What are the Best Mutual Funds to Invest in India?
Mutual funds effectively invest in the capital markets, combining equity, debt, and hybrid funds. However, identifying the right mutual funds can be challenging. This article aims to list the best mutual funds in equity, debt, and hybrid categories based on their 3-year average annual rolling returns. It will also explore the features, factors, and how to invest in these top mutual funds in India.
Top 10 Best Mutual Funds to Invest in 2024 (Equity, Debt & Hybrid Funds)
Top 10 Equity Mutual Funds
Here is a list of the top 10 long term equity mutual funds.
| Equity Mutual Funds | Sub Category | AUM (In cr.) | 3Y Avg Annual Rolling Returns |
|---|---|---|---|
| Quant Small Cap Fund | Small Cap Fund | ₹21,242.79 | 50.36 |
| Quant Infrastructure Fund | Sectoral Fund - Infrastructure | ₹3,564.61 | 47.05 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr VI | Equity Linked Savings Scheme (ELSS) | ₹40.47 | 43.16 |
| Nippon India Small Cap Fund | Small Cap Fund | ₹51,566.11 | 42.99 |
| ICICI Pru Infrastructure Fund | Sectoral Fund - Infrastructure | ₹5,004.78 | 42.96 |
| Aditya Birla SL PSU Equity Fund | Thematic Fund | ₹4,711.18 | 42.58 |
| HDFC Infrastructure Fund | Sectoral Fund - Infrastructure | ₹1,893.54 | 42.05 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr IV | Equity Linked Savings Scheme (ELSS) | ₹38.63 | 41.50 |
| HSBC Small Cap Fund | Small Cap Fund | ₹14,619.42 | 41.38 |
| Sundaram LT Tax Adv Fund-Sr III | Equity Linked Savings Scheme (ELSS) | ₹36.03 | 41.23 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the list of best mutual funds in India is from 26th June 2024. It is derived from the Tickertape Mutual Funds Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Top 10 Hybrid Mutual Funds
Here is a list of the best hybrid mutual funds.
| Hybrid Mutual Funds | Sub Category | AUM (In cr.) | 3Y Avg Annual Rolling Returns |
|---|---|---|---|
| Quant Multi Asset Fund | Multi Asset Allocation Fund | ₹2,173.05 | 31.80 |
| Bank of India Mid & Small Cap Equity & Debt Fund | Aggressive Hybrid Fund | ₹754.01 | 28.76 |
| ICICI Pru Equity & Debt Fund | Aggressive Hybrid Fund | ₹34,733.08 | 28.14 |
| Quant Absolute Fund | Aggressive Hybrid Fund | ₹2,114.19 | 27.66 |
| HDFC Balanced Advantage Fund | Balanced Advantage Fund | ₹83,548.61 | 26.72 |
| ICICI Pru Multi-Asset Fund | Multi Asset Allocation Fund | ₹39,534.59 | 26.33 |
| JM Aggressive Hybrid Fund | Aggressive Hybrid Fund | ₹262.45 | 24.81 |
| Edelweiss Aggressive Hybrid Fund | Aggressive Hybrid Fund | ₹1,564.25 | 22.39 |
| Mahindra Manulife Aggressive Hybrid Fund | Aggressive Hybrid Fund | ₹1,168.14 | 22.18 |
| UTI Aggressive Hybrid Fund | Aggressive Hybrid Fund | ₹5,511.93 | 21.41 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the list is from 26th June 2024. It is derived from the Tickertape Mutual Funds Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Top 10 Debt Mutual Funds
Here is a list of top 10 debt mutual funds.
