8 Best Mutual Funds to Invest in India in 2023

India has emerged as one of the world’s fastest-growing economies, with a broad and diversified investment options market. Despite the COVID-19 pandemic’s struggles, the country has demonstrated extraordinary resilience and continues to attract foreign investment across industries. Given this, it is no wonder that mutual funds have grown in popularity among Indian investors seeking to participate in India’s economic narrative. Mutual funds are an easy and affordable method to diversify your investment portfolio, decrease risk, and generate excellent returns. However, with so many mutual funds, choosing which one to invest in might take a lot of work. In this article, we will help you narrow your selections by providing the best mutual funds to invest in India in 2023.

What Exactly Are Mutual Funds?

Mutual funds are investment vehicles that pool money from several participants to buy a diversified variety of assets such as stocks, bonds, and other securities. By pooling resources, investors can access a more excellent range of investment options than they might otherwise be able to.

Importantly, mutual funds are managed by experienced investment managers who buy and sell securities by the fund’s investment goals. Moreover, mutual fund investors possess shares in the fund, which represent a fraction of the fund’s holdings. The value of the assets a mutual fund holds determines its shares’ value. The value of the shares will alter when the value of these assets changes. Mutual funds can also produce money by paying out dividends or interest payments to owners.

Investors can buy or sell mutual fund shares at any time, and the value of their investment is determined by the current market value of the fund’s assets. Therefore, mutual funds are a popular investment choice for individuals and organizations looking to diversify their portfolios while gaining access to professional investment management.

History of the Mutual Fund Industry in India

Since establishing the Unit Trust of India (UTI) in 1963, India’s mutual fund sector has gone a long way. UTI, which the government set to promote modest deposits and route them into the capital markets, initially dominated the business. In 1964, UTI established its first plan, the Unit Plan 1964 (US64), which quickly became popular and drew many investors.

The government authorized public sector banks and financial institutions to establish mutual funds in 1987, allowing firms such as SBI Mutual Fund, Canara Robeco Mutual Fund, and LIC Mutual Fund to enter the market. With the inception of Kothari Pioneer Mutual Fund (since merged with Franklin Templeton Mutual Fund) in 1993, the private sector joined the mutual fund business.

Since then, India’s mutual fund market has been overgrown, with the number of companies expanding from one in 1963 to over 40 by 2023. Several regulatory developments have also occurred in the business to protect the interests of investors.

Market Size and Growth Rate of the Mutual Fund Industry in India

The mutual fund industry in India has expanded significantly in recent years. Over the last five years, the industry’s AUM has increased at a CAGR of roughly 20%, rising from INR 16.5 lakh crore in March 2017 to INR 30.2 lakh crore in February 2023. The business has attracted a large number of ordinary investors, who are increasingly investing in mutual funds as a way to develop wealth over time.

Various reasons have contributed to expanding the mutual fund business in India. The sector has benefited from regular investors’ rising understanding and interest in financial planning. Second, the government’s emphasis on financial inclusion and economic digitalization has made it simpler for investors to invest in mutual funds. Third, the mutual fund business has provided investors with favorable returns, notably in the equities and balanced fund categories. Now, let’s explore the best mutual funds to invest in India together.

8 Best Mutual Funds to Invest in India in 2023

1. Axis Small Cap Fund – Direct Plan (LABEL: BEST SMALL CAP FUND)

Expense Ratio: 0.51%

3-year Performance: 24.1%

5-year Performance: 20%

Minimum Investment Required: 500 INR (6.09 USD)

Size of the fund: INR 10,761.2 cr

Why We Selected It

When compared to competitors, the Axis Small Cap Fund – Direct Plan has a lower cost ratio and has provided above-average returns over three and five years. It outperformed its benchmark index, the NIFTY Smallcap 250 Total Return Index, and provided four times the returns over a five-year period.

Axis Mutual Fund manages the Axis Small Cap Fund, which was founded a decade ago. This is an open-ended fund with no time limit. If redeemed within a year, it has a 1% exit load.

