rate) over 5- 10+ years. This makes ELSS a wise choice for wealth creation alongside tax savings.
- Easy SIP Option Starting from ?500: For investing in ELSS, you can invest via Systematic Investment Plan (SIPs), starting with just ?500 per month. This approach allows you to build wealth gradually, take advantage of rupee cost averaging, and save tax under Section 80C- all benefits simultaneously.
- Dividend and Growth Options: ELSS schemes offer both dividend and Growth Options:
- Choose Growth Option if you want your returns to be reinvested and grow over time.
- Go for the Dividend Option if you prefer regular payouts to supplement your income or meet short-term financial needs.
Best ELSS Mutual Funds for the Current Year
ELSS Fund Performance Metrics
| ELSS | Fund Name | 3-Year CAGR (%) | 5-Year CAGR (%) | Expense Ratio (%) |
|---|---|---|---|---|
| ELSS | Mirae Asset Tax Saver Fund | 18.2 | 20.1 | 0.60 |
| ELSS | Canara Robeco Equity Tax Saver | 17.6 | 19.4 | 0.60 |
| ELSS | Quant ELSS Tax Saver Fund | 21.5 | 24.0 | 0.60 |
| ELSS | Axis Long Term Equity Fund | 15.2 | 16.8 | 0.77 |
| ELSS | DSP ELSS Tax Saver Fund | 16.8 | 18.5 | 0.73 |
| ELSS | Parag Parikh ELSS Tax Saver Fund | 14.9 | 17.2 | 0.85 |
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Top 4 ELSS Tax-Saving Strategies to Maximize Section 80C Benefits
Wondering to save more taxes and grow your wealth at the same time?
Ghabrana Kyu? Yahan hai kuch smart upaay jisse aap apna kuch tax bacha skte hain!
Chaliye dekhte hain wo 4 Powerful ELSS strategies jo na sirf aapka tax bachayengi, balki aapki wealth bhi badhayengi.
- Maximize Section 80C Limit: Invest up to ?1.5 Lakh Annually in ELSS to fully utilise the Section 80C deduction. This strategy helps reduce your taxable income and increase your disposable cash flow.
- Diversify Across ELSS Schemes: Spread Your Investments across large-cap and mid-cap ELSS funds to strike a balanced mix of stability and Growth. This diversification strategy of funds helps to manage risk effectively while maximizing long-term returns from your tax-saving portfolio.
- Monitor Lock-In Maturities: Keep an eye on the expiry of the ELSS investment's 3-year lock-in period to strategically plan redemption or reallocation of investment. This approach helps to ensure better liquidity management while aligning with your long-term tax savings and investment objectives.
- Match with Other Section 80C Options: Combine an ELSS fund with PPF or EPF contributions to diversify risk, balance lock-in periods, and improve your tax portfolio's efficiency.
Now you know how to save taxes in investments. So after saving much of tax we will go through sectoral and thematic mutual funds. Both of these funds are also necessary types of mutual funds in India.
Key difference between Sectoral and Thematic Mutual Funds
Sectoral and Thematic Mutual funds are focused equity mutual funds, but Sectoral funds invest in a specific sector or industry, such as banking and technology. At the same time, Thematic funds follow broad investment themes that span multiple sectors, such as ESG (Environment, Social, and Governance) or digital transformation. Understanding the key difference between sectoral and thematic mutual funds helps align fund choices with their risk appetite and market outlook.
What are Sectoral Mutual Funds?
Sectoral Mutual Funds, or Sector Funds, are Equity Mutual Fund investments exclusively in a specific sector or industry, such as banking, technology, or pharmaceuticals. Sector funds are ideal for investors with high risk tolerance and a strong belief in the long-term growth potential of a specific sector....
What are Thematic Mutual Funds?
Thematic Mutual Funds are a type of Equity Mutual Fund that invests in companies driven by a common idea, trend, or theme, such as ESG (Environmental, Social, and Governance), digital innovation, consumption, and infrastructure development. These funds are suitable for investors with a moderate to high risk and who want to tap into long-term structural trends shaping the economy.
