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If you plan to invest to meet a long-term need and can handle a fair amount of risk and volatility, a long-term capital appreciation fund may be a good choice. These funds typically hold a high percentage of their assets in common stocks and are, therefore, considered to be risky in nature.
Given the higher level of risk, they offer the potential for greater returns over time. The time frame for holding this type of mutual fund should be five years or more. Growth and capital appreciation funds generally do not pay any dividends. If you need current income from your portfolio, then an income fund may be a better choice. These funds usually buy bonds and other debt instruments that pay interest regularly. Government bonds and corporate debt are two of the more common holdings in an income fund.
Bond funds often narrow their scope in terms of the category of bonds they hold. Funds may also differentiate themselves by time horizons, such as short, medium, or long term. These funds often have significantly less volatility, depending on the type of bonds in the portfolio. Bond funds often have a low or negative correlation with the stock market. You can, therefore, use them to diversify the holdings in your stock portfolio. However, bond funds carry risk despite their lower volatility.
These include:. However, you may want to include bond funds for at least a portion of your portfolio for diversification purposes, even with these risks. Of course, there are times when an investor has a long-term need but is unwilling or unable to assume the substantial risk.
A balanced fund , which invests in both stocks and bonds, could be the best alternative in this case. Mutual fund companies make money by charging fees to the investor.
It is essential to understand the different types of charges associated with an investment before you make a purchase. Some funds charge a sales fee known as a load. It will either be charged at the time of purchase or upon the sale of the investment.
A front-end load fee is paid out of the initial investment when you buy shares in the fund, while a back-end load fee is charged when you sell your shares in the fund. The back-end load typically applies if the shares are sold before a set time, usually five to ten years from purchase.
This charge is intended to deter investors from buying and selling too often. The fee is the highest for the first year you hold the shares, then dwindles the longer you keep them. Front-end loaded shares are identified as Class A shares, while back-end loaded shares are called Class B shares.
Depending on the mutual fund, the fees may go to the broker who sells the mutual fund or to the fund itself, which may result in lower administration fees later on. There is also a third type of fee, called a level-load fee. The level load is an annual charge amount deducted from assets in the fund.
Class C shares carry this sort of charge. No-load funds do not charge a load fee. However, the other charges in a no-load fund, such as the management expense ratio , may be very high. Other funds charge 12b-1 fees , which are baked into the share price and are used by the fund for promotions, sales, and other activities related to the distribution of fund shares. These fees come off the reported share price at a predetermined point in time. As a result, investors may not be aware of the fee at all.
The 12b-1 fees can be, by law, as much as 0. It's necessary to look at the management expense ratio, which can help clear up any confusion relating to sales charges. The expense ratio is simply the total percentage of fund assets that are being charged to cover fund expenses. The higher the ratio, the lower the investor's return will be at the end of the year. Determine if you want an actively or passively managed mutual fund.
Actively managed funds have portfolio managers who make decisions regarding which securities and assets to include in the fund. Managers do a great deal of research on assets and consider sectors, company fundamentals, economic trends, and macroeconomic factors when making investment decisions. Active funds seek to outperform a benchmark index, depending on the type of fund. Log In Sign Up. Start investing now or. Download link sent. Search Articles. What are Best Mutual Funds? The table below shows the best equity funds: Mutual fund 5 Yr.
Returns 3 Yr. Returns Min. Investment Rating. The table below shows the best debt funds: Mutual fund 5 Yr. The table below shows the best hybrid funds: Mutual fund 5 Yr.
Check the financial ratios It is important to assess the financial ratios such as alpha and beta before deciding if a fund under consideration is a top-performing one in its category. Check the expense ratio Expense ratio is a very crucial factor that must be analysed when choosing a mutual fund plan. Investment Objective Investments in any scheme should be made only after carefully assessing life goals.
Fund History You can base your mutual fund selection activity on the fund history. Performance of Fund manager The fund manager plays a significant role in the success of a fund. Advantages of Investing in Best Mutual Funds Expert Money Management Since mutual funds are managed by a fund manager, the chances of making profits are on the higher side.
Diversification On investing in mutual funds, you automatically diversify your portfolio across several instruments. Can redeem at any time Most mutual fund schemes are open-ended. Tax-efficient If you are looking to save taxes under the provisions of Section 80C of the Income Tax Act, , then you can invest in the equity-linked saving scheme ELSS or tax-saving mutual funds. Risk Possessed by Best Mutual Funds As mentioned before, the risk level of mutual funds varies across types.
The following are the types of risks that come attached with equity funds: Market Risk Market risk is the risk which can result in losses due to the underperformance of the market. Concentration Risk Concentration generally refers to emphasising on one particular thing. Interest Rate Risk The interest rates fluctuate on the basis of the availability of credit with lenders and the demand from borrowers.
Liquidity Risk Liquidity risk refers to the difficulty in exiting the holding of a security at a loss. Credit Risk Credit risk refers to the possibility of a scenario wherein the issuer of the security fails to pay the interest that was promised at the time of issuing the securities. The following are the types of risks that come attached with equity funds: Interest Risk It is the possibility of the rate of interest varying. Credit Risk It is the possibility of the issuer of the securities defaulting on the repayment of principal and the payment of interest at the rate agreed upon at the time of issuing the securities.
Liquidity Risk It is the possibility that the underlying securities may turn illiquid and the fund manager may find it difficult to sell the securities held under the portfolio. Taxation of Best Mutual Funds The dividends provided by all mutual funds are added to your overall income and taxed as per the income tax slab you fall under. Click here to know more. Top Equity Mutual Funds Equity mutual funds invest predominantly in equity instruments such as stocks.
Top Small-Cap Mutual Funds Small-cap mutual funds are a class of equity funds that invest mostly in equity shares of those companies that are classified under small market capitalisation. Top Large-Cap Mutual Funds Large-cap mutual funds are a class of equity mutual funds that invest predominantly in equity shares of large-cap companies.
Top Multi-Cap Mutual Funds Multi-cap mutual funds invest in equity shares of companies across all market capitalisations. Top Mid-Cap Mutual Funds Mid-cap funds are equity funds that invest in equity shares of companies whose market capitalisation is in the range of Rs crore to Rs 10, crore.
Top Liquid Funds Liquid funds are a class of debt funds that invest in high-rated debt instruments such as treasury bills. Top Debt Mutual Funds Debt mutual funds invest in instruments such as corporate bonds, government bonds, treasury bills, and so on, that offer regular dividend payouts. Top Income Funds Income funds predominantly invest in securities that are capable of providing high dividends. Top Balanced Mutual funds Balanced or hybrid funds invest across both debt and equity instruments.
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