The fund is a small-cap fund, which means it invests in firms with a market capitalization of less than $1 billion. The fund has mostly invested in the equities of firms in the chemicals, technology, finance, technology, and capital goods industries. RHI Magnesita India, JK Lakshmi Cement, and Blue Star are among the top gainers in recent years.

2. Quant Mid Cap Fund – Direct Plan (LABEL: BEST MID CAP FUND)

Expense Ratio: 0.63%

3-year Performance: 33.2%

5-year Performance: 20%

Minimum Investment Required: 5,000 INR (60.90 USD)

Size of the fund: INR 862.34 cr

Why We Selected It

When compared to competitors, the Quant Mid Cap Fund – Direct Plan is another best mutual fund to invest in India. It has a relatively low-cost ratio and has provided above-average returns over three and five years. It outperformed its benchmark index, the NIFTY Midcap 150 Total Return Index, and provided double the returns over five years.

Quant Mutual Fund manages the Quant Mid Cap Fund – Direct Plan, which was introduced a decade ago. This is an open-ended fund with no time limit. If redeemed within three months, it incurs a 0.5% exit load. The fund is a mid-cap fund, which means it invests in firms with a market capitalization of less than $1 billion. The fund has mostly invested in equities of firms in the financial, consumer staples, services, and car industries. ITC, Punjab National Bank, and Union Bank of India are among the top gainers during the last year.

3. SBI Large & Mid-cap Fund – Direct Plan (LABEL: BEST LARGE & MID CAP FUND)

Expense Ratio: 1.04%

3-year Performance: 19%

5-year Performance: 13%

Minimum Investment Required: 5,000 INR (60.90 USD)

Size of the fund: INR 8,029.61 cr

Why We Selected It

When compared to competitors, the SBI Large & Mid-cap Fund – Direct Plan has a lower cost ratio and has provided above-average returns over three and five years. It outperformed its benchmark index, the S&P BSE Large Mid Cap Total Return Index, and produced greater returns over a five-year period. It outperforms its very close competitor, the ICICI Prudential Large and Mid Cap Fund – Direct Plan, on lower cost ratios and exit load charges while offering comparable monthly returns.

SBI Mutual Fund manages the SBI Large & Mid-cap Fund – Direct Plan, which was introduced a decade ago. This is an open-ended fund with no time limit. If redeemed within 30 days, it has an exit load of 1.04%.

The fund is a big and mid-cap fund, which means it invests in firms with large and mid-cap sizes. The fund has mostly invested in equities of firms in the financial, automotive, staples, services, and metals and mining industries. The Indian Hotels Company, ICICI Bank, ITC, and HDFC Bank are among the top gainers during the previous year.

4. Mirae Asset Tax Saver Fund – Direct Plan (LABEL: BEST TAX SAVER FUND)

Expense Ratio: 0.57%

3-year Performance: 19%

5-year Performance: 15%

Minimum Investment Required: 5,000 INR (60.90 USD)

Size of the fund: INR 14,020 cr

Why We Selected It

When compared to competitors, the Mirae Asset Tax Saver Fund – Direct Plan is also one of the best mutual funds to Invest in India. It has a lower cost ratio and has achieved above-average returns over three and five years. It outperformed its benchmark index, the NIFTY 200 Total Return Index, and nearly quadrupled gains over a five-year period.

Mirae Asset Mutual Fund manages the Mirae Asset Tax Saver Fund – Direct Plan, which was founded eight years ago. This is a closed-end fund with no exit fee. The fund has a three-year lock-in period, which is characteristic of ELSS funds, of which this one is one. ELSS funds allow investors to receive a tax break while investing. Section 80 C of the Income Tax Act in India permits investors to make a tax-free investment of up to INR 1.50 lakh per year in mutual funds of this type.

The Mirae Asset Tax Saver Fund – Direct Plan has predominantly invested in equities of firms in the financial, energy, technology, automobile, and healthcare industries. L&T, HDFC, and banks such as ICICI Bank and HDFC Bank have been among the top gainers in recent years.

