Introduction 

A mutual fund is formed when an asset management company (AMC) pools investments from various individual and institutional investors to purchase securities. AMCs hire fund managers to manage investments from investors. Mutual funds club investments from various investors to invest their money in bonds, stocks, and other similar avenues.

Mutual fund investors are given fund units corresponding to their quantum of investment. Investors can purchase or redeem fund units at the current net asset value (NAV). The NAV of mutual funds varies on a daily basis as per their underlying fund assets. 

Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), and hence, they can be considered as a safe investment haven. A significant advantage of investing in mutual funds is that investors can diversify their portfolio at a relatively lower investment amount.

Top Performing Mutual Funds in India

There are various categories of mutual funds and each category has some top-performing mutual funds that investors can select.

1.Best Equity Funds 

Name of the Scheme 1-year Returns (%)

3-Years Returns (%)
SBI Banking & Financial Services - Direct-Growth 8.34 21.49
SBI Banking & Financial Services - Regular - Growth 6.85 20.19
ICICI Pru Banking and Financial Services - Direct-Growth -1.7 19.67
Axis Focused 25 - Direct-Growth 5.6 16.9
L&T Emerging Businesses Fund - Growth -10.38 16.16
Motilal Oswal Long Term Equity Fund - Direct-Growth -3.66 15.82
JM Core 11 - Direct - Growth -2.62 15.82
Axis Focused 25 - Growth 4.38 15.53
Quant Tax Plan - Direct - Growth -2.57 14.43
JM Core 11 - Direct - Growth -3.53 14.34

 

2.Best Debt Funds

Name of the Scheme 1-year Returns (%)

3-Years Returns (%)
SBI Magnum Medium Duration - Direct-Growth 6.31 10.14
SBI Magnum Medium Duration - Growth 5.31 9
ICICI Pru All Seasons Bond - Direct-Growth 5.68 9.67
Franklin India Dynamic Accrual - Direct-Growth 7.84 9.55
Kotak Dynamic Bond - Direct-Growth 6.27 9.11
Franklin India Low Duration - Direct-Growth 8.22 9.07
Franklin India Income Opportunities - Direct-Growth 7.87 8.98
Franklin India ST Income - Direct-Growth 8.02 8.93
Franklin India Low Duration - Growth 7.85 8.71
Kotak Low Duration - Direct-Growth 7.69 8.58

 

3.Best Hybrid Funds

Name of the Scheme 1-year Returns (%)

3-Years Returns (%)
Principal Hybrid Equity Fund - Direct-Growth 1.32 15.19
Mirae Asset Hybrid Equity - Direct-Growth 5.06 14.5
SBI Magnum Children's Benefit Fund - Direct 2.47 14.14
SBI Magnum Children's Benefit Fund 1.33 13.19
HDFC Balanced Advantage Fund - Direct - Growth -2.41 11.14
Aditya Birla SL Financial Planning FoF Aggressive - Direct-Growth 0.16 10.67
ICICI Prudential Balanced Advantage - Direct-Growth 3.72 10.58
ICICI Pru Regular Savings - Direct-Growth 5.67 10.26
Aditya Birla SL Asset Allocator MMFoF - Growth -0.77 9.21
Kotak Equity Savings - Direct-Growth 5.5 8.93

 

Mutual Fund Types 

  • Equity Funds - Equity funds, as the name suggests, invest in equity stocks/shares of companies. These are considered high-risk funds but also aim to provide high returns. Equity funds could also include speciality funds such as infrastructure, fast-moving consumer goods and banking, etc.

  • Debt Funds - These funds invest in debt instruments such as company debentures, government bonds and other fixed-income assets. They are considered safe investments and provide fixed returns. Tax is not deducted at source in debt funds so if the earning from the investment is more than Rs. 10,000 then the investor is liable to pay the tax on it himself.

  • Money Market Funds - These funds invest in liquid instruments such as T-Bills, CPs etc. These are considered as safe investments for investors looking to park surplus funds for immediate but moderate returns. Money markets are also referred to as cash markets and come with risks in terms of interest risk, reinvestment risk and credit risks.

  • Hybrid Funds - These funds invest in a mix of asset classes. Some funds may have a higher proportion of equity than debt while others could have higher debt. Risk and returns are balanced out this way. 

  • Index Funds – Index funds are based on an index such as the Sensex of Nifty and are passively managed funds. These generally have the same stocks that constitute the index it mirrors and in the same proportion. These funds deliver returns that are more or similar to the returns delivered by the benchmark indices but sometimes, there may be slight variations. This is known as tracking error and is the difference between the performance of the fund and the performance of the benchmark index. 

  • Fund of Funds - Mutual fund schemes that invest in other mutual fund schemes are known as Fund of Funds (FoF). These funds offer tax-friendly rebalancing of investors portfolio and are ideal for small investors who have a low tolerance towards risk.

  • Balance the risk and provide lower but steady returns. The returns from these funds can be taken in lump sums, like a pension or a combination of the two.

Other Mutual Fund Categories

Some of the other mutual fund categories are as follows:

  • Sector Funds

  • Emerging market funds

  • International funds

  • Global funds

  • Real estate funds

  • Commodity focused stock funds

  • Market neutral funds

  • Inverse/leveraged funds

  • Asset allocation funds:

  • Gilt Funds

  • Exchange-traded funds

Selecting Top Mutual Funds

  • Investment Objective - Any investment should be made after considering one’s personal life goals. Once you have assessed your needs, match it with your fund’s objectives. Each mutual fund has an investment objective which may or may not match your goal. To arrive at a meaningful decision, select funds which conform to your overall financial plan and risk appetite. 

  • Fund History - You may begin the shortlisting process by looking at the fund history. A mutual fund should have a long track record for being considered for investment. It shows the strength of the fund during tough times. A recently launched fund may or may not perform well during bear runs; it is yet to be explored. On the contrary, a fund with a good track record of consistent performance indicates the accuracy of its investment strategies.

  • Financial Ratios - Risk and return go hand in hand. Returns are the increase in the value of the initial investment as a result of investing in security like a stock or bond. Risk is the uncertainty concerning the actual returns not falling in line with the expectations. Before finalizing a mutual fund, you need to examine its risk-return potential.

  • Performance of Fund manager - Fund manager plays a crucial role in the performance of a fund. It is important to know the track record of the fund manager. You may check the performance of the fund during market rally and slump. A fund which has given consistent returns and contained losses during the bear runs shows robust fund management. The fund’s alpha reflects how much extra returns did the portfolio generate due to the fund manager’s efforts.

End Note

Investors always seek the best mutual funds which give high returns. The entire selection process has to be guided by three basic pointers including life goals, risk profile and investment horizon. Before selecting a mutual fund, it is important for investors to go through the details of some of the top-performing funds and weigh the fund objectives against personal financial goals.