Best Equity Funds: Where To Invest Smartly

Equity mutual funds are a great way to invest in the stock market without having to worry about diversifying your investments. They are funds that invest in the stocks of multiple companies on behalf of the investor, and because they often hold a hundred or more stocks, they make it easy for investors to instantly invest in a large pool of companies and begin the process of building real wealth.

There are many equity mutual funds to choose from, so here are some of the best-performing ones based on research from the fund's performance over a period of time:

- Axis Small Cap Fund - Direct Plan (BEST SMALL CAP FUND): This fund has a lower expense ratio compared to peers and has delivered above-average returns over a three- and five-year basis.

- Quant Mid Cap Fund - Direct Plan (BEST MID CAP FUND): This fund has a low expense ratio and has delivered above-average returns over a three- and five-year basis.

- SBI Large & Mid-cap Fund - Direct Plan (BEST LARGE & MID CAP FUND): This fund has a lower expense ratio compared to peers and has delivered better returns over a three- and five-year basis.

- Mirae Asset Tax Saver Fund - Direct Plan (BEST TAX SAVER FUND): This fund has a lower expense ratio compared to peers and has delivered above-average returns over a three- and five-year basis.

- Quant Active Fund - Direct Plan (BEST MULTI CAP FUND): This fund has a low expense ratio and has delivered above-average returns over a three- and five-year basis.

- PGIM India Flexi Cap Fund - Direct Plan (BEST FLEXI CAP FUND): This fund has the lowest expense ratio compared to peers and has delivered above-average returns over a three- and five-year basis.

- SBI Contra Fund – Direct Plan (BEST CONTRA FUND): This fund has a lower expense ratio compared to peers and has delivered above-average returns over a three- and five-year basis.

- Quant Infrastructure Fund - Direct Plan (BEST SECTORAL FUND): This fund has a lower expense ratio compared to peers and has delivered above-average returns over a three- and five-year basis.

When choosing an equity mutual fund, investors need to consider the cost they are willing to pay, the fund's performance over a considerable period of time, its risk-adjusted returns, and the volatility of the fund.

Actively managed vs. passively managed funds

Actively managed funds and passively managed funds are two primary categories of equity funds. Actively managed funds have portfolio managers who actively research, analyse and select stocks with the goal of outperforming a benchmark index, such as the S&P 500. They use their expertise and various strategies to decide whether to buy, hold, or sell stocks within the fund's portfolio. The success of an actively managed fund largely depends on the fund manager's skill and decision-making ability. Because of the more hands-on approach, actively managed funds typically charge higher fees than passive funds.

On the other hand, passively managed funds include index funds, which aim to replicate the performance of a specific market index. For example, an S&P 500 index fund seeks to mirror the returns of the S&P 500 by holding the same stocks in the same proportions as the index itself. Passive fund managers do not attempt to outperform the market; instead, they track the index as closely as possible. Because passive funds require less active management, they generally have lower fees and taxes than actively managed funds.

The choice between active and passive funds depends on your goals, risk tolerance, and investment philosophy. Some investors prefer the potential for outperformance offered by actively managed funds, while others want the lower costs and market-matching returns of passive funds. Some funds offer a mix of the two to balance risk and potential returns. Historically, passive funds have outperformed active funds, on average, after accounting for fees, transaction costs, and taxes.

Actively managed funds are best suited for investors who are willing to take on more risk and pay higher fees in exchange for the potential of higher returns. These funds are actively traded, meaning the fund manager actively buys and sells stocks within the fund's portfolio to try and outperform the market. This hands-on approach can lead to higher returns but also comes with higher fees and taxes.

Passively managed funds, on the other hand, are better suited for investors who want to keep costs low and are happy with market-matching returns. These funds are designed to replicate the performance of a specific market index, so they are less actively traded and have lower fees and taxes.

Overall, both types of funds have their advantages and disadvantages, and the best choice for an investor depends on their individual goals, risk tolerance, and investment philosophy.

Large-cap funds

ET Money:

• Nippon India Large Cap Fund
• ICICI Prudential Bluechip Fund
• Invesco India Largecap Fund
• Baroda BNP Paribas Large Cap Fund
• Edelweiss Large Cap Fund
• DSP Top 100 Equity Fund
• Bandhan Large Cap Fund
• Aditya Birla Sun Life Frontline Equity Fund
• Canara Robeco Bluechip Equity Fund
• Mahindra Manulife Large Cap Fund
• Franklin India Bluechip Fund
• Mirae Asset Large Cap Fund
• LIC MF Large Cap Fund
• PGIM India Large Cap Fund
• Bank of India Bluechip Fund
• Motilal Oswal Large Cap Fund
• Quant Large Cap Fund
• Sundaram Large Cap Fund
• WhiteOak Capital Large Cap Fund

Forbes:

• Fidelity ZERO Large Cap Index (FNILX)
• Vanguard Developed Markets Index Admiral (VTMGX)
• Fidelity U.S. Sustainability Index Fund (FITLX)
• Fidelity Large Cap Value Enhanced Index Fund (FLVEX)
• Vanguard Dividend Appreciation Index Admiral (VDADX)
• Vanguard 500 Index Fund Admiral (VFIAX)

Mid-cap funds

When considering mid-cap funds for your investment portfolio, it is essential to research and analyze the fund's prospectus, investment objectives, strategies, risks, and fees. Here are some highly-rated mid-cap funds to consider:

• Fidelity Mid Cap Index (FSMDX)
• IShares Core S&P Total US Stock Market ETF (ITOT)
• IShares S&P 500 Index (WFSPX)
• Schwab US Mid-Cap Index (SWMCX)
• Schwab Total Stock Market Index (SWTSX)
• Vanguard Mid-Cap ETF/Index (VO)
• Vanguard Mid-Cap Value ETF/Index (VOE)
• Motilal Oswal Midcap Fund
• Edelweiss Mid Cap Fund
• PGIM India Midcap Opportunities Fund
• Mahindra Manulife Mid Cap Fund

It is important to note that the performance of equity funds can fluctuate in the short term, and it is generally recommended to stay invested for at least five years. Additionally, when choosing an equity fund, consider your investment goals, risk tolerance, and time horizon to ensure alignment with the fund's investment strategy and management style.

