Everybody wants you to invest in stocks and mutual funds, but nobody tells you where and how? Well, that is why we are here!
The saying goes, "Mutual funds were created to make investing easy, so consumers wouldn't have to be burdened with picking individual stocks." Isn't it true? You don't have to do the arduous research work; just pick an apt mutual fund, and you are good to go.
Well, you must have watched the ads pitching - "Mutual fund Sahi hai". But guys, 'Kya har mutual fund Sahi hai?' You already know the answer, right? Not every Mutual fund is meant for you. Every mutual fund has its own pros and cons. But we won't be talking about how to invest in a mutual fund as we have already covered that topic before. In this blog, we present the best mutual funds to invest in 2021.
At the outset, here's a quick snapshot of jargons that'll help you understand these recommendations better:
- Expense ratio is the fees you pay to the fund house to manage your portfolio. Exit load is what you may be required to pay in case you exit the scheme within a certain period from the date of investment. Needless to say, for both of them, the lower, the better.
- Asset Under Management (AUM) is the total assets and capital that the fund holds. We firmly believe that lower AUM enables the fund house to better manage the portfolio, and thus, all our recommendations have comparatively low AUM (as of 30th April).
- Also, all our fund recommendations are for Direct-Growth plans, as they give better returns than regular schemes.
Well, let's begin your ultimate guide to the best mutual funds of the year. To make it more interesting and reliable, these recommendations are brought to you by Pranjal Kamra. So, wait for what?
Top 5 Mutual Funds to invest in 2021
To begin with the "Large-cap" category, you will be astonished to know that in this segment, we are recommending an 'Index fund', and there is no active fund recommendation for this year. (Index funds track a particular benchmark index, whereas active funds try to beat the index.)
Why you ask? You see, 90% of the active funds either couldn't outperform index funds or did by a small margin this time around. So, it does not make sense to give that 1% extra fee that active funds charge, right? Thus, here is our recommendation for the Index fund.
HDFC Index Fund Sensex Plan Direct Growth
The only reason for choosing the Sensex plan instead of the Nifty plan is because Sensex has only 30 stocks in comparison to 50 stocks in Nifty that makes it more concentrated.
This fund currently has an AUM of Rs 2,060 crores. Krishan Daga is the current fund manager of the HDFC Index Sensex Direct plan growth fund. The SIP starts at Rs 500, and the minimum lump sum investment is Rs 5000. The fund has an expense ratio of 0.1%, which is quite low in comparison to its peers. Exit load for the fund is 0.25% for redemption within 3 days.
One of the most important factors that should be taken into consideration before investing in Index funds is the tracking error. Tracking error is the difference between the returns of the index fund and its benchmark index (here, Sensex). The lower the tracking ratio, the better the fund is. As on 31st March 2021, the fund had a comparatively low tracking error of 0.08%, and thus, it has managed to track the benchmark index quite well.
Moving on to funds that diversify across the market cap, here is our recommendation for the best Flexi cap fund of the year:
Parag Parikh Flexi Cap Fund Direct Growth
This fund has an AUM of Rs 9,179 Crores. The fund is managed by Raunak Onkar, Rajeev Thakkar and Raj Mehta. The minimum SIP is set to Rs 1000, and the minimum Lumpsum investment is kept at Rs 1000. The fund has an expense ratio of 0.95% and an exit load of 2% if redeemed under 365 days and 1 % if redeemed after 365 days but on and before 730 days.
Although the fund has the majority of its equity investment in the Indian market (65%), it also gives a taste of international diversification as up to 35% is invested in overseas equity and debt/money market securities. For eg, Alphabet Inc (Google Class C) accounts for around 8.9% of Net assets of the firm.
The fund has been a consistent performer beating the category average returns in the past, and its lower expense ratio just acts like an icing on the cake. The fund is less volatile than its peers as it has a beta of 0.57 vs a category average of 0.86.
Invesco India Contra Fund Direct Growth
Before moving to the details, what is this new complex term "Contra"?
Do you remember that kid in your school that always does something different than what everybody does? Well, "Contra fund" is that fund in the school of mutual funds. Thus, Contra funds do not follow the herd and are known for their 'against-the-wind' investing style. The contra fund manager bets against prevailing trends by buying assets that are either underperforming or depressed at that point in time. Why you ask? Simply, for better returns when the prices go north.
This fund has an AUM of Rs 6,438 Crores. Taher Badshah is the current fund manager. Minimum SIP is set to be Rs 500, whereas the minimum Lump Sum investment is Rs 1000. The fund has an expense ratio of 0.57%. As for exit load, for units in excess of 10% of the investment, 1% will be charged for redemption within 1 year.
The fund has consistently performed well and provided higher returns than the category average. The fund has one of the lowest expense ratios among the peers, making it quite attractive.
Well, let's now get to know the mid-cap, small-cap and tax-saving funds of the year. But, because the universe for the mid-cap stocks is so small, the scope for fund managers to show their skill is also reduced. Hence, we will be skipping this category this year.
Let's move to the next category, which is small-cap funds. The recommendation for the Small-cap fund of this year is :
Axis Small-Cap Fund Direct Growth
The fund has an AUM of Rs 4,854 Crores. Ashish Naik manages the fund. Minimum SIP is set to be Rs 500, whereas Minimum Lump Sum investment is Rs 5000. The fund has an expense ratio of 0.36 and an exit load of 1% for investment beyond 10% if redeemed within 12 months.
This fund has consistently impressed many investors over the years. The fund follows a bottom-top approach in which it aims to select promising small-cap stocks that have the potential to become big businesses.
The fund has a beta of 0.64 vs 0.67 of the category average. The expense ratio is among the lowest in the category, which means that an extra 0.5% is directly going into your pockets. The fund is best suited for investors looking to create wealth in the long term.
Now, we would be moving to the last category, which is Tax saving funds or An equity-linked savings scheme (ELSS) fund. Tax Saver funds are qualified for tax deductions under section 80C of the income tax act, and they invest more than 65% of the capital in equity or equity-related securities. This year the recommendation for Tax saving fund is none other than:
Mirae Asset Tax Saver Fund Direct Growth
The fund has an AUM of Rs 7,251 Crores. Neelesh Surana is the current fund manager. The minimum SIP amount is Rs 500, and also the minimum Lump Sum amount is set to Rs 500 only. There is no exit load in this fund.
Also, there is a lockin for three years in this fund, and the returns will be taxed @ 10%. However, under Section 80C of the Indian income tax act, investments of up to Rs 1.5 lakh in a financial year in this fund are exempt from tax.
The fund has a high Beta of 0.98 as compared to the category average of 0.85. But the fund applies a flexible investment strategy and has provided consistent returns over the years. The expense ratio is so less that it makes the fund very attractive. The fund has an expense ratio of just 0.35%! Being an ELSS fund, it serves the dual purpose of tax saving and long term wealth creation for investors.
"Mutual Fund investments are subject to market risks. read all scheme-related documents carefully."
- that's clearly the single best line that depicts the foremost risk in mutual fund investments.
But since you have clearly ignored that line, there is one crucial thing that you should know before investing in these mutual funds. These recommendations are made for generally everyone as we do not know the specific risk appetite of each individual and other factors.
So, please research these mutual funds, see if they match your portfolio expectations, and only then make the investment decision.
Remember: "Great things happen, little by little, SIP by SIP." Yes, literally, Systematic Investment Plans (SIPs) can help you truly reap the benefits of compounding. To know how much you should invest each month to attain your financial goals, here's the best SIP Calculator.