5. Quant Active Fund – Direct Plan (LABEL: BEST MULTI CAP FUND)

Expense Ratio: 0.58%

3-year Performance: 33%

5-year Performance: 20%

Minimum Investment Required: 5,000 INR (60.90 USD)

Size of the fund: INR 3,556 cr

Why We Selected It

Another best mutual fund to invest in India is the Quant Active Fund – Direct Plan. It has a relatively low cost ratio and has provided above-average returns over three and five years. It outperformed its benchmark index, the NIFTY 500 Multicap 50:25:25 Total Return Index, and is one of the best-performing multi-cap funds in the market.

Quant Mutual Fund manages the Quant Active Fund – Direct Plan, which was introduced a decade ago. This is a fund that has no lock-in period and no exit load. The fund is a multi-cap fund, which means it invests in firms with a range of market capitalizations. The fund has mostly invested in the equities of firms in the finance, consumer staples, services, chemicals, and materials industries. ITC, Punjab National Bank, Linde India, and HDFC Bank are among the top gainers in recent years.

6. PGIM India Flexi Cap Fund – Direct Plan (LABEL: BEST FLEXI CAP FUND)

Expense Ratio: 0.37%

3-year Performance: 22%

5-year Performance: 15.5%

Minimum Investment Required: 5,000 INR (60.90 USD)

Size of the fund: INR 5,084.7 cr

Why We Selected It

When compared to competitors, the PGIM India Flexi Cap Fund – Direct Plan has the lowest cost ratio and has provided above-average returns over three and five years. It outperformed its benchmark index, the NIFTY 500 Total Return Index, and provided nearly double the returns over a five-year period.

PGIM India Mutual Fund manages the PGIM India Flexi Cap Fund – Direct Plan, which was created eight years ago. This is an open-ended fund with no time limit. If redeemed within 90 days, it incurs a 0.5% exit load. The fund is classified as a flexi cap fund, which means it invests in mid-size firms. The fund’s primary holdings have been equities of firms in the financial, capital goods, car, and technology sectors. Cummins India, ABB India, and HDFC have been among the top gainers over the last year.

7. SBI Contra Fund – Direct Plan (LABEL: BEST CONTRA FUND)

Expense Ratio: 1%

3-year Performance: 30%

5-year Performance: 14.5%

Minimum Investment Required: 5,000 INR (60.90 USD)

Size of the fund: INR 6,153.6 cr

Why We Selected It

When compared to competitors, the SBI Contra Fund – Direct Plan has a lower expense ratio and has achieved above-average returns over three and five years. It outperformed its benchmark index, the NIFTY 500 Value 50 Total Return Index, and produced superior returns over a five-year period.

SBI Mutual Fund manages the SBI Contra Fund – Direct Plan, which was introduced a decade ago. This is an open-ended fund with no time limit. If redeemed within one year, it incurs a 1% exit load. The fund is a counter fund, which invests in firms that are underperforming relative to market trends. The fund has mostly invested in the equities of firms in the financial, energy, technology, metals, and mining sectors. Banks such as ICICI Bank and HDFC Bank have been among the top gainers in recent years.

8. Quant Infrastructure Fund – Direct Plan (LABEL: BEST SECTORAL FUND)

Expense Ratio: 0.64%

3-year Performance: 37%

5-year Performance: 20.3%

Minimum Investment Required: 5,000 INR (60.90 USD)

Size of the fund: INR 729.99 cr

Why We Selected It

The last mutual funds to invest in India is the Quant Infrastructure Fund – Direct Plan. It has a lower cost ratio and has achieved above-average returns over three and five years. It outperformed its benchmark index, the NIFTY Infrastructure Total Return Index, and provided three times the returns over a five-year period.

Quant Mutual Fund manages the Quant Infrastructure Fund, which was established a decade ago.

This is an open-ended fund with no time limit. If redeemed within three months, it incurs a 0.5% exit load. The fund is a sectoral fund, which means it invests in a certain industry. The fund has mostly invested in equities of firms that fulfill financial and technological standards, as well as basic infrastructural demands. Siemens, NTPC, and Punjab National Bank are among the top gainers during the last year.