| Debt Return MFs | Sub Category | AUM (In cr.) | 3Y Avg Annual Rolling Returns |
|---|---|---|---|
| Bank of India Credit Risk Fund | Credit Risk Fund | ₹137.49 | 52.00 |
| Aditya Birla SL Medium Term Plan | Medium Duration Fund | ₹1,859.15 | 13.62 |
| Bank of India Short Term Income Fund | Short Duration Fund | ₹78.80 | 12.17 |
| UTI Credit Risk Fund | Credit Risk Fund | ₹389.99 | 11.49 |
| Baroda BNP Paribas Credit Risk Fund | Credit Risk Fund | ₹149.05 | 10.91 |
| UTI Dynamic Bond Fund | Dynamic Bond Fund | ₹570.62 | 10.01 |
| Nippon India Strategic Debt Fund | Medium Duration Fund | ₹118.02 | 9.54 |
| DSP Credit Risk Fund | Credit Risk Fund | ₹194.02 | 9.30 |
| UTI Medium to Long Duration Fund | Medium to Long Duration Fund | ₹297.39 | 9.24 |
| Nippon India Credit Risk Fund | Credit Risk Fund | ₹1,024.35 | 9.23 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the top mutual funds list is from 26th June 2024. It is derived from the Tickertape Mutual Funds Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Best Mutual Funds (Equity, Hybrid & Debt)
Equity Mutual Funds: An Overview
Quant Small Cap Fund
Quant Small Cap Fund is an equity mutual fund from Quant Mutual Fund. It is managed by Sanjeev Sharma, Vasav Sahgal, and Ankit A Pande. It has an AUM of Rs. 21,242.79 cr and the fund’s NAV is Rs. 287.02. Over the past year, the fund has returned 67.24% and its 3-year CAGR is 34.17%. The minimum SIP investment is Rs. 1,000.
Quant Infrastructure Fund
Quant Infrastructure Fund is an equity mutual fund from Quant Mutual Fund. It is managed by Vasav Sahgal and Ankit A. Pande, the fund has an AUM of Rs. 3,564.61 cr and a NAV of Rs. 46.26. Over the past year, the fund has returned 83.82% and the fund’s 3-year CAGR is 37.25%. The minimum SIP amount for investing is Rs. 1000.
Sundaram LT Micro Cap Tax Adv Fund-Sr VI
Sundaram Long Term Micro Cap Tax Advantage Fund Series VI has a current NAV of Rs 27.34. Over the past year, it has returned 43.60%, with a 3-year CAGR of 29.57%. The fund manages assets worth Rs. 40.47 cr. and has an expense ratio of 1.24%. It does not have an exit load, and the minimum investment required is Rs. 500.
Nippon India Small Cap Fund
Nippon India Small Cap Fund is an equity mutual fund from Nippon India Mutual Fund, managed by Samir Rachh. The fund has an AUM of Rs. 51,566.11 cr, and the latest NAV is Rs. 188.15. Over the past year, the fund’s return was 57.61%, and its 3-year CAGR is 34.81%. The minimum SIP investment amount for this fund is Rs. 100.
ICICI Pru Infrastructure Fund
ICICI Prudential Infrastructure Fund is an equity mutual fund from ICICI Prudential Mutual Fund. Fund manager Ihab Dalwai oversees the scheme, which has an AUM of Rs. 5,004.78 cr and the latest NAV of Rs. 202.43. In the past year, the scheme returned 68.80% and the fund’s 3-year CAGR is 40.10%. The minimum SIP investment for the fund is Rs. 100.
Aditya Birla SL PSU Equity Fund
Aditya Birla Sun Life PSU Equity Fund is an equity mutual fund managed by Dhaval Gala from Aditya Birla Sun Life Mutual Fund. The fund has an AUM of Rs. 4,711.18 cr., and the latest NAV is Rs. 37.77. Over the past year, the fund returned 96.72% and the fund’s 3-year CAGR is 41.24%. The minimum SIP investment amount for this fund is Rs. 100.
HDFC Infrastructure Fund
HDFC Infrastructure Fund is an equity mutual fund offered by HDFC Mutual Fund. Managed by Srinivasan Ramamurthy, it has an Asset Under Management (AUM) of Rs. 1,893.54 crores, with a recent NAV of Rs. 52.60. Over the past year, the fund has delivered a return of 79.31% and its 3-year CAGR is 39.66%. The minimum SIP)amount for this scheme is Rs. 100.
Sundaram LT Micro Cap Tax Adv Fund-Sr IV
The NAV of the Sundaram Long Term Micro Cap Tax Advantage Fund Series IV is Rs. 29.10. The fund has a 1-year return of 42.82% and a 3-year CAGR of 30.07%. It manages assets worth Rs. 38.63 cr with an expense ratio of 1.24%. This fund has no exit load, and the minimum investment required for this fund is Rs. 500.
HSBC Small Cap Fund
HSBC Small Cap Fund is an equity mutual fund from HSBC Mutual Fund. The fund is managed by Venugopal Manghat and Cheenu Gupta. The fund has an AUM of Rs. 14,619.42 cr, with a NAV of Rs. 93.02. Over the past year, the fund has returned 56.90% and its 3-year CAGR is 33.03%. The minimum SIP investment amount for this scheme is Rs. 500.
Sundaram LT Tax Adv Fund-Sr III
Sundaram Long Term Tax Advantage Fund Series III has a NAV of Rs. 28.53. It achieved a 1-year return of 42.84% and a 3-year CAGR of 29.88%. The fund manages assets worth Rs. 36.03 cr with an expense ratio of 1.37%. There is no exit load, and the minimum investment required is Rs. 500.
Hybrid Mutual Funds: An Overview
Quant Multi Asset Fund
Quant Multi Asset Fund is a hybrid mutual fund scheme from Quant Mutual Fund. The fund is managed by Sanjeev Sharma, Vasav Sahgal, Ankit A Pande, and Varun Pattani. It has an AUM of Rs. 2,173.05 cr and a NAV of Rs. 140.62. Over the last year, the fund returned 51.22%, with a 3-year CAGR of 25.60%. The minimum SIP investment for this scheme is Rs. 1000.
Bank of India Mid & Small Cap Equity & Debt Fund
Bank of India Mid & Small Cap Equity & Debt Fund is a hybrid mutual fund managed by Alok Singh. It has an AUM of Rs. 754.01 cr and a NAV of Rs. 39.98. Over the past year, the fund returned 52.95%, and its 3-year CAGR is 23.54%. The minimum SIP investment for this fund is Rs. 1,000.
ICICI Pru Equity & Debt Fund
ICICI Prudential Equity & Debt Fund is a hybrid mutual fund managed by Manish Banthia, Akhil Kakkar, Sankaran Naren, Mittul Kalawadia, Sri Sharma, and Sharmila D’mello. The fund’s AUM stand at Rs. 34,733.08 cr, and its NAV is Rs. 392.60. Over the past year, the fund has delivered a return of 39.41%, and its 3-year CAGR is 24.55%. Investors can start an SIP in this fund with a minimum amount of Rs. 100.
Quant Absolute Fund
Quant Absolute Fund is a hybrid mutual fund from Quant Mutual Fund. It is managed by Sanjeev Sharma, Vasav Sahgal, and Ankit A Pande. The fund’s AUM is Rs. 2,114.19 cr, with a NAV of Rs. 458.42. Over the past year, the fund has returned 39.89%, and its 3-year CAGR is 21.45%. The minimum SIP amount to invest in this scheme is Rs. 1,000.
HDFC Balanced Advantage Fund
HDFC Balanced Advantage Fund is a hybrid mutual fund from HDFC Mutual Fund. It is managed by Gopal Agrawal, Anil Bamboli, Arun Agarwal, Srinivasan Ramamurthy, and Nirman S. Morakhia. The fund has an AUM of Rs. 83,548.61 cr and a NAV of Rs. 527.08. Over the past year, it returned 41.90%, with a 3-year CAGR of 24.63%. The minimum SIP investment in this fund is Rs. 100.