List of Best Sectoral and Thematic Mutual Funds
| Category | Fund Name | Type | 5-Year CAGR (%) | 3-Year CAGR (%) | AUM (Rs. Crores) | Expense Ratio (%) |
|---|---|---|---|---|---|---|
| Sectoral -- Technology | Tata Digital India Fund | Sectoral | 23.5 | 18.2 | 9,200 | 1.64 |
| Sectoral -- Technology | ICICI Prudential Technology Fund | Sectoral | 21.8 | 17.5 | 11,800 | 1.52 |
| Sectoral -- Banking & Finance | ICICI Prudential Banking & Financial Services Fund | Sectoral | 19.6 | 15.9 | 8,700 | 1.41 |
| Sectoral -- Banking & Finance | Nippon India Banking & Financial Services Fund | Sectoral | 20.2 | 16.4 | 6,300 | 1.47 |
| Thematic -- Consumption | SBI Consumption Opportunities Fund | Thematic | 18.9 | 14.8 | 11,200 | 1.68 |
| Thematic -- Consumption | Tata India Consumption Fund | Thematic | 17.6 | 13.9 | 2,100 | 1.71 |
| Thematic -- Infrastructure | ICICI Prudential Infrastructure Fund | Thematic | 24.1 | 20.3 | 6,900 | 1.55 |
| Thematic -- Infrastructure | SBI Infrastructure Fund | Thematic | 22.8 | 19.1 | 4,800 | 1.79 |
| Thematic -- Manufacturing | Nippon India Manufacturing Fund | Thematic | 26.4 | 22.7 | 3,600 | 1.62 |
| Sectoral -- Pharma & Healthcare | Tata India Pharma & Healthcare Fund | Sectoral | 15.7 | 11.4 | 3,400 | 1.83 |
Understanding Liquid Fund and Ultra Short-Term Fund
Looking for a smart way to earn better returns than a savings account without taking big risks? Liquid Funds and Ultra Short-Term Funds are great options for short-term investments. They're low-risk, flexible, and ideal for putting your money for a few days to a few months. In this section, we'll explain what these funds are, how they work, the key differences between them, and when to choose each based on your financial goals.
What is a Liquid Fund Investment?
The liquid fund is a type of mutual debt fund that invests your money in short-term money market instruments such as Treasury bills (T-bills), Commercial papers (CPs), Certificates of deposit (CDs), Call money, and other short-term government securities, with a maturity of up to 91 days.
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Purpose of Liquid Fund
Liquid funds aim to provide investors with high liquidity, capital preservation, and moderate returns over a short investment period.
Who should invest in a Liquid Fund?
Investing in liquid funds is ideal for investors who are seeking a low-risk option to gain surplus money in the short term. Also, liquid funds offer better returns than savings accounts with high liquidity and quick access to funds.
Best Liquid Mutual Funds for Emergency Planning
| Category | Fund Name | Type | 5-Year CAGR | 3-Year CAGR | AUM (Rs. crores) | Expense Ratio (%) |
|---|---|---|---|---|---|---|
| Liquid | Nippon India Liquid Fund -- Direct | Open-ended Debt Fund | ~5.86% | ~7.08% | ~32,355 | ~0.20 |
| Liquid | Aditya Birla Sun Life Liquid Fund -- Direct | Open-ended Debt Fund | ~5.89% | ~7.11% | ~55,408 | ~0.21 |
| Liquid | Edelweiss Liquid Fund -- Direct | Open-ended Debt Fund | ~5.90% | ~7.10% | ~10,214 | ~0.10 |
| Liquid | Axis Liquid Fund -- Direct | Open-ended Debt Fund | ~5.88% | ~7.09% | ~37,358 | ~0.14 |
| Liquid | Union Liquid Fund -- Direct | Open-ended Debt Fund | ~5.87% | ~7.09% | ~7,051 | ~0.07 |
| Liquid | Mirae Asset Liquid Fund -- Direct | Open-ended Debt Fund | ~5.87% | ~7.08% | ~18,005 | ~0.09 |
| Liquid | PGIM India Liquid Fund -- Direct | Open-ended Debt Fund | ~5.87% | ~7.09% | ~556 | ~0.12 |
| Liquid | DSP Liquidity Fund -- Direct | Open-ended Debt Fund | ~5.85% | ~7.06% | ~21,344 | ~0.19 |
| Liquid | Bank of India Liquid Fund -- Direct | Open-ended Debt Fund | ~5.86% | ~7.07% | ~1,426 | ~0.10 |
What is an Ultra Short-Term Fund?