Considerations When Choosing Mutual Funds in India

Now that you know the best mutual funds in India in 2023, let’s have a look at the things to consider while selecting them:

1. Investment Goals

The first and most important item to examine is your investment goals. Are you saving for short-term goals like automobile purchases or long-term ones like retirement planning? Your investing objectives will determine the type of mutual funds you should invest in.

2. Appetite for Risk 

The amount of risk you are prepared to face while investing is your risk appetite. If you are a risk-averse investor, go with debt or balanced funds. If you are willing to risk, consider investing in equity funds.

3. Performance of the Fund

Before investing, assessing the mutual fund’s past performance is critical. You should seek funds that have regularly beaten their benchmarks throughout time.

4. Expense Ratio 

The expense ratio represents the cost of administering the mutual fund. It covers fund management fees, administrative expenditures, and other operational expenses. Look for funds with lower expenditure ratios since they will deliver superior long-term returns.

5. Fund Manager 

The fund manager is critical to the mutual fund’s performance. It would be best to look for funds run by reputable, experienced fund managers with a track record of producing consistent returns.

Common Mistakes to Avoid While Investing in Mutual Funds

Mistake #1: Failing to understand your risk tolerance

When investing in mutual funds, risk tolerance is one of the most crucial variables. The capacity and willingness to take on investing risks are referred to as risk tolerance. Some investors favor high-risk, high-return investments, while others prefer low-risk, low-return ones.

Uncertainty about your risk tolerance might lead to mutual fund investments that are either too risky or too conservative for your goals and financial condition. Investing in high-risk mutual funds when your risk tolerance is low might result in significant losses. Investing in low-risk mutual funds when your risk tolerance is high can result in lost opportunities for better returns.

To avoid making this error, evaluate your risk tolerance before investing in mutual funds. You can utilize online risk tolerance calculators or talk with a financial professional to determine your risk tolerance.

Mistake #2: Failing to conduct adequate research on mutual funds

Another typical error that investors make is failing to investigate mutual funds adequately. Many investors select mutual funds based on historical performance or recommendations from friends or family members without considering the fund’s investment aim, portfolio composition, management style, fees, and other critical considerations. Preliminary mutual fund research might lead to investing in funds unsuitable for your goals, have high costs, or underperform over time.

To avoid making this error, properly investigate mutual funds before investing. You may evaluate the fund’s prospectus, performance history, portfolio holdings, management team, fees, and other important information using online sites such as Morningstar, Yahoo Finance, or the fund’s website. You should also compare the fund’s performance and costs to comparable funds to verify that you receive excellent value.

Mistake #3: Failing to consider asset allocation and diversification

Asset allocation and diversification are essential investment strategies that can help minimize risk and increase profits. Asset allocation is allocating your investment portfolio across several asset classes, such as stocks, bonds, and cash, depending on your risk tolerance, time horizon, and financial goals. Diversification is investing in several securities within each asset class to reduce the risk of any one investment or sector.

Investing in mutual funds that are excessively focused on one asset class or sector or not aligned with your investment goals and risk tolerance can result from failing to consider asset allocation and diversification.

To avoid making this error, build a well-diversified investment portfolio that is matched your risk tolerance and investing objectives. You can utilize online tools or talk with a financial professional to evaluate your ideal asset allocation and diversification plan.

Taxation of Mutual Funds in India

Mutual funds in India are taxed differently based on the type of mutual fund and the length of the investment. Mutual fund taxes are classified into two types:

1. Taxation of Mutual Funds Dividend Income

If you invest in one, you can earn dividend income from a mutual fund. The taxation of dividend income varies depending on the kind of mutual fund.

a) Mutual Funds of Equity

Dividend income from equities mutual funds is tax-free in the hands of the investor. However, before paying dividend money to investors, the mutual fund firm must pay a 10% dividend distribution tax (DDT). This indicates that the DDT reduces the actual dividend received by the investor.

b) Mutual Funds for Debt

Dividend income from debt mutual funds is taxable in the hands of the investor. Before paying dividend income to investors, the mutual fund firm deducts a dividend distribution tax (DDT) of 25% (including surcharge and cess). Conversely, the investor can claim a tax credit for the DDT paid by the mutual fund firm.

