Mutual Funds in India – A Comprehensive Guide for 2019

The market for mutual funds in India is still booming. No doubt we have come a far way from where it all began. But mutual fund companies are giving investors so many options, that it is very overwhelming for beginners.

So, let’s narrow down the mutual fund options, and get started right away!

Here’s what I’ll be simplifying for you in this article:

Why start investing in Mutual Funds? And is investing in Mutual Funds worth it?

This is the first question you’ll need to answer to yourself before we can begin with narrowing down the best mutual funds in India for you.

There are a lot of reasons people think of going the mutual fund route to begin with. Your reasons can vary from most of the people, and still be valid.

If you’re new to the world of savings, investments and everything related to money, the safest route is going to be fixed deposits, and your bank savings.

They don’t have the risk of market falls and you get to know exactly what amount you’ll be getting at the end of your investment time frame.

Mutual funds on the other hand are portfolios of stocks, bonds or any other type of assets that someone who is an expert in the field takes care of for you.

You hand over your money to someone to manage.

Which in one way, is a great thing.

You’re new and know nothing. Or you do it part time so can’t spend too much time researching. It’s better to let someone whose day job is to work in the markets, manage your money.

So to answer the first question, “why do you want to start investing?”, it’s better if you ask that to yourself.

But the answer to the second question “Is investing in mutual funds worth it?”.

The answer is a BIG YES!

Just one catch! (No!! Please no catches!) You have to select the right portfolio. Wrong portfolios will just waste your time and money (like one of my stupid decision to buy units of “Reliance Tax Saver” fund)

But how do you select the right portfolio, the right mutual fund for yourself?

Remember, it is VERY EASY to do all of this. So let’s dive into it!

Easy and Quick Overview of How Mutual Funds Work in India

Mutual funds are very simple.

Here’s how mutual funds work not just in India but globally. Let’s take an example of 11 people.

  • Out of these 11 people, one is an expert in the stock markets. Let’s call her Anjali. She knows how to trade, and she makes a lot of money in the markets.
  • The remaining 10 people, work at a regular job. But they’re really interested in Anjali’s money making techniques.
  • Those 10 people decide to ask her about her techniques.
  • Now Anjali sees an opportunity. Being a very money minded woman, she says, “Well, I can’t really teach you how to trade as it comes with experience. But I can trade for you and take a small fee for the same every year”
  • This “small fee” in technical terms is called “expense ratio“. And want that to be as low as possible. 1% or lower is much better. We’ll go into the details soon.
  • Now everyone is happy with her idea. They agree on a 1% fee and give her a lump sum amount.
  • She begins using their money to buy and sell stocks, and starts generating returns
  • At the end of the year, she returns them their entire money, along with the returns generated over the year and deducts the 1% fee out of the entire amount.

With mutual funds, the number of people who invest are big!

Thousands of people pool in their money and give it to mutual fund companies like Franklin Templeton, HDFC, SBI, etc.

The amount of money collected by the mutual fund companies, is called “assets under management” or “AUM” for short.

Now there are two major variants of mutual funds. Direct mutual funds, and Regular mutual funds. Let’s understand these better.

Direct Mutual Funds vs Regular Mutual Funds in India

The only difference between a “Direct mutual fund” and a “Regular mutual fund” is the expense ration.

We already know what “expense ratio” is for mutual funds as explained in the previous section.

Let’s try to understand why there’s a difference in the expense ratio, and which mutual fund type is better.

We’ll continue on with Anjali’s example from before.

  • The 10 people who gave Anjali their money, are the only people who know her skills. And Anjali doesn’t really want to spend time in promoting herself
  • Those 10 people invested “Directly” with Anjali
  • One of those 10 investors has a lot of connections and a lot of friends too
  • He decides to promote Anjali’s skills and ask his friends to invest through him
  • Since his friends trust him more than Anjali, they agree to give him their money
  • He quotes a 1.5% expense ratio 0.5% more than what Anjali charges
  • The 0.5% is his cut for informing them about Anjali and offering them the convenience of investing right from their homes

Most people (financial advisors or bankers) or companies (brokers) who allow you to invest in mutual funds through them, or suggest you mutual funds, offer you Regular Mutual Funds.

In this case, you’re purchasing the mutual funds from someone who will add a certain percentage decided with the mutual fund company as his commission.

If you compare that with a Direct Mutual Fund, the expense ratio will be lower because the mutual fund company does not have to pay a commission to any middle man.

So which mutual fund type is better?

The answer is very obvious. Direct mutual funds.

Whenever you’re selecting a mutual fund for yourself, make sure it says “Direct” either at the end or somewhere in between.

If it doesn’t, it most likely is a “Regular” mutual fund, and you want to avoid investing in it.

What investment type will suit you based on the type of investor you are?

If you’ve made up your mind to go for mutual funds, that’s great!

I’m sure you now have a much better understanding of what are mutual funds in India, and how they work.

Our next PRACTICAL step is to figure out what type of investor you are.