ICICI Pru Multi-Asset Fund
ICICI Prudential Multi Asset Fund is a hybrid mutual fund from ICICI Prudential Mutual Fund. This fund is managed by Manish Banthia, Akhil Kakkar, Ihab Dalwai, Sankaran Naren, Sri Sharma, Gaurav Chikane, and Sharmila D’mello. The fund has an AUM of Rs. 39,534.59 cr and a NAV of Rs. 739.58. Over the past year, the fund returned 34.24%, and has a 3-year CAGR of 23.86%. The minimum SIP amount to invest in this scheme is Rs. 100.
JM Aggressive Hybrid Fund
JM Aggressive Hybrid Fund is managed by Asit Bhandarkar, Chaitanya Choksi, and Gurvinder Singh Wasan from JM Financial Mutual Fund. It is a hybrid mutual fund and has an AUM of Rs. 262.45 cr and an NAV of Rs. 137.46. Over the past year, the fund delivered a return of 59.28%, and its 3-year CAGR is 25.97%. The minimum SIP investment amount for this fund is Rs. 100.
Edelweiss Aggressive Hybrid Fund
Edelweiss Aggressive Hybrid Fund is a hybrid mutual fund by Edelweiss Mutual Fund. It is managed by fund managers Dhawal Dalal, Bharat Lahoti, and Bhavesh Jain. It has an AUM worth Rs. 1,564.25 cr, with a NAV of Rs. 66.26. Over the past year, the fund has shown a return performance of 36.00%, and its 3-year CAGR stands at 21.01%. Investors can start investing in this scheme with a minimum SIP amount of Rs. 100.
Mahindra Manulife Aggressive Hybrid Fund
Mahindra Manulife Aggressive Hybrid Fund is a scheme offered by Mahindra Manulife Mutual Fund. It is managed by fund managers: Rahul Pal, Amit Garg, Fatema Pacha, and Manish Lodha. It currently has an AUM amounting to Rs. 1,168.14 cr. and a NAV of Rs. 27.54. Over the past year, the scheme has shown a return performance of 37.62%, with a 3-year CAGR of 20.38%. Investors can start investing in this scheme with a minimum SIP amount of Rs. 500.
UTI Aggressive Hybrid Fund
UTI Aggressive Hybrid Fund is managed by UTI Mutual Fund. It is a hybrid mutual fund scheme. It is overseen by fund managers V Srivatsa and Sunil Madhukar Patil. As of now, the scheme has an AUM worth Rs. 5,511.93 cr., and a NAV of Rs. 404.09. Over the past year, the scheme has shown a return performance of 35.67%, and its 3-year CAGR stands at 19.43%. The SIP amount required for investing in this scheme is Rs. 500.
Debt Mutual Funds: An Overview
Bank of India Credit Risk Fund
Bank of India Credit Risk Fund is managed by Alok Singh. It is a debt mutual fund under the Bank of India Mutual Fund. It currently has an AUM worth Rs. 137.49 cr with a NAV of Rs. 11.76. Over the past year, the fund has yielded returns of 6.73%, and its 3-year CAGR stands at 39.96%. The fund has an expense ratio of 1.19%.
Aditya Birla SL Medium Term Plan
Aditya Birla Sun Life Medium Term Fund is part of Aditya Birla Sun Life Mutual Fund’s debt schemes. It is managed by fund managers Mohit Sharma and Sunaina da Cunha. The fund has an AUM of Rs. 1,859.15 cr and a NAV of Rs. 37.86. The fund has shown a return of 8.03% over the last year and a 3-year CAGR of 13.42%. Investors can start investing with a minimum SIP amount of Rs. 1,000 in this scheme.
Bank of India Short Term Income Fund
Bank of India Short Term Income Fund is managed by Mithraem Bharucha. It is a debt mutual fund scheme under Bank of India Mutual Fund. It has an AUM worth Rs. 78.80 cr., and a NAV of Rs. 26.30. Over the past year, the scheme has shown a return of 6.68%, and its 3-year CAGR stands at 12.51%. The minimum SIP investment amount for this scheme is Rs. 1000.
