Finding the Best Mutual Funds for Investing INR 1 Lakh

Summary:

Investors who are just starting off their trading journey find mutual funds to be among the safest forms of investment. This blog explains how to choose the best mutual funds for investing INR 1 lakh.

Introduction to identifying mutual funds:

Investors who are just starting off their trading journey find mutual funds to be among the safest forms of investment. Finding the right fund manager is crucial. They take care of investing in shares, stocks and bonds on behalf of the investor and allot them based on the capital being used. A fund manager will find it easy to make these investment decisions when they know that the investor has already decided on investing 1 lakh in mutual funds.

Often, investors remain apprehensive about how much to invest and end up making a decision based on the risks and returns that a mutual fund that they have shortlisted has to offer. In a scenario where the capital is already decided and kept ready, the task becomes simpler. The following steps may then be handy for choosing the right mutual funds.

• Determine the investment objectives: The first step before choosing the mutual funds is to determine the objective of the investment. Is it to generate wealth, earn income or fund an expense? This will help determine the investment horizon.
• Assess risk tolerance: Understanding how much risk can be taken comfortably depends on factors such as age, financial standing and perceptions about market conditions and fluctuations. Risk tolerance helps determine the right allocation of assets.
• Diversify the portfolio: Diversification of the portfolio is the key strategy for managing risk. Investing in a mix of asset classes such as equity, debt, and other options helps to make the portfolio safe.
• Select mutual fund categories: In India, there are different types of mutual fund categories (equity funds, hybrid funds and debt funds) that investors can choose from. Choosing a category that aligns with the risk tolerance and investment objectives helps make adjustments later and increase the potential earnings.
• Assess track record of the fund manager: The fund manager's track record and experience will indicate they have the expertise to deliver results.
• Analyse past performance: Even though past performance does not guarantee returns in the future, it does provide context and insights into how it performed in different market conditions. Comparing the fund's performance to relevant benchmarks helps with determining its stability.
• Check expense ratios: Lower expense ratios imply that more of the investment returns can be cashed in. Fund managers usually offer competitive expense ratios that appeal to those looking for the best mutual funds for investing.
• Review fund size: It isn't necessary that the entire INR 1 lakh has to be invested in one category or fund. There are tax implications when income is earned. Also, very small or very large funds have their limitations. Moderate-sized funds provide better flexibility. Regular reviews and rebalancing of the portfolio ensure the financial goals are achieved and risks are minimised.

Top five mutual funds for investing INR 1 lakh:

1. Axis Small Cap Fund Direct Growth: CEO Chandresh Nigam heads Axis Mutual Fund, which was launched in 2009. Axis Bank Limited is among its sponsors. Schroder Singapore Holdings Private Limited is the holding company under which it operates as a large-cap fund.
2. Nippon India Small Cap Fund: This is a small-cap fund that had a five-year CAGR of 25.47% (as of October 31, 2023). The goal of the fund is to generate capital appreciation in the long run, making it ideal for investors looking to put INR 1 lakh in mutual funds.
3. SBI-Focused Equity Fund: This fund is popular among investors because its goal is capital appreciation in the long run and its three-year annualised return has been 20.69%. Given its standing in the Indian market, it is one of the most reliable funds for an investment like this.
4. Mirae Asset Emerging Bluechip Fund: Through investments in equity and its related securities, the goal of this fund is capital appreciation and income generation through a diversified portfolio. It is ideal for those looking to invest INR 1 lakh and get returns.
5. SBI Small Cap Fund Growth: Long-term capital growth is the goal of this fund which was launched on January 1, 2013. It is a small-cap fund and has provided a three-year annualised return of 31.62%.

Summing up

It is important to note that mutual fund investments involve risk and there aren't guarantees of returns. When looking for the best mutual funds for investing INR 1 lakh, having a long-term approach works for generating income. Also, it is necessary that an investment of as much as INR 1 lakh needs to be planned and implemented with caution so that the risks are minimised. Consulting with a financial advisor who can provide personalised guidance based would make it easier to choose the right mutual funds. It is imperative to regularly monitor and review the position and make adjustments to the portfolio when things do not align with the goals. Through diversification, the portfolio can be made resistant to shocks that may arise from fluctuations in any specific sector or industry.