Want to invest ₹5 lakh now? Which mutual funds should you pick?

Mutual funds that invest in equity have been shown to outperform other asset classes over the long run in terms of returns. SIPs, or systematic investment plans, are the greatest way to participate in any mutual fund scheme since they offer a number of advantages for investors, including the power of compounding, a low initial contribution beginning at ₹500, rupee cost averaging, and many more. A mutual fund scheme that primarily invests in equity stocks is known as an equity fund. According to the current SEBI Mutual Fund Regulations in India, an equity mutual fund scheme must invest at least 65% of its assets in equity-related stocks and securities. According to sources, equity mutual funds have provided outstanding returns over the past year: over 20% in one year, over 45% in three years, and up to 22% returns over the previous five years. Let's get advice from several industry professionals about which mutual funds you should choose if you as an investor have ₹5 lakhs in your hands right now.

Shruti Jain, CSO, Arihant Capital

There’s no single best way to invest money that suits everyone’s needs and lifestyle. So, generalising one mutual fund category (or a set of categories) for everyone can be misleading and may not suit your need. Though each scenario is different, all investment choices come down to two factors - your risk tolerance and investment horizon.

Before you decide which mutual funds to pick and invest your ₹5lacs, you need to first determine what is your investment time horizon, which means how long can you hold your investments. If you need your money in a few months or less than a year, invest it in ultra short-term debt products, if your horizon is anything less than 5 years, equity is not for you. However, if you want to invest for over 5 years, go for equity mutual fund schemes. 

Next is to understand your risk-taking ability - are you risk averse, are you open to taking moderate risks or do you believe in high-risk high-return philosophy. Your age will also play a key role in determining your choice of asset class. For someone who is young, it makes sense to have a portfolio biased towards equity. But for someone nearing retirement it should be 40-50% in equity funds and rest in debt funds.

Assuming that you have an investment horizon of over 5 years, and you are comfortable with risk – a diversified portfolio with equity mutual funds is ideal. This is considering you already have some investment in fixed income (like FD) and have some savings for emergency in your savings account or in liquid funds.

If you're a novice investor who doesn’t want too much hassle, an index fund makes sense. If you believe in the Indian growth story, then the benchmark index like Nifty 50 and BSE Sensex are going to give consistent returns over the long term. Investing in them through ETF is convenient and gives you incredible diversity for what can be a minimal investment amount.

Among the equity mutual funds, some of the schemes that we are recommending include ICICI Prudential Bluechip Fund, SBI Flexi Cap Fund, Mirae Asset Midcap Fund and Canara Robecco Emerging Equities Fund. We also recommend invest a part into passive funds like the Nippon India Nifty 50 Bees ETF.

Deepak Jasani, Head of Retail Research, HDFC Securities

A lot will depend on the risk appetite of the investor and his evolution stage. A beginner in the market and/or investor with low risk appetite could look to invest in passive funds like Nifty ETF or Nifty Next ETF, preferably on a SIP basis (spreading the lumpsum over say 6-9 monthly investments). This would enable the investor to earn returns in line with the market and also get the benefit of cost averaging when the near term outlook of the market remains uncertain.

A more evolved investor or one who has high risk appetite can invest in a mix of flexicap/multicap and smallcap funds. This will enable him to earn higher returns (of course with higher risks). Investors who have evolved well can look at Smart Beta ETF and try and earn well in a passive way from factor investing.

CA Manish P Hingar, Founder at Fintoo

Choosing the right mutual fund scheme to invest in can be a challenging task with over 40 mutual fund houses and thousands of schemes available. To make a well-informed decision, factors such as financial goals, investment horizon, and risk appetite should be carefully considered.

If an investor is planning to invest ₹5 lakh and aiming to build long-term wealth, equity mutual funds may be a suitable option. They offer higher returns compared to debt mutual funds or fixed deposits, but they also carry higher risks.

Investors may consider large-cap or diversified equity funds based on market conditions. Diversified equity funds invest across various market capitalizations and industry sectors, which can help in portfolio diversification and risk management. On the other hand, large-cap funds hold stocks of large-cap companies with a solid track record of steady growth and reliable returns.

Here are some mutual fund options that you may consider:

1. Mirae Asset Large Cap Fund - Direct Plan-Growth

2. Axis Bluechip Fund - Direct Plan-Growth

3. Kotak Standard Multicap Fund - Direct Plan-Growth

4. SBI Magnum Multicap Fund - Direct Plan-Growth

5. ICICI Prudential Bluechip Fund - Direct Plan-Growth

When it comes to choosing between active and passive mutual funds, investors often find themselves in a dilemma. Passive funds, also known as index funds, track an index such as Nifty or Sensex, and aim to replicate its performance. On the other hand, active funds are managed by a fund manager who strives to outperform the market by selecting stocks based on research and analysis. If you are looking for a low-cost option with a long-term investment view, passive funds may be a suitable choice for you. However, if you are comfortable paying a higher expense ratio and ready to take additional risk, you may want to consider investing in an active fund to generate possibly higher returns.

Satyen Kothari, the founder and CEO of Cube Wealth

Firstly, it's important to understand that the investment decision should be based on your financial goals, investment horizon, and risk appetite. Mutual funds are a tool for achieving financial goals, and different funds have different investment objectives and risk profiles.

For example, if your objective is wealth creation for 5 years, a suitable allocation could be 60-70% in large and multicap funds (conservative and moderate options) and 20-30% in mid and small-cap funds (aggressive options). Large and multicap funds invest in large and well-established companies that have a track record of stable earnings and are less volatile, whereas mid and small-cap funds invest in smaller companies with higher growth potential but also higher volatility.

In terms of active vs. passive management, active management may be suitable for the aggressive options as the fund manager's expertise in selecting high-growth stocks can potentially generate higher returns. Passive management, on the other hand, can be considered for conservative and moderate options, which aim to match the returns of a benchmark index.

Lastly, it's important to do your own research and analysis before making any investment decisions. Consider factors such as the fund's historical performance, fund manager, objectives etc.

Manu Rishi Guptha, Founder of MRG Capital, a SEBI registered Portfolio Management Company

In these volatile times, it is best to split the money into equity and debt allocations and so a Hybrid mutual fund can be suggested. There are many types of hybrid funds which invest between large cap & midcap stocks and short/medium duration & longer duration debt papers. 

A Large cap equity and Medium bond duration hybrid fund is best preferred as Large cap stocks are the first ones to recover from a falling market and a Medium duration bonds offers better yields than a Long duration bond in a rising interest rate scenario and recessionary fears.

Always better to prefer an active fund when the investment horizon is lower. Passive funds have historically outperformed over long investment horizons.