Mutual Fund

How to Choose the Best Mutual Fund to Invest in 2020

21 Jan 2020 5 min read
Mutual Fund: Read How to Choose the Best Mutual Fund to Invest in 2020 - Afinoz

The word investment can have different meanings at various stages of our life. Most people pick up investment tools in order to increase savings and decide later on what to do with that amount, on the other hand many people invest with a goal in mind and treat investments as a need to reach and accomplish that goal within the stipulated time.

Here we will discuss the role of investments in one’s life and how it may differ from one person to another?

Investment as a term can be described as keeping your money in a financial tool which might have the ability to increase the amount that has been deposited and provide a return at the end of the stipulated time period. The investments are termed as short term, medium or long term on the basis of the objective behind it and the time it will consume to provide the return. The return might be one-time capital, regular income every month or a combination of both.

How to gain returns with low risk on your investment?

In the 21st century, there are numerous investment opportunities available to those who wish to employ their capital in tools that provide good return at low risk. The tool that comes first to our mind when we talk about risk and return on investment are the stock markets. Though they are highly volatile and dynamic in nature, and can make money very easily, many of us find it uncomfortable to invest in the markets due to insufficient knowledge of the market.

With a specific problem, comes a specific solution. To ease aspiring investors from the upfront risk of market fluctuation from time to time, the investment seekers have come up with a product which can reduce the risk by sharing it amongst all. This can be done by investing in instruments known as mutual funds, which are managed by investment fund houses and unit trusts.

Here is a list of top 10 mutual funds to invest in the year 2020

Mutual Fund

Category

1 Year

3 Year

5 Year

Axis Bluechip Fund Direct Plan - Growth

Large Cap

22%

21%

11%

ICICI Prudential Bluechip Fund - Growth

Large Cap

12%

13%

9%

SBI Bluechip Fund - Growth

Large Cap

13%

11%

9%

Kotak Standard Multicap - Growth

Mutli Cap

15%

14%

11%

SBI Magnum Multicap - Growth

Multi Cap

13%

12%

11%

Axis Mid Cap Fund

Mid Cap

17%

17%

11%

SBI Small Cap Fund

Small Cap

9%

14%

16%

ICICI Pru Equity & Debt Fund - Growth

Hybrid

11%

10%

9%

SBI Equity Hybrid Fund - Growth

Hybrid

16%

12%

10%

Axis Long Term Equity - Growth

ELSS

17%

17%

11%

To get into more specifics of how to choose the best mutual funds, most suitable to your needs, one can read How to choose the best mutual fund for yourself.

Other low-risk investment opportunities

Other than the mainstream mutual funds, there are many insurance products on offer these days which are also linked to the stock market, and you can invest in a range of unit linked insurance policies. Investment vehicles of this nature are less risky than investing directly in the stock market, but still carry what we might term a medium amount of risk.

At the bottom end of the scale are investment vehicles that carry little or no risk at all. These include such things as government and corporate bonds, money market funds, and a variety of bank and building society investment products. Individual savings accounts (ISAs) will also fall into this very low risk investment category.

Tax saving benefits of Mutual Funds

As far as the tax liability on the mutual funds are concerned, If the period of investment in the mutual fund is more than a year, in such a case the capital gain from the fund does not attract any tax liability. One can avail tax benefits on long-term investments which might include investments in mutual funds, government bonds and other instruments. The Government of India also provides a tax exemption on equity mutual funds under Section 80C of Income Tax Act 1961. Under this act, the law states that an investor can avail a tax-exemption of up to ₹ 1.5 Lakh from their taxable income to reduce their financial obligation as the investment provides return over a period of time. For more details on tax benefits, read Mutual funds as tax saving instruments.

Exploit the compounding technique

The mutual funds are considered to be effective according to their power of compounding and it is known to be one of the most under-rated investment techniques as it requires time and patience. A compounding interest ensured better long term returns as compared to a lumpsum investment made for the same period. In compounding, the returns along with the investment get re-invested at every monthly cycle and yield larger returns as compared to one-time investment.

Cost of investing and maintaining an account

Mostly the investments done in the markets via various instruments like equity markets or the routine trading over the derivatives attract various brokerages and charges since the time one enters the trade account also known as the de-mat account. Every time a person performs a transaction from their account, they have to pay a certain amount of the trade towards settlement from exchange. For mutual funds, a person only pays once by registering for the services and then only puts in money towards their investment.

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