Which are the best mutual funds for long term wealth creation?
Mutual funds are perhaps one of the less likely choices that a person makes when it comes to investing their money. In India, mutual fund schemes have always been in the backseat when it comes to investment tools.
However, times are changing. With some of the best mutual funds to invest in India, people have finally started gaining interest in the various mutual fund schemes available in the market.
So without further ado, let us learn some more about mutual funds and the best ones to invest in.
What are mutual funds?
The United Trust of India (UTI) launched by the Government of India, was the first mutual fund in India. It was launched in 1963 and ever since then there are a number of other banks that have ventured into mutual funds.
Mutual funds gather investment from you and in turn invest them into various investment schemes like shares, bonds, funds, securities etc. the resulting profit, loss, risks, gains etc, that are gathered from these schemes are distributed among the contributors to the mutual funds.
Mutual funds are excellent investment schemes for people who want to minimise potential risks to their investment while ensuring maximum return on investment. The entire process of investing in mutual funds is handled professionally with people being given the option to choose where they want to invest their money.
That is why, if you can choose the best mutual funds to invest in India, you can ensure maximum benefits in return of your investment.
How do you choose which mutual funds to invest in?
If you want to know the best mutual fund to invest in India, you need to know about your objectives first. There are 5 categories the mutual funds can be divided in according to the objectives of investors. These are:
- Maximum growth funds:
As the name suggests, these mutual funds help investors to maximize their return of investment in an extremely rapid manner. Even though the risks associated with these mutual funds are also extremely high, they are beneficial for people looking to make huge profits in a short period of time. However, since the risks with these mutual funds are quite high, investors should be really careful while choosing one as the value of these funds can deteriorate rapidly if the market conditions become unfavourable.
- Growth funds:
These are relatively safer options when it comes to investing in mutual funds. These funds are well structured and invest in large, medium and small business entities that can be profitable for long term wealth creation. The investors can safely put their money into these mutual funds owing to the meticulous process of researching the growth of every company before the funds are allotted to them.
- Money market funds:
Money market funds are short term mutual fund investments that offer a much higher return compared to other short term mutual funds. These mutual funds offer a high return because they invest only in government deposits, certificate of deposits and other instruments which are highly liquid.
- Balanced funds:
These are medium-risk funds which enable investors to have a regular source of income. They also enable investors to periodically increase the return to their investment amount. Thus they act as the perfect combination of funds that enable both income and growth.
- Income funds:
These mutual funds capitalise on fixed income securities like debentures, fixed deposits etc. Thus the income funds enable investors to receive a fixed income periodically from the mutual funds. These mutual funds are quite safe when it comes to investment because they are unaffected except for changes in general market stability.
Benefits of investing in mutual funds:
There are several benefits that come with investing in mutual funds. If you find the best mutual funds to invest in India you can avail the following advantages:
- They are quite affordable as mutual funds allow investors to invest as low as Rs. 500 while most other schemes demand a higher investment.
- Since investments from mutual funds are allocated across a wide range of investment schemes, the risk associated with them is also spread out.
- The investment schemes are selected by professional people well equipped to handle the task. Therefore, you make an informed decision about where you are putting your money with them.
- You are informed about every step regarding where your money is going. Thus mutual funds offer a level of transparency.
- Mutual funds like ELSS also offer you tax benefits.
Thus there are numerous benefits that come with investing in mutual funds.
Which are the mutual funds that can help you with long term wealth creation?
When it comes to long term wealth creation, the best mutual funds to invest in India are equity funds. Even though the equity funds can also be high-risk funds, they provide the maximum return of investment. These funds invest in the shares of various public and private limited companies.
These are the best mutual funds to invest in India because research shows that they provide an average return of 11% to 22% annually.
Listed below are some of the best mutual funds to invest in India according to the risk factors they come with:
- Low-risk options:
These are the low-risk options but have high returns in the long term nonetheless. Some of the mutual funds are Kotak Emerging Equity Scheme, the HDFC small-cap fund, SBI Bluechip Fund and the SBI Magnum Multicap Fund. You can get a return of up to 17.50% from these funds in 10 years time.
- Medium risk options:
Some of the best mutual funds to invest in India which come with moderate risk are SBI Smallcap Fund, ICICI Prudential Bluechip Fund, L&T Midcap Fund and Mirae Asset India Equity Fund. These funds can offer a return of up to 18.37% in 10 years time and come with medium market risks.
- High-Risk Funds:
These mutual funds offer the maximum benefits even though they come with the highest risks. Some of the best mutual funds to invest in India that come with high risks include the Reliance Smallcap Fund, Reliance Large-cap Fund, DSP Midcap Fund, Reliance Multicap Fund. The Reliance Smallcap Fund can even provide a return of up to 37.03% in 5 years time. Thus, these are excellent schemes to invest in for wealth creation.
Thus, investing in any of the above mutual funds can help you to maximise your wealth creation in the long run.