UTI Credit Risk Fund
UTI Credit Risk Fund is a debt mutual fund by UTI Mutual Fund. It is managed by Ritesh Nambiar and has an AUM worth Rs. 389.99 cr and a NAV of Rs. 17.65. Over the past year, it delivered a return of 7.45%, and its 3-year CAGR stands at 11.72%. The minimum SIP investment amount for this scheme is Rs. 500.
Baroda BNP Paribas Credit Risk Fund
Baroda BNP Paribas Credit Risk Fund is a debt mutual fund by Baroda BNP Paribas Mutual Fund. It is managed by fund managers Prashant R Pimple and Mayank Prakash and currently holds assets worth Rs. 149.05 cr and a NAV of Rs. 22.24. Over the past year, the fund has yielded a return of 8.21%, and its 3-year CAGR stands at 9.88%. The minimum SIP investment amount for this scheme is Rs. 500.
UTI Dynamic Bond Fund
UTI Dynamic Bond Fund is managed by Sudhir Agrawal at UTI Mutual Fund. It holds Rs. 570.62 cr in assets and a NAV of Rs. 30.72. Over the past year, it delivered a return of 7.93%, and has a 3-year CAGR of 11.20%. Investors can start with a minimum SIP investment of Rs. 500 in this scheme.
Nippon India Strategic Debt Fund
Nippon India Strategic Debt Fund is managed by Sushil Budhia. It is a debt mutual fund with Rs. 118.02 cr in AUM and a NAV of Rs. 15.29. Over the past year, the scheme has shown a return of 7.11%, with a 3-year CAGR of 10.13%. Investors can start with a minimum SIP investment of Rs. 100.
DSP Credit Risk Fund
DSP Credit Risk Fund is managed by DSP Mutual Fund. It is a debt mutual fund scheme and is overseen by fund managers Laukik Bagwe and Vivekanand Ramakrishnan. The scheme currently has an AUM worth Rs. 194.02 cr and a NAV of Rs. 43.72. Over the past year, DSP Credit Risk Fund has delivered a return of 16.24%, with a 3-year CAGR of 10.61%.
UTI Medium to Long Duration Fund
UTI Medium to Long Duration Fund is managed by Sunil Madhukar Patil. It is a debt mutual fund by UTI Mutual Fund. It holds Rs. 297.39 cr in AUM, and a NAV of Rs. 73.30. Over the past year, the scheme has yielded a return of 6.69%, and its 3-year CAGR stands at 10.26%. The minimum SIP investment for this scheme is Rs. 500.
Nippon India Credit Risk Fund
Nippon India Credit Risk Fund is managed by Sushil Budhia. It is a debt mutual fund under Nippon India Mutual Fund. It holds assets worth Rs. 1,024.35 cr. and a NAV of Rs. 34.91. Over the past year, the fund has returned 8.42%, and its 3-year CAGR stands at 9.24%. The minimum SIP investment for this scheme is Rs. 100.
What are the Best Mutual Funds?
Mutual funds are categorised by their underlying assets: equity, debt, or hybrid. Equity mutual funds, debt mutual funds, and hybrid funds have unique risk profiles and investment goals. Choose a mutual fund based on your investment goals, risk tolerance, and horizon.
Equity mutual funds might be suitable for long-term goals, such as retirement savings in 20 years. Equity funds include sub-categories like large-cap, mid-cap, and small-cap funds, each offering different risk levels. Large-cap funds focus on financially strong market leaders and are generally more resilient during economic downturns than small-cap funds, which invest in smaller companies and carry higher risks. For short-term goals, equity funds might be too volatile. In such cases, debt mutual funds, which are less volatile, could be a better choice. So, it all comes down to you as an investor and your investment objectives. Funds that suit the investors’ investment goals and risk tolerance emerge as the best mutual funds for that particular investor.