  1. Are you very conservative? You prefer safe investments with lower returns.
  2. Or are you the aggressive type? You don’t mind losing some money if the potential of profits and returns is higher.

If you’re a conservative investor, you should focus more on money market securities like bonds, fixed deposits, liquid funds, debt funds etc.

If you are an aggressive investor and are fine with some risk in return of higher investment returns, focus more on equity but make sure you have a longer time horizon. Equity investments usually take 3 years to show you the big money!

Once you know your preference, it’s time to decide the time horizon for your investments.

Ask yourself the below questions to make things simple for you:

  • Are you looking for short term investments (less than 1 year or little more than that but nothing beyond 2 years) that would get you higher interest than your bank account?
  • Do you need to generate consistent monthly/quarterly/annual returns on your investments? This could be in the form of interest or dividends being paid by the mutual fund company
  • Are you saving for a goal 5+ years away from now, and are very unlikely to need the money for any immediate needs?

The basic logic is, shorter term investments would focus more on bonds or money market securities like fixed deposits.

Longer term investments will have more equity and less money market securities

Take a moment, and figure out which point suits your “idea” for investing right at this moment

Once you figure out, click on one of the links below. Each link is a subtopic that is divided for based on type horizon and investor type. So you get exactly what you need! 🙂

I’ve selected the funds based on 3 things:

  1. Expense Ratio (As low as we can possibly find)
  2. Annualized 1, 3, and 5yr returns
  3. Allocation of Equity:Debt/Money Market (Based on investor type)

Short Term

Medium Term

Long Term

Short Term Investments

Conservative/Aggressive investors

HDFC Short Term Debt Fund – Direct Growth

For the short term conservative investor, the HDFC Short term Debt Fund with the Direct Growth plan is the best in terms of our above 3 criteria.

  1. Expense ratio: 0.24%
  2. Annualized 1yr return: 9.1%
  3. Annualized 3yr return: 7.8%
  4. Annualized 5yr return: 8.4%
  5. Allocation: Debt and Fixed income securities. No Equity

Medium Term Investments

Conservative Investors

SBI Magnum Medium Duration Fund – Direct Growth

For conservative investors with a medium investment timeframe of 3-6 years, the SBI Magnum Medium Duration Fund is great.

The allocation is completely based on high yield bonds and debt which are safer than equity.

  1. Expense ratio: 0.74%
  2. Annualized 1yr return: 10.32%
  3. Annualized 3yr return: 9.87%
  4. Annualized 5yr return: 10%
  5. Allocation: Debt and Fixed income securities. No Equity

Aggressive Investors

Mirae Asset Hybrid – Equity – Direct Plan – Growth

Hybrid funds are best for aggressive investors to generate an above average returns while still keeping your capital relatively safe.

The Mirae Asset Hybrid – Equity fund is relatively new but is a consistent performer for the last 3 years. Make sure you go for the Direct Plan to save 2% on the expense ratio.

  1. Expense ratio: 0.34%
  2. Annualized 1yr return: 12.26%
  3. Annualized 3yr return: 15.63%
  4. Annualized 5yr return: N/A%
  5. Allocation: 72% in equity and 28% in debt and other fixed interest securities. This fund focuses more on Large company stocks (large cap companies) for more stable returns

Long Term Investments

Conservative Investors

Axis Blue Chip Fund – Direct Plan – Growth

For longer term (6-10) year investments, a conservative investor should focus on mutual funds that invest primarily in “Bluechip” stocks or large companies.

The Axis Blue Chip Fund invests 86% of its assets in large stocks

  1. Expense ratio: 0.76%
  2. Annualized 1yr return: 11.76%
  3. Annualized 3yr return: 16.78%
  4. Annualized 5yr return: 13.13%
  5. Allocation: 86% in large cap stocks

Aggressive Investors

Mirae Asset Emerging Bluechip Fund – Direct Plan – Growth

As an aggressive investor, your focus should be on maximizing your returns over the longer period and Midcap companies offer higher returns if they’re allowed to mature after your purchase.

The Mirae Asset Emerging Bluechip Fund focuses on midcap companies that could become bluechip in the future.

  1. Expense ratio: 0.8%
  2. Annualized 1yr return: 11.03%
  3. Annualized 3yr return: 19.37%
  4. Annualized 5yr return: 21.7%
  5. Allocation: 50% Large Cap – 35% Mid Cap – 13% Small Cap


I hope you have a much better understanding of mutual funds in India now and will be able to make better decisions with your investments.

I’ll continue to post analysis and research, to make the vast world of finance easier to understand

The above post was long but I’m sure you’ve gained value out of it!

I’ve tried to make it as simple as possible for you so if you do love this post, please share it with anyone who might find it useful.

If you’d like to take the stress out of finance by automating most of your tasks, I’d suggest you to read my previous blogs personal finance automation listed below for convenience:

  1. Grow your bank account automatically
  2. Save money while paying bills
  3. How to save money automatically

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