India's Best Investment Funds: Where To Invest?

India is an attractive prospect for investors, with its dynamic economy offering a wide range of investment options. From traditional investments like fixed deposits and gold to market-linked options like mutual funds and stocks, there is something for everyone depending on their risk appetite and financial goals. Index funds, for example, are a good passive way to invest in the stock market, mirroring the index returns of indices like NIFTY and Sensex. They are also free from the biases of fund managers as they are not actively managed. For those looking for long-term wealth creation, India offers a range of options, including mutual funds, SIPs, and stocks.

Mutual funds

Equity Mutual Funds

Equity mutual funds primarily invest in stocks or shares of companies. Here are some of the top-performing equity mutual funds in India:

• Wasatch Emerging India Fund®
• Eaton Vance Greater India Fund
• ALPS/Kotak India ESG Fund
• BNP Paribas Large Cap Fund
• JM Large Cap Fund
• Edelweiss Large Cap
• JM Flexi Cap Fund
• Canara Robeco Flexi Cap Fund
• DSP Flexi Cap Fund
• Invesco India Large & Mid Cap Fund
• LIC MF Large & Mid Cap Fund
• Invesco India Midcap
• Axis Mid Cap Fund
• Tata Mid Cap Growth

Index Funds

Index funds are passively managed mutual funds that aim to replicate the performance of a particular market index, such as the NIFTY 50 or Sensex. Here are some of the top-performing index funds in India:

• Aditya Birla Sun Life Nifty 50 Index Fund
• LIC MF Nifty Next 50 Index Fund
• ICICI Prudential Nifty 50 Index Fund
• UTI Nifty Next 50 Index Fund
• SBI Nifty Index Direct Plan

Hybrid Funds

Hybrid funds invest in a combination of equity and debt instruments, offering a mix of growth and stability. Here are some popular hybrid funds in India:

• Shriram Aggressive Hybrid Fund
• LIC MF Aggressive Hybrid Fund
• CR Equity Hybrid Fund
• LIC MF Conservative Hybrid Fund
• Invesco India Arbitrage Fund
• HSBC Arbitrage Fund

Debt Funds

Debt funds invest in fixed-income instruments such as government securities, corporate bonds, and money market instruments. Here are some examples of debt funds available in India:

• Tata Income Fund
• Nippon Income Fund
• Axis Strategic Bond Fund
• HDFC Medium Term Debt Fund
• SBI Magnum Medium Duration Fund

Index funds

• Aditya Birla Sun Life Nifty 50 Index Fund
• LIC MF Nifty Next 50 Index Fund
• ICICI Prudential Nifty 50 Index Fund
• UTI Nifty Next 50 Index Fund
• SBI Nifty Index Direct Plan
• Motilal Oswal Nifty Midcap 150 Index Fund
• Bandhan Nifty 50 Index Fund
• UTI Nifty 50 Index Fund
• ICICI Prudential Nifty 50 Index Fund
• SBI Nifty Index Fund
• HDFC Index Fund Nifty 50 Plan
• Nippon India Index Nifty 50
• DSP Nifty 50 Index Fund
• Tata Nifty 50 Index Fund

When choosing an index fund, it is important to consider factors such as the fund's expense ratio, tracking error, and investment horizon. Index funds are typically recommended for long-term investment horizons of at least five years to minimize the impact of market downturns.

Low-risk investments

When it comes to low-risk investments in India, there are several options to consider. Here are some of the most popular and secure choices:

Fixed Deposits (FDs)

Fixed deposits are a popular choice for risk-averse investors. They are considered one of the safest investment options as they are not dependent on market fluctuations. Both banks and Non-Banking Financial Companies (NBFCs) offer fixed deposits, but it's important to note that bank FDs generally offer lower interest rates. FDs provide guaranteed returns at a fixed rate, and investments in tax-saving FDs are eligible for tax deductions. It's important to be aware of lock-in periods and potential penalties for early withdrawal.

Public Provident Fund (PPF)

The Public Provident Fund is a government-backed investment scheme with a 15-year lock-in period. It is considered one of the safest options as it is backed by sovereign guarantees. PPF offers a higher rate of interest than regular savings accounts, and investors can choose to redeem the entire corpus or extend their investment upon maturity.

National Pension Scheme (NPS)

The National Pension Scheme is another government-backed retirement plan, managed by the Pension Fund Regulatory and Development Authority (PFRDA). The NPS is a combination of various investments, including liquid funds, fixed deposits, and corporate bonds. It provides tax deductions of up to Rs 2 lakh per year under the Income Tax Act, 1961. Investors can choose between auto and active portfolio management options.

Debt Mutual Funds

Debt mutual funds invest in fixed-income assets such as money markets, corporate and government bonds, and corporate debt securities. They are less risky than equity funds and are suitable for short to medium-term investment horizons. Debt funds allow investors to diversify their portfolios and benefit from compound interest.