Small-cap funds

When considering small-cap funds, it is important to evaluate the fund's strategy, such as whether it focuses on growth, value, or a blend of both. Additionally, investors should be mindful of the level of exposure to small-cap stocks in their portfolio, as these funds typically play a limited role in an investment portfolio due to their higher risk nature.

• Manning & Napier Rainier International Discovery Fund (RAIWX)
• Schwab Fundamental U.S. Small Company Index Fund (SFSNX)
• Vanguard Tax-Managed Small Cap Admiral Fund (VTMSX)
• Fidelity ZERO Extended Market Index Fund (FZIPX)
• Vanguard Russell 2000 Value Index Fund (VSIAX)
• Vanguard Small Cap Growth Index Fund (VSGAX)
• LSV Small Cap Value Institutional
• Wasatch Small Cap Growth Investor
• Vanguard Small Cap Growth Index Admiral
• Vanguard Small Cap Value Index Admiral
• Dimensional US Small Cap ETF
• Boston Trust Walden Small Cap BOSOX
• Brown Capital Management Small Company BCSIX
• Champlain Small Company CIPSX
• DFA US Micro Cap DFSCX
• DFA US Small Cap DFSTX
• Dimensional US Small Cap ETF DFAS
• LSV Small Cap Value LSVQX
• Nationwide Small Company Growth NWSAX
• Vanguard S&P Small-Cap 600 Value Index VSMVX
• Vanguard Small-Cap Growth Index VSGAX
• Vanguard Small-Cap Index VSCIX
• Vanguard Small-Cap Value Index VSIAX
• Vanguard Small-Cap ETF VB
• Vanguard Small-Cap Growth ETF VBK
• Vanguard Small-Cap Value ETF VBR
• Victory Sycamore Small Company VSORX
• Wasatch Core Growth WGROX
• Wasatch Small Cap Growth WAAEX
• Motilal Oswal Nifty Smallcap 250 Index Fund
• Aditya Birla Sun Life Nifty Smallcap 50 Index Fund
• Axis Nifty Smallcap 50 Index Fund
• Bandhan Nifty Smallcap 250 Index Fund
• DSP Nifty Smallcap250 Quality 50 Index Fund
• Edelweiss Nifty Smallcap 250 Index Fund
• HDFC NIFTY Smallcap 250 Index Fund
• ICICI Prudential Nifty Smallcap 250 Index Fund
• Kotak Nifty Smallcap 50 Index Fund
• Motilal Oswal Nifty Microcap 250 Index Fund
• Nippon India Nifty Smallcap 250 Index Fund
• SBI Nifty Smallcap 250 Index Fund
• Quantum Small Cap Fund
• Edelweiss Small Cap Fund
• Axis Small Cap Fund
• ICICI Prudential Smallcap Fund
• HDFC Small Cap Fund
• Sundaram Small Cap Fund
• Canara Robeco Small Cap Fund
• Bank of India Small Cap Fund
• Motilal Oswal Small Cap Fund
• JM Small Cap Fund
• Invesco India Smallcap Fund
• Bandhan Small Cap Fund
• Franklin India Smaller Companies Fund
• Kotak Small Cap Fund
• Nippon India Small Cap Fund
• PGIM India Small Cap Fund
• HSBC Small Cap Fund
• UTI Small Cap Fund
• DSP Small Cap Fund
• Quant Small Cap Fund
• SBI Small Cap Fund
• Tata Small Cap Fund
• Aditya Birla Sun Life Small Cap Fund
• Mahindra Manulife Small Cap Fund
• Baroda BNP Paribas Small Cap Fund
• ITI Small Cap Fund
• LIC MF Small Cap Fund
• Union Small Cap Fund

Growth funds vs. value funds

When it comes to equity funds, there are two main schools of investing: growth funds and value funds. Both have their own unique advantages and suit investors with different goals and risk tolerances.

Growth Funds

Growth funds focus on companies with strong growth potential that are expected to outperform the overall market over time. These companies are characterised by their ability to grow faster in terms of revenues, cash flows, and profits. As a result, they tend to reinvest their earnings back into the business to fuel further expansion. Growth stocks are typically more expensive, with high stock prices relative to their sales or profits, due to high expectations from investors. This also makes them riskier, as there is no guarantee that their growth plans will succeed, leading to potential losses for investors. Growth funds are therefore better suited for investors with a longer time horizon and a higher risk tolerance.

Value Funds

On the other hand, value funds seek out "diamonds in the rough", or companies that are currently undervalued by the market. These stocks are trading at a bargain, with share prices below what analysts believe they are truly worth. Value investors expect that, over time, the market will recognise the company's true value, and the stock price will rise accordingly. Value funds are typically less expensive and are considered safer investments since they often belong to larger, more established companies. They may also provide dividend payments, offering investors some returns even if the stock price doesn't appreciate as expected.

Blended Funds

It's worth noting that some funds blend growth and value strategies, pursuing a "growth at a reasonable price" (GARP) approach. These funds invest in growth companies but also maintain a keen awareness of traditional value indicators.

Both growth and value funds have their merits, and a prudent investor may consider diversifying their portfolio by including a mix of both. The decision to invest in either growth or value stocks depends on an investor's time horizon, risk tolerance, investment goals, and personal preference.

Frequently asked questions