Ultra Short-Term Fund is a type of debt mutual fund that invests in short-term fixed-income instruments such as commercial papers, certificates of deposit, and treasury bills. These debt mutual funds typically invest in securities with a slightly longer maturity than those held by investors in liquid funds.
Purpose of Ultra Short-Term Fund
The ultra-short-term fund aims to offer higher returns than liquid funds while maintaining moderate liquidity and low interest rate risk.
Who should invest in an Ultra Short-Term Fund?
Ultra Short-Term Funds are suitable for investors looking to invest for a short period of a few months and seeking better returns than saving accounts or liquid funds with relatively low risk.
Top 10 Ultra Short-Term Mutual Funds in India
Ultra Short Term Mutual Funds - Top 10 Options
Ultra Short Term Funds Comparison
| # | Fund Name | Fund House | 1-Year Return (%) | 3-Year CAGR (%) | 5-Year CAGR (%) | AUM (Rs. Crores) | Expense Ratio (%) | Min SIP (Rs.) | Min Lumpsum (Rs.) | Risk Level |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | HDFC Ultra Short Term Fund | HDFC AMC | 7.2 | 6.3 | 6.1 | 13,500 | 0.40 | 500 | 5,000 | Low |
| 2 | ICICI Prudential Ultra Short Term Fund | ICICI Prudential AMC | 7.1 | 6.2 | 6.0 | 10,800 | 0.45 | 1,000 | 5,000 | Low |
| 3 | SBI Ultra Short Term Fund | SBI AMC | 7.0 | 6.1 | 5.9 | 8,900 | 0.38 | 500 | 5,000 | Low |
| 4 | Axis Ultra Short Term Fund | Axis AMC | 7.3 | 6.4 | 6.2 | 9,200 | 0.37 | 1,000 | 5,000 | Low |
| 5 | Kotak Ultra Short Term Fund | Kotak AMC | 7.2 | 6.3 | 6.1 | 11,400 | 0.42 | 1,000 | 5,000 | Low |
| 6 | Nippon India Ultra Short Duration Fund | Nippon AMC | 7.1 | 6.2 | 6.0 | 6,700 | 0.48 | 1,000 | 5,000 | Low |
| 7 | Aditya Birla Sun Life Ultra Short Term Fund | ABSL AMC | 7.0 | 6.1 | 5.9 | 5,900 | 0.39 | 1,000 | 5,000 | Low |
| 8 | UTI Ultra Short Duration Fund | UTI AMC | 6.9 | 6.0 | 5.8 | 4,600 | 0.36 | 500 | 5,000 | Low |
| 9 | IDFC Ultra Short Term Fund | IDFC AMC | 7.1 | 6.2 | 6.0 | 3,800 | 0.33 | 1,000 | 5,000 | Low |
| 10 | DSP Ultra Short Fund | DSP AMC | 7.0 | 6.1 | 5.9 | 4,200 | 0.40 | 1,000 | 5,000 | Low |
Category Comparison: Equity vs Debt vs Hybrid vs ELSS vs Liquid Funds
You're not alone who Confused by all the different types of mutual funds?. From Equity Funds to Debt, Hybrid, ELSS, and Liquid Funds, each category serves a different purpose based on your goals, risk appetite, and investment horizon. In this section, we'll compare these mutual fund types side by side this helps you understand their features, benefits, risks, and ideal use cases, so you can choose the one that fits your financial journey best.
Comparison Table : Equity vs Debt vs Hybrid vs ELSS vs Liquid Funds
Comparison of Different Investment Fund Types
| Parameter | Equity Funds | Debt Funds | Hybrid Funds | ELSS Funds | Liquid Funds |
|---|---|---|---|---|---|
| Primary Investment | Stocks / Equities | Bonds, Govt securities | Equity + Debt | Equity (Tax-saving) | Very short-term debt instruments |
| Risk Level | High | Low to Moderate | Moderate | High | Very Low |
| Return Potential | High (long term) | Moderate | Moderate to High | High | Low |
| Ideal Investment Horizon | 5+ years | 2-4 years | 3-5 years | 3+ years (lock-in) | Few days to 1 year |
| Volatility | High | Low | Medium | High | Very Low |
| Tax Benefit | No | No | No | Yes (80C) | No |
| Lock-in Period | None | None | None | 3 Years | None |
| Liquidity | High | High | High | Low (due to lock-in) | Very High |
| Suitable For | Long-term wealth creation | Stable income & safety | Balanced growth | Tax saving + growth | Emergency & surplus cash |
| Expense Ratio | High | Low | Moderate | Moderate | Very Low |
Ready to Grow Your Wealth with Mutual Funds?