Features of the Best Mutual Funds
Here are a few key features that the best mutual funds may exhibit:
- Diversification: Mutual funds spread investments across multiple securities and asset categories, lowering risk compared to direct equity investing.
- Professional Management: Experienced fund managers actively manage mutual funds, ensuring they monitor and adjust investments to meet objectives.
- Transparency: Each mutual fund provides a Scheme Information Document detailing holdings and fund manager information. Investors can track their portfolio’s mutual fund performance with daily NAV updates.
- Liquidity: Investors can redeem investments on any business day and typically receive funds in 1-3 days. Some funds, like ELSS, have specific lock-in periods.
- Tax Efficiency: ELSS investments qualify for tax benefits under section 80C, and longer-term mutual fund investments can also be tax-efficient.
- Cost-effectiveness: Mutual funds pool investments, enabling access to diverse portfolios at lower costs than individual investments. This structure benefits from economies of scale, reducing expenses like brokerage fees.
- Returns: While not guaranteed and subject to market fluctuations, equity mutual funds historically offer potential for double-digit annual returns over the long term. Debt funds can also provide higher returns than traditional bank deposits.
- Regulation: SEBI regulates India’s mutual fund industry, ensuring adherence to stringent regulations that protect investors, manage risks, ensure liquidity, and maintain fair valuation practices.
How to Identify the Best Mutual Funds?
Here are some additional tips for identifying the best mutual funds:
- Track Record: Assess the fund’s performance over the last three to five years, particularly during market downturns. Top-performing funds consistently outperform their benchmarks and peers.
- Financial Ratios: Evaluate ratios like alpha and beta to gauge performance against peers. Alpha indicates the manager’s added returns compared to the benchmark, while the Sharpe ratio measures risk-adjusted returns.
- Expense Ratio: Analyse the fee charged by fund houses, deducted from returns. A lower expense ratio enhances investor returns, ensuring costs are reasonable and compliant with regulatory limits.
- Fund History and Manager Performance: Consider the fund’s longevity and manager’s track record. Long-term performance data and a skilled fund manager are crucial indicators of potential returns.
These parameters help in making informed investment decisions aligned with financial objectives and risk tolerance. However, it is important to remember that past performance does not guarantee future results.
How to Invest in the Best Mutual Funds in India?
Here are a few ways investors can invest in the best mutual funds in India:
- Direct Investment: Direct investment is the best way to invest in mutual funds. You can invest directly in mutual funds by opening an account with the Asset Management Company (AMC) that manages the fund. Visit their website or office to complete the necessary paperwork and invest directly.
- Online Investment Platforms: Many online investment platforms and robo-advisors offer access to a wide range of mutual funds.
- Banks and Financial Institutions: Most banks and financial institutions offer mutual fund investment services. You can visit a local branch, discuss your investment goals with a representative, and invest in funds that they recommend.
- Registered Investment Advisors: They can assess your financial situation, risk tolerance, and goals to recommend the best mutual funds and create a personalised investment strategy.
- Demat and Trading Accounts: If you have a demat account for stock trading, you can often invest in mutual funds through the same platform. Many stockbrokers offer the option to invest in mutual funds alongside stocks.
- Systematic Investment Plans (SIPs): SIPs allow you to invest fixed amounts in mutual funds at regular intervals (e.g., monthly). This method encourages disciplined investing and can be set up through most channels mentioned above.
Who Should Invest in the Best Mutual Funds?
Mutual funds offer a valuable investment opportunity for everyone. They provide a structured approach to achieving financial goals, each with specific objectives. Before investing, ensure your goals align with those of the chosen fund. Investing through Systematic Investment Plans (SIPs) allows you to start with small amounts, such as Rs 100 per month, eliminating the need for a lump sum upfront. Most other investments do not offer this option. Like all investments, mutual funds carry risks that vary based on the assets involved. It’s essential to understand and accept these risks before investing, as no investment is entirely risk-free, including deposits.
