Investing in mutual funds is one of the most accessible and effective ways for beginners to build wealth over time. However, with the wide variety of funds available in the Indian market, choosing the right one can seem daunting, especially for first-time investors. To help you navigate the world of mutual funds, we’ve compiled a list of some of the best mutual funds for beginners in India, based on their risk profiles, performance, and suitability for long-term wealth creation.
1. Understand the Basics of Mutual Funds
Before diving into the best options, it’s important for beginners to understand what mutual funds are. A mutual fund pools money from various investors to invest in a diversified portfolio of stocks, bonds, or other securities, managed by a professional fund manager. Mutual funds provide an excellent opportunity for investors to gain exposure to a variety of assets without requiring large capital or expertise.
There are different types of mutual funds based on their investment objective, such as:
- Equity Mutual Funds: Invest in stocks for long-term capital appreciation.
- Debt Mutual Funds: Invest in fixed-income securities like bonds and government securities.
- Hybrid Mutual Funds: A mix of equity and debt, suitable for balanced risk.
- Index Funds: Track a specific index like the Nifty 50 or Sensex, offering passive management with lower costs.
For beginners, it’s often best to start with funds that offer low-risk options and have a track record of consistent performance.
2. Best Mutual Funds for Beginners: Top Recommendations
a. Axis Bluechip Fund (Large-Cap Equity Fund)
Category: Large-Cap Equity Fund
Risk Level: Medium to High
Ideal For: Long-term capital growth
Axis Bluechip Fund is an excellent choice for beginners looking to invest in a well-diversified equity fund that primarily focuses on large-cap stocks. The fund has a strong track record of consistently outperforming its benchmark, providing steady returns over the long term. Large-cap stocks, generally more stable than mid or small-cap stocks, can offer a good balance between risk and reward.
- Expense Ratio: 0.54% (as of the latest data)
- 5-Year Return: Around 14%-15% (annualized)
b. HDFC Hybrid Equity Fund (Hybrid Fund)
Category: Hybrid Fund (Equity + Debt)
Risk Level: Medium
Ideal For: Balanced risk-return profile
For beginners who are looking for a mix of equity and debt exposure, HDFC Hybrid Equity Fund is a solid choice. This fund invests around 65-70% in equities and the remaining in debt securities, providing a balanced approach. Hybrid funds are ideal for those who want exposure to both the stock market and fixed-income securities, offering the potential for both growth and stability.
- Expense Ratio: 1.87%
- 3-Year Return: Around 10%-12%
c. SBI Bluechip Fund (Large-Cap Equity Fund)
Category: Large-Cap Equity Fund
Risk Level: Medium to High
Ideal For: Long-term wealth creation
SBI Bluechip Fund is another great choice for beginners looking for a reliable, large-cap equity fund. As the name suggests, it primarily invests in blue-chip companies that have a strong track record of stability and performance. The fund’s investment strategy focuses on long-term growth, making it ideal for beginners with a longer investment horizon.
- Expense Ratio: 1.05%
- 5-Year Return: Around 12%-13% (annualized)
d. ICICI Prudential Balanced Advantage Fund (Dynamic Asset Allocation Fund)
Category: Dynamic Asset Allocation Fund
Risk Level: Medium
Ideal For: Risk-averse investors
ICICI Prudential Balanced Advantage Fund is a dynamic asset allocation fund that adjusts its exposure to equity and debt based on market conditions. This makes it an attractive option for beginners who are risk-averse but still want some exposure to equities for potential growth. The fund’s flexibility allows it to perform well in both bullish and bearish market conditions, making it a safe yet growth-oriented option for first-time investors.
- Expense Ratio: 1.88%
- 3-Year Return: Around 8%-10%
e. Mirae Asset Large Cap Fund (Large-Cap Equity Fund)
Category: Large-Cap Equity Fund
Risk Level: Medium to High
Ideal For: Steady long-term growth
Mirae Asset Large Cap Fund is one of the top-performing large-cap funds in India. It focuses on high-quality large-cap stocks that have the potential for steady growth. For beginners, this fund offers exposure to well-established companies that have a proven track record of stability and growth, making it a relatively safe option in the equity space.
- Expense Ratio: 0.57%
- 5-Year Return: Around 13%-14% (annualized)
f. UTI Nifty Index Fund (Index Fund)
Category: Index Fund (Passive Fund)
Risk Level: Medium
Ideal For: Beginners seeking low-cost, passive investing
For those who prefer a hands-off approach to investing, UTI Nifty Index Fund is a great option. This passive fund tracks the performance of the Nifty 50 Index, which includes the top 50 large-cap companies in India. Index funds have lower expense ratios compared to actively managed funds and offer broad market exposure with minimal risk. Since it’s a passive investment, it’s ideal for beginners who want to invest in the market’s overall performance without worrying about the selection of individual stocks.
- Expense Ratio: 0.10%
- 5-Year Return: Around 10%-12% (annualized)
3. How to Choose the Right Mutual Fund for You?
When choosing a mutual fund, it’s important to consider the following factors:
- Risk Tolerance: Beginners should assess their risk appetite. If you are risk-averse, opt for hybrid or debt funds. If you are comfortable with higher volatility for better returns, large-cap equity or index funds may suit you better.
- Investment Horizon: If you are investing for the long term (5+ years), equity and hybrid funds can offer significant growth. Short-term investors should look at less volatile options like debt funds or balanced funds.
- Expense Ratio: Always consider the expense ratio when choosing a mutual fund. Lower expense ratios generally lead to higher net returns for investors.
- Past Performance: Although past performance is not an indicator of future returns, it can provide some insights into how well the fund has been managed. Always compare the performance of the fund with its benchmark index.
- Fund Manager’s Expertise: The expertise and track record of the fund manager play a crucial role in the performance of the fund. Look for funds with experienced managers who have consistently delivered good results.
4. How to Invest in Mutual Funds?
For beginners, investing in mutual funds is easy. You can invest through:
- Directly via AMCs (Asset Management Companies)
- Online Platforms such as Groww, Zerodha, or ET Money
- Robo-advisors that automatically create and manage your portfolio based on your risk profile
One of the simplest ways to start is by investing through Systematic Investment Plans (SIPs), which allow you to invest a fixed amount regularly, helping you average out the cost of investment and reduce the impact of market volatility.
Conclusion
Investing in mutual funds is a great way for beginners to get started with investing in India. Whether you’re looking for low-risk, stable returns, or are open to higher-risk, growth-oriented investments, there are mutual funds that cater to all types of investors. By selecting the right fund based on your risk tolerance, investment goals, and time horizon, you can start your investment journey with confidence.
As with any investment, it’s advisable to do thorough research or consult a financial advisor to ensure you are making the right choices for your financial future.
