Best Mutual Funds to Invest in 2020

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Best Mutual Funds in India for 2020

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What are Best Mutual Funds?

A mutual fund is formed when an asset management company (AMC) pools investments from various individual and institutional investors to purchase securities.

The AMCs have fund managers to manage investments from investors. In short, mutual funds club investments from various investors to invest their money in bonds, stocks, and other similar avenues.

Mutual fund investors are assigned with fund units corresponding to their quantum of investment. Investors are allowed to purchase or redeem fund units at the current net asset value (NAV).

The NAV of mutual funds varies daily as per their underlying fund assets. Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), and hence, they can be considered as a safe investment haven. A significant advantage of investing in mutual funds is that investors can diversify their portfolio at a relatively lower investment amount.

Types of Best Mutual funds to invest

Invest in the best type of fund that is in line with your financial goals

How to select the best performing Mutual Funds?

Investors want to end up with the best mutual funds which gives high returns. The entire selection process has to be guided by three basic pointers i.e. your life goals, risk profile and investment horizon.

Investment Objective

Any investment should be made after considering one’s personal life goals. Once you have assessed your needs, match it with your fund’s objectives. Each mutual fund has an investment objective which may or may not match your goal. To arrive at a meaningful decision, select funds which conform to your overall financial plan and risk appetite. A long-term objective cannot be funded with a short-term scheme. Similarly, a risk-averse investor should not invest in a highly risky fund. You can get all the details about the scheme, including its objective, strategy and asset allocation in the key information document and scheme information document.

Fund History

You may begin the shortlisting process by looking at the fund history. A mutual fund should have a long track record for being considered for investment. It shows the strength of the fund during tough times. A recently launched fund may or may not perform well during bear runs; it is yet to be explored. On the contrary, a fund with a good track record of consistent performance indicates the accuracy of its investment strategies.

A fund which has a history of say at least 5 years may seem eligible for shortlisting. At this point, you need to consider keeping your investment horizon in perspective. If you have a longer horizon, you may look at 7 or 10 year returns.

Financial Ratios

Risk and return go hand in hand. Returns are the increase in the value of the initial investment as a result of investing in a security like a stock or bond. Risk is the uncertainty concerning the actual returns not falling in line with the expectations. Before finalizing a mutual fund, you need to examine its risk-return potential.

This can be easily done with the help of financial ratios. Sharpe Ratio and Alpha come handy to indicate the relevant information. Sharpe Ratio shows the extra return that the fund has generated for every additional unit of risk taken. A fund having a higher Sharpe Ratio is better than the fund having a lower Sharpe Ratio. Similarly, Alpha tells you how much extra return has the fund manager generated as compared to the benchmark. The higher the alpha, the superior would be the fund.

Expense Ratio

Expense ratio is an essential parameter that needs to be analysed while selecting a mutual fund scheme. It is an annual fee, expressed in percentage, that the fund house charges for managing your money. The extent of expense ratio charged affects the fund’s returns. Thus, a higher expense ratio translates into lower returns for the investor. So, you may choose a fund which has a lower expense ratio as compared to peer funds in the category.

Performance of Fund manager

Fund manager plays a crucial role in the performance of a fund. Even though the entire investment is process oriented, still fund manager is the one who has to take care of the ultimate responsibility and keep the show going on smoothly. It is important to know the track record of the fund manager. You may check performance of the fund during market rally and slump. A fund which has given consistent returns and contained losses during the bear runs shows robust fund management. The fund’s alpha reflects how much extra returns did the portfolio generate due to fund manager’s efforts.

SIP/ Lumpsum

Two primary ways of investing in mutual funds are through Systematic Investment Plan and one-time lump sum investment. Investors can opt for making a one-time lump sum payment if they have a considerable corpus to invest in. While SIPs are a recurring investment over a period of time. Investors can invest in SIPs on a monthly, quarterly, or an annual basis. Investing in SIPs is advisable for the first time mutual fund investors.

SIP Investment One-time Investment
Periodic investments over a fixed tenure. One-time investment in a tenure (lump sum).
Cost of investment is low due to the benefit of rupee cost averaging. Since the investment is made in one shot, the cost would be higher.
Advisable for investors looking to stay invested for a short-term. Advisable for investors looking to stay invested for a long-term.

How to Invest in Best Mutual Funds

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Using the following steps, you can start your investment journey:

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Why Cleartax Invest

ClearTax Invest was launched with the idea to help individuals with smart investing strategies..

ClearTax offers best individual equity and debt funds after analysing and thoroughly researching 5000+ funds available in India for our investors. We have tied up with top fund houses across India to give the best fund options.

At ClearTax, you can invest by browsing through only the best funds in India. Investing with us is a simple process. Don’t worry about the security, Cleartax works on bank grade security. If you need assistance, avail ClearTax 24×7 services.

Mutual Fund Calculator

The Mutual Fund Calculator will give you the investment value at maturity by calculating fund returns according to your investment horizon. You can adjust the variables of the calculator like SIP/lump sum, amount of investment, frequency of SIP, expected rate of return and duration of SIP.

Frequently Asked Questions

  • How to Invest in Mutual Funds?
    ClearTax has made mutual funds completely paperless and hassle-free.
    Following the subsequent steps can kick start your investment journey:
  • Why Invest with ClearTax?
    ClearTax Invest was started with the idea of helping individuals with smart investing strategies.
    ClearTax offers the best individual equity and debt funds after analysing and researching 5000+ funds available in India. We have partnered with the top fund houses across the country to offer the best mutual fund options.
    With ClearTax, you can invest only in the best funds in India. Investing with mutual funds is a relatively simple process. We offer bank-grade security and customer assistance 24×7.
  • What is Mutual Fund Calculator
    The mutual fund calculator gives you the investment value at maturity by calculating fund returns as per your investment horizon. Investors can set the variables of the calculator such as SIP/lump sum, investment amount, frequency of SIP, expected rate of return, and SIP duration.