Taxation on Mutual Funds as per the Union Budget for 2024-25
The taxation on capital gains from your mutual fund investments is based on their holding periods and asset allocation. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. It may be important to learn about these revisions when considering the best mutual funds for investment. These changes include:
Equity Mutual Funds
- Short-Term Capital Gains (STCG): The gains from equity mutual funds held for less than 12 months are now taxed at 20%. This is an increase from the previous tax rate of 15%.
- Long-Term Capital Gains (LTCG): For equity mutual funds held for over a period of over 12 months, gains are classified as long-term capital gains. The new budget introduces these key changes to the LTCG:
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
Indexation was a method that allowed investors to adjust the purchase price of assets for inflation. This adjustment reduced taxable profits when selling assets like property or gold. Previously, these long-term capital gains were taxed at 20%. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
Debt Mutual Funds
- Short-Term Capital Gains (STCG): If you sell your debt fund units within a period of 36 months, the gains are classified as short-term capital gains. The STCG will be taxed according to your income tax slab rate.
- Long-Term Capital Gains (LTCG): For debt funds held for a period over 36 months, the gains are classified as long-term capital gains. The new budget outlines a few changes on the LTCG for debt funds, including:
- Tax Rate: A flat 12.5% tax rate applies to these gains.
- No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.
- Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Taxed according to your income tax slab | Taxed according to your income tax slab |
| Long-Term Capital Gains (LTCG) | More than 36 months | 10% | 12.50% |
Hybrid Mutual Funds
Short-Term Capital Gains (STCG)
The tax on short-term capital gains depends on the fund’s asset allocation when it comes to hybrid mutual funds. Here is a breakdown of STCG tax rates according to their asset allocation in hybrid funds:
- Equity-Oriented Hybrid Funds (more than 65% in equity): The gains from units sold within 12 months are taxed at 20%.
- Debt-Oriented Hybrid Funds (less than 65% in equity): The gains from units sold within three years are taxed according to your income tax slab.
Long-Term Capital Gains (LTCG)
The capital gains tax on hybrid mutual funds that extend the specified period (12 or 36 months) is known as the long-term capital gain tax. The tax treatment under this condition is as follows:
- Equity-Oriented Hybrid Funds: The gains from units held for over a period of 12 months are taxed at 12.5%. The gains up to Rs. 1.25 lakh are tax-free.
- Debt-Oriented Hybrid Funds: The gains from units held for over a period of 36 months are taxed at 12.5% without indexation benefits. This means the entire gain is taxed at this rate, without adjustment for inflation.
| Type of Hybrid Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Indexation Benefit |
| Equity-Oriented Hybrid Funds | 20% for holdings less than 1 year | 12.5% for holdings over 1 year, with gains up to Rs. 1.25 lakh tax-free | Not available |
| Debt-Oriented Hybrid Funds | Taxed as per income tax slab for holdings less than 3 years | 12.5% for holdings over 3 years | Not available |
Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.
Advantages of Investing in the Best Mutual Funds
Investing in the best mutual funds can offer several key benefits, including:
- Expert Money Management: Mutual funds are managed by experienced fund managers supported by teams of analysts. They select high-performing instruments for the fund’s portfolio, eliminating the need for individual market expertise.
- Regular Small Investments: With systematic investment plans (SIPs), you can invest small fixed sums, starting from as low as Rs 100 regularly. This allows you to begin investing without requiring a large initial capital.
- Diversification: Mutual funds spread investments across multiple securities, offering investors a diversified portfolio without needing to manage individual investments.
- Liquidity: Most mutual fund schemes are open-ended, allowing investors to redeem their units at any time. This ensures liquidity and easy access to funds.
- Regulation: Mutual funds in India are regulated by SEBI, RBI, and AMFI, ensuring investor protection and safety of investments.