Starting your investment journey in this current growing financial era is a direct and effective way to increase wealth and achieve your goals. After reading this blog, you know mutual funds and the best mutual funds to invest in India. You can start your journey as an investor with confidence. For content creators looking to build additional income streams, explore YouTube channel names in India to start your financial education journey.
Follow this Top 5-Step Framework to Implement Your Investment Strategy Now
You must follow the five steps below to achieve your desired financial goal. These steps are thoroughly analyzed and experienced by top financial experts worldwide:
First, Define Your Goals and Assets Allocation
First and foremost, it is essential to identify and clearly define your financial goals, including specific timelines and target amounts. These steps help you understand the purpose behind your investment, which will guide all your financial decisions. The statement identifies the reason behind your investment:
Ask yourself:
- Do you want to buy a house?
- Are you investing in children's education?
- Are you investing for your retirement?
Once Your Goals are crystal clear, decide how to allocate your investments across different asset classes such as equity fund, debt fund, goal, or real estate. Asset allocation is wholly based on your risk appetite and investment horizon.
Secondly, Select Funds by Category
Select the type of mutual funds you want to invest in, since every individual has personal interests in investment, affordability, etc. The main types include:
- Equity -- Higher risk and high returns
- Debt -- Medium risk and stable return
- Tax- Saving Funds like ELSS - If invested, your money is locked in for 3 Years
- Hybrid -- Balance risk and returns
Thirdly, Select Funds and Automate SIPs
After choosing the right category, it is time to select the funds that align with your goals, like:
- Immediate Needs - Liquid / Ultra-short duration funds
- Mid-term targets - Balanced Funds or Hybrid Funds
- Long-term Wealth Creation - Equity Mutual Funds
Also, you can set up a direct-plan Systematic Investment Plan (SIP) with automatic bank mandates. The SIP plan starts from ?100-?1000 per fund and gradually increases your SIP contributions as your income grows.
Fourth, Monitor Progress Regularly
Make a habit of reviewing your investment portfolio quarterly or annually to ensure you are on track. Monitor goal-wise progress using key metrics like:
- Percentage of target achieved
- Annualized returns vs. benchmarks
- Time left to reach each goal
Utilize goal-tracking tools, financial apps, or spreadsheets to track timelines, recognize deficiencies, and find adjustment opportunities. This routine review habit helps you stay on top and make confident, evidence-based decisions.
Fifth, Stay Disciplined and Adjust Strategically
Maintain Strong discipline during market fluctuations by focusing on your long-term financial goals rather than reacting to short-term market fluctuations.
Review and adjust your portfolio only when there are significant changes, such as fund manager shifts, consistent underperformance over three years, or important life events that impact your financial planning.
Author's Thought and Appeal to Audience
"Mutual Funds are subject to market risks", as we all know. I appeal to the audience: I have thoroughly researched and provided this valuable content for your benefit. However, before investing, please carefully read all company policies and mutual fund information from their official websites.
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- SEBI Official Website - For the latest mutual fund regulations
- AMFI Official Website - Association of Mutual Funds in India
- Reserve Bank of India - For monetary policy updates affecting investments...
- NSE India - National Stock Exchange for market data
- BSE India - Bombay Stock Exchange for trading information
ClipsTrust's View on the Blog
- Comprehensive coverage: The blog provides exhaustive information spanning equity, debt, hybrid, ELSS, liquid funds, and sectoral funds?
- Data-rich tables: Extensive performance metrics with 3-year and 5-year CAGR, expense ratios, and AUM figures help informed decision-making?
- Bilingual approach: The Hinglish style ("Achha, Return chahiye aur confused ho...") makes complex financial concepts relatable to Indian audiences?
- Practical framework: The 5-step implementation strategy provides actionable guidance for beginners?
- Regulatory compliance: Proper disclaimers and references to SEBI, AMFI, and RBI demonstrate professional standards
Frequently Asked Questions About Best Mutual Funds to Invest in India
Equity Funds: Long-term capital Gain (LTCG) after 1 year is taxed at 10% above ?1 lakh/year; Short-term capital Gain (STCG) is taxed at 15%.
Debt Funds: Gains taxed as per income tax slab (post-2023 rules).
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