2. Taxation of Mutual Funds Capital Gains

You can generate capital gains when you sell your mutual fund units. Depending on the period of the investment, capital gains can be classed as either short-term capital gains (STCG) or long-term capital gains (LTCG).

a) STCG (Short-Term Capital Gains)

If you sell your mutual fund units within a year of purchasing them, the capital gains are referred to as short-term capital gains (STCG). STCG is added to your taxable income and taxed at your marginal tax rate.

b) Long-term Capital Gains (LTCG)

Long-term capital gains (LTCG) are a type of capital gain. If you sell your mutual fund units after one year, the capital gains are classified as long-term capital gains (LTCG). For equities and debt mutual funds, LTCG is taxed differently.

c) Long-Term Capital Gains Taxation on Equity Mutual Funds

LTCG up to Rs. 1 lakh in a fiscal year is tax-free for equities mutual funds. Any LTCG over Rs. 1 lakh is taxed at 10% (no indexation).

d) LTCG Taxation on Debt Mutual Funds

The LTCG in debt mutual funds is taxed differently depending on the investment period. If the investment is kept for over three years, the LTCG is taxed at a rate of 20% (indexed). If you hold the investment for under three years, the LTCG is added to your taxable income and taxed at your marginal tax rate.

Future of Mutual Funds in India

The future of mutual funds in India is bright since the business has grown significantly in recent years. Some potential for the mutual fund sector in India includes increased public knowledge of financial goods, a growing middle class, a change from physical to digital transactions, and government backing. These elements are predicted to boost the industry’s growth in the future.

However, the mutual fund industry in India confronts several issues that must be addressed. Some problems that must be solved for the sector to realize its full potential include a lack of knowledge across a vast part of the public, regulatory impediments, and a lack of confidence among investors.

Overall, the future of mutual funds in India is determined by how successfully the sector addresses these issues and capitalizes on possibilities. The mutual fund business in India has the potential to develop rapidly and become a significant contributor to the country’s economy if the correct policies and efforts are implemented.

Who Should Invest in the Best Mutual Funds in India?

Long-term Investors

Mutual funds can be an excellent alternative if you are a long-term investor aiming to develop your money over 5-10 years or more. Mutual funds are intended for long-term investment and can provide more significant returns than other assets, such as fixed deposits.

Risk Takers

Investing in mutual funds entails risks because mutual fund success is connected to stock market performance. Mutual funds might be a suitable investing choice if you are comfortable accepting risks and are ready to ride out market changes.

Investors with a Diversified Investment Portfolio

Investing in mutual funds might help you diversify your portfolio. Mutual funds can help you diversify your risk and generate greater returns by investing in several assets.

Investors with a High-Risk Appetite

Mutual funds investing might be riskier but can also provide more significant returns than other investment alternatives. Mutual funds may be an excellent investment choice if you have a high-risk tolerance and are prepared to take on some risk in exchange for possibly more significant rewards.

Investors Interested in Professional Management

Professional fund managers are in charge of making investment choices on behalf of investors in mutual funds. Suppose you need more time or skills to handle your assets. In that case, mutual funds might be an intelligent alternative since they allow you to benefit from the experience of professional fund managers.

Investors Seeking Liquidity

Mutual funds are highly liquid, so you may readily purchase and sell mutual fund units. As a result, mutual funds are a fantastic investment alternative for people that need immediate access to their money.

Conclusion

In conclusion, mutual funds are an excellent investment option for those in India seeking to increase their wealth. While the best mutual funds to invest in India can vary based on individual investment objectives and risk tolerance, several mutual funds have performed well in the past. They are projected to do so in 2023. These consist of large-cap, mid-cap, and balanced funds. Before making any investment decisions, it is essential to undertake extensive research and consult with a financial advisor to ensure that the mutual fund selected aligns with one’s financial objectives and risk tolerance. Mutual fund investments can assist individuals in achieving their long-term financial goals through meticulous planning and informed decision-making.

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