The Governor of RBI, Shaktikanta Das, recently said: “India will be among the fastest growing economies in the world in 2023.”
The National Statistical Office (NSO) recently released preliminary estimates that showed real GDP growth of 7.2% for 2022–2023, which was higher than the projected 7%. This has been reflected in the stock market as it is continuously growing and making new lifetime highs.
The Indian stock markets have experienced significant growth, driven by an upsurge in domestic liquidity and funds. The Association of Mutual Funds in India (AMFI) has reported a consistent influx of funds from domestic savers into the mutual funds industry, primarily through Systematic Investment Plans (SIPs), thereby enhancing market liquidity. Notably, in FY 16-17, the total inflow through SIPs amounted to 43,921 Crores, which has substantially risen to 1,55,972 Crores in FY 22-23.
Foreign Portfolio Investors, a.k.a. FPIs have also been pouring money into the markets like never before. As of now, this calendar year of 2023, they have invested close to INR 11,000 Crs in equity and a total of more than 1.25 lakhs Crs, including equity, debts and other investments.
Currently, India is a $3 trillion economy, and the target is to transform into a magnificent $5 trillion economy shortly. And guess what? The stock market is the gateway to being a part of this remarkable growth! But navigating the twists and turns of the stock market can be as tricky as untangling a plateful of spaghetti. Let’s face it; not everyone is a stock market whiz, right? But do not worry! There are alternative ways to ride the economic milestone.
Yes, you guessed it correctly. That is investing in Mutual Funds.
Why invest in mutual funds?
Investing in mutual funds is the best way to become a part of this economic growth and ride the boom of the Indian stock market. Not everyone is prudent in stock investing, and picking up good stocks is not a cup of tea for everyone! Hence investing in equity mutual funds is the best way to invest indirectly in the stock market.
However, investing in mutual funds can be done majorly through a lump-sum investment or SIP, which is a systematic investment plan. If you plan to invest small sums regularly, then SIPs are the best way to make investments.
Here are four major advantages of mutual funds investments through SIPs:
Rupee Cost Averaging: SIPs let you buy more units of a fund when prices are low and fewer units when prices are high, reducing the impact of market volatility.
Disciplined Approach: SIPs promote regular investing, helping develop a habit and eliminating the need for market timing decisions.
Flexibility and Affordability: SIPs allow small investments to start and increase gradually over time, making them accessible for individuals with limited capital.
Power of Compounding: Regular investments through SIPs harness the compounding effect, leading to exponential growth of investments over time.
Sounds amazing. But the question is, which mutual fund is best for SIPs?
There are over 40+ (AMCs) Asset Management Companies in India, with thousands of mutual funds schemes of different categories. It is extremely challenging to pick just 4-5 best mutual funds for your portfolio.
To find out the list of AMCs in India and the different types of mutual funds offered by the AMCs, you can check out the list of AMCs under the Mutual Fund Section in StockEdge.
But more than identifying the top mutual funds to invest in, it is important to understand the different classes or types of mutual funds.
Please note that when allocating your mutual fund investments, it’s important to consider your risk profile. While equity-based mutual funds carry overall risk, large-cap funds investing in shares of top corporations are comparatively less risky than small-cap funds that invest in shares of smaller growing companies, which come with a higher risk of business failure or bankruptcy.
However, greater risk often accompanies higher returns, as small companies have the potential to grow faster than big corporations. Therefore, your risk appetite should guide your allocation of mutual funds across different categories.
In simpler terms, your investment choices should align with your comfort level for taking risks.
Other than this, there are different categories of equity mutual funds like Equity Linked Savings Schemes (ELSS mutual fund), Index Funds, Focused Funds, Contra Funds, Sector Funds, Thematic Funds, and Value Funds.
Best 5 Mutual Funds
Now, let’s check out the list of mutual funds which we have selected for you to start your SIP.
ICICI Pru Focused Equity Fund– This is an open-ended equity fund investing in maximum 30 stocks across market capitalisation. It majorly focuses on Long term wealth creation. This scheme is a blend of value and growth style of investment and follows a bottom-up approach for identifying stocks. It remains overweight in sectors that are expected to outperform in the current economic cycle.
Kotak Emerging Equity Fund– This is an open-ended equity fund investing predominantly in mid cap companies that are at their nascent or developing stage and are under-researched. The aim of this fund is to generate long-term capital appreciation, however, it may remain volatile in the short term, mid cap stocks have more potential to deliver higher growth in the long term.
HDFC Small Cap Fund– This is an open-ended equity fund predominantly investing in small cap companies. The scheme invests 65% of total assets in Small Caps stocks, whereas the rest 35% invest in Large and Mid Cap stocks. It focuses on quality small cap companies, with sound financial strength and reasonable return on equity.
SBI Equity Hybrid Fund– This is an open-ended scheme investing in a mix of equity and debt instruments to provide a balanced risk-return approach to investors. However, the scheme majorly invests in equity with an exposure of 75% and 25% in debt instruments, offering a balance of growth and stability of return.
UTI Nifty 50 Index Fund– This is an open-ended index fund that aims to mimic the performance of the Nifty 50 Index, with a possibility of some tracking error. Investing in these funds can assist in surpassing long-term inflation and achieving substantial returns. They are well-suited for individuals with investment goals spanning 10-15 years or even longer (with a minimum investment horizon of five years).
Hope investing in the list of all these schemes through SIP may generate alpha for your mutual fund portfolio. However, if that’s not enough, we have a bonus for you! Allocate a small portion of your fund in Gold in the form of a Gold Index Fund or (Gold ETFs), as Gold may act as a hedge for your equity-based mutual fund portfolio in tough times. You can check out our MF Investment Themes- Reap the benefits of Gold to find a suitable fund to invest in Gold. We also have a list of other Mutual Fund Investment Themes, which you may check out!
We believe there is potential in the above mutual funds’ schemes for long-term financial goals. Investing in these funds with a time horizon of five to seven years can be beneficial. Nevertheless, it’s important to note that these schemes do carry risks and may experience fluctuations. Therefore, fund allocation in these schemes should align with your risk profile and you must consult your advisor before investing.
You can also watch this video by Mr. Vivek Bajaj on how you can maximize your wealth by investing in mutual funds!
The Bottom Line
As individuals in India, it’s unlikely that we remember every advertisement we’ve seen. However, one phrase has been etched in our memories: “Mutual funds are subject to market risk, please read the offer document carefully before investing!” These words, spoken rapidly at the end of every mutual fund advertisement, hold true importance. Just like the advertisers, we also emphasize the significance of understanding the market risk and thoroughly reviewing the offer document before making any investment decisions.