In India, investors have a wide range of options for investment across different asset classes. As a result, they can diversify their investments and earn good returns. Mutual funds are the most popular investment instruments among Indian investors. These funds pool money from various investors and invest the total amount in assets like stocks and bonds. However, the generated returns largely depend on the asset class used for investment. Since so many types of mutual funds are available in India, it’s worth knowing the different kinds of top mutual funds suitable for the investor’s risk appetite, investment goals, and other factors. Let’s take a look
ELSS Mutual Fund
ELSS mutual funds are tax-saving funds that offer tax exemptions of up to ₹ 1.5 Lakh under Section 80C of the Income Tax Act, 1961. A lock-in period of just three years is another advantage of investing in ELSS mutual funds. A systematic investment plan is also available with ELSS, allowing investors to invest in instalments.
Liquid Mutual Funds
Liquid mutual funds are a type of debt fund that exclusively invests money in fixed-income assets like treasury bills, commercial papers, and government securities. They have a maturity period of around three months and calculate NAV in 365 days. The best things about these funds are low-risk, quick conversion to cash, and low expense ratios.
Banking and PSU Debt Mutual Funds
Reputed as the safest investment mediums, these mutual fund schemes invest money in the money market and debt instruments produced by PSUs, banks, and PFIs (Public Financial Institutions). Major benefits include instant liquidity, stable returns, and higher profits.
Money Market Funds
These funds generate higher returns by investing in money market instruments like commercial papers, T-bills, and bills of exchange. These are short-term debt funds ideal for immediate financial management and low-risk factors. Investors can easily track and manage their earnings, making them a great scheme to earn money from their surplus cash.
Retirement Mutual Funds
These funds allow people to save a part of their income for retirement. These serve steady income sources with flexible entry and exit points. The funds invest money in government securities, ensuring returns and minimising the risk.
Contra Mutual Funds
These mutual funds invest money in the equities of underperforming companies in the market. When the company faces growth, the stocks get profit, and the investment yields higher returns. Cheap rates, low risk of loss, higher future profits, and less risk in the event of a market crash are some benefits that make contra funds better than others.
Corporate Bond Mutual Funds
These are the top mutual funds investing 80% of assets in corporate bond companies rated AA+ or higher. Therefore, these are the safest investment options with high returns, flexibility, and low risk. Investing in corporate bond mutual funds of various companies positively contributes to the portfolio.
Large Cap Mutual Funds
As the name suggests, these funds invest a big percentage of their assets in large-cap companies. Usually, investors choose these funds based on the history of their profit generation. The major pros of these funds include stable returns, a diversified portfolio, and reduced risk factors due to professional management.
Mid-Cap Mutual Funds
These types of mutual funds offer higher returns than small-cap funds but less stability than large-cap ones. These largely rely on companies with mid-cap market reputations. Balanced risk and return, high potential to outperform, enhanced liquidity, and better growth opportunities are the major advantages of investing in these top mutual funds.
Flexi Cap Mutual Funds
Flexi-cap mutual funds do not impose any strict restrictions on company investments based on market capitalisation. Therefore, they allow fund managers to embark upon bigger investment ventures for greater profits. Diversification, long-term profitable goals, excellent outcomes, and a wide range of companies for investment are some benefits that make these funds worth considering.ConclusionWhile planning to invest in top mutual funds, considering the fund’s track record, financial ratios, expense ratio, fund history, and other factors is essential. Moreover, investors must pay attention to the fund manager’s performance and ensure they align with their investment goals in the long run. Those who cannot spend a lump sum can invest in a systematic investment plan to invest in instalments.
