What are the top mutual funds that can give me the maximum returns? Most new mutual fund investors ask this question while starting their investment journey. Then what is the answer? Well, the answer is little complicated. For people who have no knowledge about how mutual funds operate but just want to invest money to get good returns might fall into a big trap. Because whenever you search “Top mutual funds”, all you see are advertisements and everything that can confuse you even more. Any search that begins with the term ‘best’ or ‘Top’ is unlikely to provide the greatest results. Always select a strategy that is appropriate for your investing aim, time horizon, and risk profile. You should always seek the advice of a mutual fund adviser if you don’t grasp the fundamental principles or are completely new to mutual funds and investing.
Before deciding where to invest, first you should determine why to invest here and not somewhere else.
Let’s just know about Mutual funds first.
Mutual funds are one of the most popular and safer options that can give good returns, (keeping a probability of always losing money in mind) it is a more suitable option for people who cannot find a right investment option for themselves. Mutual funds is a type of financial asset that is made up of collecting funds from investors to invest in stocks, bonds and other money making financial instruments. They are operated by money managers who have a good knowledge of market. Each shareholder participates in the gains and losses of the fund.
You can either opt for
EQUITY MUTUAL FUNDS – Here the manager invests your money majorly in equities. The returns are largely dependent on manager’s ability to generate profits/returns
DEBT MUTUAL FUNDS – where the funds are directly invested in fixed interest generating securities like government bonds, treasury bills, commercial paper and many more. They are low risk and low to medium return investment options.
HYBRID MUTUAL FUNDS – Hybrid funds are commonly known as asset allocation funds. They offer investors a diversified portfolio. The term hybrid indicates that the fund strategy includes investment in multiple asset. The fund uses a mixed management approach here. These funds offer investors an option for investing in multiple asset classes through a single fund.
If the equity exposure of a mutual fund exceeds 65%, then it is classified under equity funds. If not, then it goes under debt funds. A hybrid mutual fund will diversify for portfolio and invests in both equity and debt securities.
However, mutual investments are not risk free and won’t guarantee you returns and hence you should read the related risks before investing.
TAX ON MUTUAL FUNDS
All dividends from mutual funds are applied to your overall earnings and taxed according to your tax bracket. Capital gains on the sale of mutual fund units are taxed at different rates depending on the mutual fund and the holding term. Here are the ways in which different funds are taxed
- EQUITY FUNDS – Short-term capital gains are realised when you sell your equity fund units within a year after acquisition. Regardless of your income tax bracket, these profits are taxed at a flat rate of 15%. When you redeem your equity fund units after a one-year holding period, you realise long-term financial gains. Long-term capital gains (LTCG) of up to Rs 1 lakh per year are no longer subject to taxation. Any LTCG earned in excess of Rs 1 lakh per year is taxed at a fixed rate of 10%, with no indexation advantage.
- DEBT FUNDS – Short-term capital gains are gains realised on selling debt fund units during a three-year holding period. These profits are added to your total income and taxed according to your tax bracket. When you sell your debt fund units after a three-year holding period, you earn long-term capital gains. After indexation, these profits are taxed at a flat rate of 20%.
- HYBRID FUNDS – Gains realised on the sale of balanced fund units are taxed at a different rate depending on their equity exposure. If a balanced fund’s equity exposure is greater than 65 percent, it is taxed as an equity fund. If not, the provisions for debt fund taxes apply. As a result, while investing in a hybrid fund, you must be aware of its equity exposure.
BEST MUTUAL FUNDS FOR INVESTMENT
- Quant Tax Plan
2. Quant Equity Plan
3. PGIM India Midcap Opportunities fund
4. Mirae Asset Large Cap Fund
5. Axis Long Term Equity Fund
6. BOI AXA Tax Advantage Fund
7. Parag Parikh Long Term Equity Fund
Risks involved with Equity Funds
- Risk of Volatility
Equity-based funds often invest in the stock of firms that are publicly traded on stock exchanges. The value of such funds is determined by the performance of enterprises, which is frequently influenced by microeconomic issues.
Changes in government directions, SEBI laws, the economic cycle, RBI policies, and so on are examples of such influences. These elements, in particular, have an impact on the stock price and can either boost or reduce the value of the stock.
2. Risk of Liquidity
Liquidity risk is common in mutual funds with a long-term and rigorous lock-in period, such as ELSS. Investors sometimes find it difficult to redeem their assets without incurring a loss when they face such a risk. For example, ELSS has a strict lock-in period during which investors are unable to do anything with their money. Furthermore, a dearth of purchasers in the market makes it difficult for investors to redeem assets at a time that is convenient for them.
- L&T Overnight Fund Direct – Growth/ IDCW daily/ IDCW monthly
- UTI Overnight Fund Direct – Growth
- IDFC Government Securities Fund – Constant Maturity Plan – Growth Direct
- IDFC Government Securities Fund – Investment Plan – Growth Direct
Risks Involved With Debt Funds
The following are the dangers associated with debt funds:
- Risk of Credit
This is the risk that the debt security’s issuer will not honour his promise to restore the principle and pay regular interest when the debt security matures.
2. Risk of Interest Rates
This refers to the likelihood of interest rate adjustments in the fund plan’s underlying securities.
3. Risk of Liquidity
This is the potential that the mutual fund house may not have enough liquidity to meet redemption demands.