- Tax Benefits: Tax-saving mutual funds like ELSS offer deductions under Section 80C of the Income Tax Act, 1961, allowing investors to save up to Rs 46,800 annually in taxes.
Risk Possessed by Best Mutual Funds
The best performing mutual funds pose varying levels of risk, with the highest risk associated with those primarily investing in company shares across different market sizes. These funds are strongly influenced by market movements.
Types of risks associated with equity funds include:
- Market Risk: Potential losses due to market underperformance influenced by factors like natural disasters, viral outbreaks, and political unrest.
- Concentration Risk: Investing heavily in a single company or sector can amplify losses if adverse developments occur.
- Interest Rate Risk: Fluctuations in interest rates can impact security prices negatively during the investment period.
- Liquidity Risk: Difficulty in selling securities without significant loss if buyers are scarce.
- Credit Risk: The possibility that issuers may fail to pay interest or repay principal as promised, assessed through credit ratings.
Factors to Consider Before Investing in the Best Mutual Funds
Here are a few factors investors can consider before investing in the top performing mutual funds in India:
- Define Your Investment Goals: Determine what you aim to achieve. This guides you in selecting a mutual fund that aligns with your goals and risk tolerance.
- Assess Your Investment Horizon: Evaluate how long you plan to invest. Long-term investments typically offer better returns with reduced risks.
- Review Past Performance: Analyse the fund’s historical performance against benchmarks and similar funds to gauge potential future returns.
- Evaluate Fund Manager Experience: Assess fund managers’ track record and qualifications. Consistent performance and management style are crucial considerations.
- Understand Net Asset Value (NAV): NAV reflects the fund’s unit market value. Higher NAV funds may be costlier but could offer more stable investments.
- Determine Your Risk Tolerance: Mutual funds carry varying levels of risk. Ensure you’re comfortable with the risks associated with your chosen funds.
- Know Exit Loads: Some funds impose charges, known as exit loads, for early withdrawals. Understand these terms to avoid unexpected costs.
To Wrap It Up…
Investing in the best mutual funds may offer several advantages, as listed above. Mutual funds are convenient and accessible for wealth creation, helping to build a diversified investment portfolio and manage risks while aiming for higher returns. However, it’s crucial to remember that mutual funds involve market risks, so your investment decisions should align with your risk tolerance and financial goals. Consulting a financial advisor can provide valuable guidance in making informed investment choices.
Most Popular Mutual Funds:
As an investor to have a diversified mutual funds portfolio, you might also like to know more about these different types of funds for investing –
Frequently Asked Questions (FAQs) on the Best Mutual Funds
You should invest in the best mutual funds for professional management, diversification, liquidity, affordability, and tax benefits. Additionally, the top mutual funds can offer excellent returns in the long run at nominal costs, and thus can be worth considering. However, all mutual funds are subject to market conditions and thus, consulting a financial advisor before investing is important.
Mutual funds can give 100% returns, but it is not guaranteed. For example, PSU-themed mutual funds such as CPSE ETF and SBI PSU Fund delivered robust returns, with CPSE ETF leading at 116.41% and an overall average return of approximately 99.76% in the past year.
SEBI regulates mutual funds, ensuring compliance with guidelines and instilling investor trust. Therefore, instilling confidence and trust in investors. However, mutual funds are still susceptible to market risks.
Yes, you can typically withdraw your invested money in the best mutual fund at any time. However, an exit load may be applied if funds are withdrawn before their holding period ends.
The best mutual funds to invest in depending on your financial goals, risk tolerance, and investment horizon. Here are the top equity funds sorted according to their 3-year average rolling returns:
1. Quant Small Cap Fund
2. Quant Infrastructure Fund
3. Sundaram LT Micro Cap Tax Adv Fund-Sr VI
4. Nippon India Small Cap Fund
5. ICICI Pru Infrastructure Fund
Note: The data on this list has been taken on 26th June 2024.