Government Bonds and Securities

Government bonds and securities are ideal for those seeking long-term, risk-free investments. They are backed by the government and offer fixed returns. These investments are suitable for investors who want to avoid market-linked instruments.

National Savings Certificates (NSC)

National Savings Certificates are another government-backed investment option. They offer secure and fixed returns, compounded annually. NSCs have a lock-in period of 5 years, and investments up to INR 1,50,000 are eligible for tax deductions under section 80C.

When considering low-risk investments, it is important to assess your financial goals, risk tolerance, liquidity needs, and the prevailing interest rates. Diversification is also key to balancing risks and maximizing returns.

High-risk investments

High-risk mutual funds in India carry a greater probability of significant gains and substantial losses compared to other types of mutual funds. These funds typically invest in riskier assets with higher volatility and the potential for larger returns. Here are some key points about high-risk investments in India:

Types of High-Risk Funds

High-risk mutual funds come in various categories, including balanced advantage schemes, credit risk fund schemes, and equity hybrid fund schemes. These funds predominantly invest in stocks or bonds of developing or growing companies, with asset allocation tailored to the specific fund type.

Risk and Return

High-risk mutual funds entail substantial volatility, but the best-performing funds also offer sizeable returns, reflecting a favourable risk-reward ratio. While these funds can lead to substantial profits during favourable market conditions, investors should be aware of the potential for significant losses.

Suitability

High-risk funds are most suitable for investors with a strong risk appetite who are comfortable with exposing their portfolio to volatility in pursuit of higher earnings. These funds typically offer more significant returns over an extended time horizon, often ranging from 5 to 10 years or more. Therefore, investors with an aggressive yet patient investment approach may find these funds fitting.

Factors to Consider

When considering high-risk investments, it's essential to evaluate your investment goals, risk tolerance, time horizon, and the fund's performance, expense ratio, and diversification strategy. Understanding your comfort level with risk and your ability to withstand market volatility is crucial.

Taxation

The taxation of high-risk mutual funds depends on their holding periods and asset allocation. Short-term capital gains (held for less than a year) from equity funds are taxed at 20%, while long-term capital gains (held for over a year) above a certain threshold are taxed at a flat rate. Debt-based funds held for more than three years are also taxed, with gains treated as long-term capital gains.

Examples of High-Risk Funds

• HDFC Dynamic PE Ratio FoF Direct Growth
• ICICI Prudential Bharat Consumption Fund Direct Growth
• SBI Conservative Hybrid Fund Direct Growth
• Franklin India Dynamic Asset Allocation Fund of Funds Direct Growth
• Sundaram Equity Hybrid Fund Direct Growth
• Tata Balanced Advantage Fund Direct Growth
• ICICI Prudential Balanced Advantage Fund
• Sundaram Balanced Advantage Fund Direct Growth

Medium-risk investments

Capital Guarantee Plans

Capital Guarantee Plans are a type of investment that offers a guarantee that your initial investment will be returned, regardless of market performance. These plans invest part of your premium in low-risk funds for guaranteed fixed returns, while the rest is invested in market-linked funds for higher potential returns. They are customizable based on your risk appetite and financial goals, offering both financial security and growth opportunities.

National Pension Scheme (NPS)

The National Pension Scheme is a government-backed investment option that offers guaranteed pension benefits. The NPS fund invests in a mix of assets, including bonds, government securities, equity, and other market-linked investments. It provides tax benefits and has two types of accounts: Tier I (a long-term savings account without premature withdrawals) and Tier II (a flexible account with optional withdrawals).

Real Estate

Real estate in India has historically appreciated in value, making it a popular choice for long-term capital gains. It offers steady rental income and can be used for personal or commercial purposes. The Indian government provides various tax benefits for investing in real estate, such as deductions on interest paid on home loans and exemptions on capital gains tax from the sale of residential property.

Corporate Bonds

Corporate bonds are debt securities issued by corporations to raise capital. They provide a fixed income through regular interest payments and have various maturities and credit ratings to suit different investment needs. Investing in corporate bonds offers the opportunity to lend money to companies in exchange for steady returns, but it also carries the risk of default by the issuer.

Index Funds

Index funds are a type of passively managed mutual fund or exchange-traded fund (ETF) that aims to replicate the performance of a specific market index, such as the Nifty 50 or Sensex. They offer broad market exposure, diversification across multiple sectors, and lower fees compared to actively managed funds. These funds are suitable for long-term, passive investors seeking steady market returns with minimal fund manager bias.

Debt Mutual Funds

Debt mutual funds primarily invest in fixed-income securities like bonds, debentures, and government securities. They offer regular income with lower risk compared to equity funds, making them suitable for conservative investors who prioritize capital preservation and stable returns.

Balanced Mutual Funds

Balanced mutual funds invest in a mix of equities and fixed-income securities, aiming to balance growth and income. They are suitable for investors seeking a blend of growth potential and income stability, as they combine market exposure with stable returns from bonds.

Frequently asked questions