Which are the best mutual funds to invest in now?
In 2025, so far, the Nifty 50 index has delivered 5.7% absolute returns.
The Nifty Midcap 150 Index and the Nifty Smallcap 250 Index, have posted 2.6% and -2.6% returns. In other words, the indices have disappointed.
That said, the long-term returns have been appealing with small and midcaps outperforming the largecaps.
Rs 10,000 Invested in largecaps, Midcaps and Smallcaps
Source: ACE MF
Of late, the Indian equity market has been volatile. The two reasons are the uncertainty due to US President Donald Trump’s tariff policies, and geopolitical tensions.
Besides, valuations of the overall market as well as specific stocks are a concern.
The impact of all this is also seen in the returns of various equity mutual funds. Not all equity mutual funds would be suitable now; a thoughtful choice is necessary.
In this editorial, we will find out the best subcategories of mutual funds to consider now in 2025.
Here’s the list…
#1 Large Cap Funds
Large-cap funds invest predominantly in the top 100 companies in terms of market capitalisation.
These are usually well-established, bluechip companies with good financials. They are also market leaders with economic moats and are run by efficient and ethical management.
In an overheated market and when there is high volatility, investing in such companies is sensible.
While the Indian equity market holds the potential to ascend further, the largecap segment offers a better margin of safety.
Large caps funds are a meaningful choice to get a diversified exposure to bluechip companies.
You could benefit from steady growth of capital over the long run without being exposed to very high risk. It is important to keep a time horizon of at least 3 years when investing in large-cap funds.
Some examples of large caps funds are Aditya Birla Sun Life Front Equity Fund, SBI BlueChip Fund, ICICI Prudential Bluechip Fund, HDFC Large Cap Fund, DSP Top 100 Equity Fund, etc.
#2 Value Funds
These funds follow a value investment strategy and are required to maintain a minimum 65% investment in equity & equity-related instruments.
The investments could be across market capitalisations and sectors as long as a value investing style is followed.
Value funds aim to pick undervalued stocks, i.e., the stocks whose current market price is lower than their intrinsic/fair value that have strong fundamentals and good growth potential.
Usually, the fund manager uses valuation metrics such as PE ratio, PB ratio, along with profitability ratios such as ROCE, ROE, and ROA, among others to judge the future potential of the stocks.
Given this, value funds are well-positioned from a risk-reward perspective. They may fall less than mid-cap and small-cap mutual funds during a bear phase and have the potential to do well in the bull phase too.
Amid times of uncertainty, these funds are an appropriate choice to invest for the long term, keeping a time horizon of at least 5 years.
Some examples of value funds are ICICI Prudential Value Discovery Fund, Templeton India Value Fund, HDFC Value Fund, Quantum Value Fund, etc.
#3 Flexi Cap Funds
These equity mutual funds have a versatile investment mandate. They follow a dynamic investment strategy to invest across largecaps, midcaps, and smallcaps.
Depending on the outlook for these market cap segments the fund manager has the flexibility to manoeuvre among largecap, midcap, and smallcap stocks without any restriction as long as 65% of the total assets are in equity and equity-related instruments.
This flexibility helps in capitalising on evolving market dynamics and potentially outperforming the benchmark index.
In current market conditions, there could be wealth creation opportunities across market cap segments. Flexi-cap funds could be a good way to diversify your mutual fund portfolio.
If the market corrects, a higher allocation to large caps in the flexi-cap fund could add stability. On the other hand, if the market moves up and midcap and smallcaps rally faster, then it could potentially reward you with higher gains depending on allocation to smaller companies.
Flexi-cap funds should be considered with at least a 5-year horizon.
Some examples of Flexi cap funds are Parag Parikh Flexi Cap Fund, JM Flexi Cap Fund, ICICI Prudential Flexi Cap Fund, HDFC Flexi Cap Fund, Invesco Flexi Cap Fund, etc.
#4 Aggressive Hybrid Funds
These are hybrid funds that invest a predominant portion (65% to 85%) of their total assets in equities and the remaining (20% to 35%) in debt and money market instruments.
The objective is to generate long-term capital appreciation and current income from a portfolio that is invested in equity and equity-related securities as well as in fixed-income securities.
In an uncertain market environment where there could be volatility, aggressive funds potentially offer some balance.
Amid times when interest rates are moving down, the debt portion of the portfolio of these funds is expected to fare well. This is because of the inverse relation between interest rates and bond prices. When interest rates fall, bond prices, and thus the NAVs of debt funds go up.
You can consider aggressive hybrid funds if you have a moderate-to-high risk appetite and an investment horizon of 3-5 years.
Some examples of aggressive hybrid funds are ICICI Prudential Equity & Debt Fund, UTI Aggressive Hybrid Fund, HDFC Hybrid Equity Fund, Tata Hybrid Equity Fund, SBI Equity Hybrid Fund, etc.
#5 Multi Asset Allocation Funds
These funds are again hybrid and invest in at least three asset classes – equity, debt, and gold – with at least 10% allocation to each.
Some multi-asset allocation funds also take exposure to silver, derivatives, REITs & InvITs, and overseas equities.
The fund manager has the flexibility to dynamically allocate investments in a mix of asset classes depending on the outlook for each of them.
There is usually a low direct correlation among the asset classes – equity, debt and gold. Thus, multi-asset allocation funds can potentially protect the downside risk.
The balanced approach adopted by these funds can be meaningful in the uncertain and volatile times we are living in. You could earn optimal returns with exposure to multiple assets at the same time.
You can consider multi-asset allocation funds if you are looking for long-term capital appreciation, have a moderately high-risk appetite, and have a time horizon of 3 to 5 years.
Some examples of multi-asset allocation funds are ICICI Prudential Multi Asset Allocation Fund, HDFC Multi-Asset Fund, Axis Multi Asset Allocation Fund, SBI Multi Asset Allocation Fund, UTI Multi Asset Allocation Fund, etc.
Performance of Fund Categories
*Category average returns considered of all schemes within the respective categories.
Rolling period returns are calculated using the Direct Plan-Growth option. Returns over 1-year are compounded annualised.
Please note, that returns here are historical returns.
Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Past performance is not an indicator of future returns.
The list of schemes is not exhaustive.
The securities quoted are for illustration only and are not recommendatory.
Speak to your investment advisor for further assistance before investing.
Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.
Source: ACE MF
Conclusion
These funds might be appropriate in the current times.
However, make sure to select the specific scheme carefully.
Also, you would be better off investing in a staggered manner as opposed to doing a one-time lump sum investment.
If you are planning for certain long-term financial goals, taking the SIP (Systematic Investment Plan) route would be a sensible option.
Be a thoughtful investor.
Happy Investing!
Disclaimer: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.