With more than 5500 Mutual funds currently available in the market today, investors have both freedom and confusion to choose from the same. Before delving further, let us start with the basics of a mutual fund.
What is a mutual fund and why as an investor should you go for it?
A mutual fund is a trust containing a common pool of money, taken from different investors to invest in stocks, bonds, securities, money market instruments, etc. Each mutual fund has a dedicated theme and goal of investment, managed by a Fund Manager. Whenever an investor puts money into buying a mutual fund, he gets certain units of the fund, which represent a portion of the fund holdings. Buying a mutual fund does not require you to have a Demat account. The gains or losses generated by such funds are distributed proportionately amongst individual investors, after deducting certain expenses and charges.
The price of a mutual fund is referred to as the Net Asset Value(NAV), which does not fluctuate during market hours and is settled at the end of each day of trading. How many units you get is the amount you paid divided by the applicable NAV of the fund.
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A great option that mutual funds offer us is the ability to purchase these funds through a Systematic Investment Plan(SIP). This offers great advantages and allows to diversify this portfolio without investing too much.
Rupee-Cost Averaging or Minimisation of market risks is its biggest benefit. If the markets are bearish, the NAV would below and you’ll get more units for the same amount. If the reverse happens, you will be allotted a lesser number of units. The risks are balanced out hence. Over a long period (3 to 5yrs), mutual fund performances far outshine the returns achieved from either a fixed deposit or a recurring one.
For every individual, the selection of the best mutual funds for SIP would differ according to their financial goals and investment tenure. Mutual funds are classified into many categories depending on the securities it has targeted, and the returns they seek. Mainly they are Equity, Debt or Hybrid Funds. Other categories include Money Market Funds(risk-free short term debt such as government T-bills), Sectoral or Thematic Funds(which invests in a particular theme or sector, like Energy, transport, construction, real estate, etc.), Index Funds, Exchange Traded Funds or ETF in short(it is a slightly different fund, which can be traded in the stock market), etc.
The risk profile of an investor is highly relevant in choosing the best mutual funds for SIP.
For investors who want higher returns with a relatively large risk of losses, Equity-based funds can be recommended. It requires the fund manager to allocate at least 60% of the fund’s assets in equities and the rest in debt and money market instruments. These can be further classified into Large Cap, Mid Cap or Small Cap funds. As the name suggests, these funds invest in stocks and shares of companies having the respective market capitalization.
Investors having a conservative mindset or less tolerance towards loss can go for Debt Mutual Funds. It invests its assets in fixed income securities like government bonds, treasury bills, corporate securities with high credit ratings, etc. They are also called Bond Funds or Fixed Income Funds. Lastly, for moderate investors, hybrid funds(invests in stocks and govt securities) can be recommended.
Diversification of your investment portfolio is highly recommended to average out the market fluctuations and economic turbulences. You should try having a mix of different mutual funds in your kitty for the same reason. To help you out, here is a list of 7 hand-picked best mutual funds for SIP that you should look into:
Equity-Based :
- Axis Bluechip Growth Fund
This fund is managed by Mr. Shreyas Devalkar, AMC is Axis AMC.
3-Yr returns are close to 7.46%
| Risk | Moderately High |
| Min SIP Amount | ₹500 |
| Expense Ratio | 1.71% |
| NAV | ₹28.51 (08 Apr 2020) |
| Fund Started | 01 Jan 2013 |
| Fund Size | ₹11,824 Cr |
- Canara Robeco Bluechip Equity Fund Growth
This fund is managed by Mr. Sanjay Bembalkar and Mr. Shridatta Bhandwaldar.
3-Yr returns are also good.
| Risk | Moderately High |
| Min SIP Amount | ₹1000 |
| Expense Ratio | 2.56% |
| NAV | ₹23.65 (08 Apr 2020) |
| Fund Started | 02 Jan 2013 |
| Fund Size | ₹353 Cr |
Debt-Based:
- Nippon India Gilt Securities Fund Growth
It has a 3-Yr return of around 8.81%
| Risk | Moderate |
| Min SIP Amount | ₹100 |
| Expense Ratio | 1.59% |
| NAV | ₹27.97 (08 Apr 2020) |
| Fund Started | 01 Jan 2013 |
| Fund Size | ₹1,135 Cr |
- Kotak Money Market Growth
The fund is managed by Mr. Deepak Agrarwal. 3-Yr Returns are around 7.41%
| Risk | Moderate |
| Min SIP Amount | ₹100 |
| Expense Ratio | 0.26% |
| NAV | ₹3305.15 (08 Apr 2020) |
| Fund Started | 31 Dec 2012 |
| Fund Size | ₹10,442 Cr |
Hybrid Funds:
- Indiabulls Saving Income Fund Growth
It has given a return of 7.87% in 3 years.
| Risk | Moderate |
| Min SIP Amount | ₹100 |
| Expense Ratio | 0.25% |
| NAV | ₹14.23 (08 Apr 2020) |
| Fund Started | 02 Dec 2015 |
| Fund Size | ₹26 Cr |
- Edelweiss Arbitrage Fund Direct-Growth
Has had a return of 7.38% in 3 years’ time.
| Risk | Moderately Low |
| Min SIP Amount | ₹500 |
| Expense Ratio | 0.25% |
| NAV | ₹15.13 (08 Apr 2020) |
| Fund Started | 27 Jun 2014 |
| Fund Size | ₹3,955 Cr |
Tax Saving Fund:
- Mirae Asset Tax Saver Fund Growth
This had a regular to good returns before the corona-hit economy began its downfall.
| Risk | Moderately High |
| Min SIP Amount | ₹500 |
| Expense Ratio | 0.63% |
| NAV | ₹14.91 (08 Apr 2020) |
| Fund Started | 28 Jun 2015 |
| Fund Size | ₹3,282 Cr |
Technically speaking, the list of best mutual funds for SIP recommended above takes into consideration a variety of factors including the age of the fund, fund managers, popularity, returns over the years, assets under management, portfolio diversity, etc. There is no particular ranking in the list stated above.
For the best returns in a long term investment, the most important step is to create a timeline for your financial goal and invest your money wisely amongst the best mutual funds for SIP. Additionally diverse your wealth across different securities and fixed deposits for maximum returns.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin