Mutual fund investments are here to stay. They have become the most popular investment avenues for investors given their –
  • Diversified portfolio
  • Expert fund management
  • Types of available schemes
  • Ease of investments through SIPs
  • Returns offered (Of course!)

In fact, compared to the mutual fund industry of the developed countries like the USA, Europe and other Asian countries, the mutual fund industry of India has shown the maximum growth.

It has grown from USD 92 billion to USD 317 billion at a CAGR of 17% from 2008 to the first quarter of 2019. Have a look –

(Source: https://www.edelweiss.in/insight/chart-of-the-day-2/indias-mutual-fund-assets-show-highest-growth-in-the-world-280249)

Even now, in the post-COVID world, as the financial markets are regaining their lost lustre, mutual funds dominate in the investment segment as more and more investors divert their funds towards different types of mutual fund schemes.

The next year is around the corner, and, if you are looking for the best mutual funds to invest in 2021 look no further.

Here is a compilation of some of the best mutual funds in 2021 for your investment needs under different categories –

 

1) Equity Mutual Funds

Let’s consider the equity mutual fund category first, which is the most popular category among investors. Equity mutual funds have a high-risk profile which they compensate with the potential of high returns.

Moreover, ELSS schemes provide tax benefits to investors and are, therefore, highly favoured.

So, let’s have a look at the different types of equity mutual funds and the best funds in each category –

 

  • Large Cap Funds

Large cap funds are those that invest in the top 100 companies of the stock market.

These funds are better placed to weather out volatile markets as the underlying assets belong to established companies that can withstand a bearish phase.

The best performing mutual funds under this category are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Axis Bluechip Fund 14.80% 13.87%
Kotak Bluechip Fund 13.36% 8.85%
ICICI Prudential Bluechip Fund 11.78% 7.10%
Canara Robeco Bluechip Equity Fund 18.99% 13.19%
SBI Bluechip Fund 14.07% 7.41%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/large-cap-fund.html)

 

  • Mid-cap Funds

Mid-cap funds invest in companies ranked between 101 and 250 on the stock exchange. These funds have a higher risk profile compared to large cap funds and also provide higher returns.

The top funds in this category are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Axis Midcap Fund 22.98% 13.26%
Kotak Emerging Equity Scheme 22.56% 6.55%
DSP Midcap Fund 25.55% 7.87%
PGIM India Midcap Opportunities Fund 48.46% 9.58%
Invesco India Midcap Fund 23.35% 7.55%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/mid-cap-fund.html)

 

  • Small Cap Funds

Small cap funds invest in stocks of companies which are in their growth phase. These companies have a high potential of growth and so promise a high return generating potential.

On the other hand, there is a high risk of capital erosion in volatile markets since small cap stocks face maximum erosion when the markets fall.

So, these funds are suitable for long term investors having a high-risk appetite.

The top small cap mutual funds to invest in 2021are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Kotak Small cap Fund 33.84% 6.36%
Nippon India Small Cap Fund 28.32% 2.50%
Axis Small Cap Fund 22.53% 10.80%
DSP Small Cap Fund 36.53% 2.28%
ICICI Prudential Small Cap Fund 21.96% 1.94%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/small-cap-fund.html)

 

  • Multi-cap Funds

Multi-cap funds are schemes which combine large cap, mid-cap and small cap stocks in their portfolio for diversified holdings.

The asset allocation to each type of stock is a minimum of 25% and then the fund manager is given the choice to allocate assets as per the market dynamics.

The best mutual funds in 2021under the multi-cap category is as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Parag Parikh Long Term Equity Fund 31.19% 14.46%
PGIM India Diversified Equity Fund 24.57% 11.54%
UTI Equity Fund 26.62% 14.35%
Canara Robeco Equity Diversified Fund 11.15% 11.36%
DSP Equity Fund 17.53% 9.93%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/multi-cap-fund.html)

 

 

  • ELSS Schemes

Equity Linked Saving Schemes are tax-saving mutual fund schemes which allow a deduction on your investments under Section 80C up to a maximum of Rs.1.5 lakhs. The scheme has a lock-in period of 3 years and offers good returns on investment.

Here’s a complete guide on taxation in mutual funds

The leading ELSS schemes for 2021 are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Axis Long Term Equity Fund 17.15% 11.99%
Canara Robeco Equity Tax Saver Fund 23.46% 12.78%
Mirae Asset Tax Saver Fund 19.50% 11.06%
Quant Tax Plan 40.02% 12.85%
Invesco India Tax Plan 15.22% 8.37%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/elss.html)

 

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2) Debt Mutual Funds

Contrary to equity mutual funds, debt mutual funds invest in debt instruments, i.e. instruments that have a fixed rate of return on investment. That is why debt funds do not face volatility risks.

However, these funds are prone to credit risk and interest rate risk and so the returns from debt funds are not guaranteed. Debt mutual funds come in different categories, mainly based on the average maturity period of their underlying assets.

So, let’s have a look at which mutual funds to invest in 2021 under the debt category –

 

  • Liquid Funds

If you are planning to invest for a short period of time, liquid mutual funds are ideal.

They promise liquidity and good returns on your surplus funds over the short period for which you park your investments.

If the market becomes volatile and you want to book your profits, you can switch to liquid funds to protect the returns generated from your investments.

You can also use these funds for temporary investments and the best funds for 2021 include the following –

 

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Quant Liquid Plan 5.04% 6.44%
Nippon India Liquid Fund 4.39% 6.20%
IDBI Liquid Fund 4.64% 6.26%
Franklin India Liquid Fund 4.49% 6.29%
Tata Liquid Fund 4.44% 6.17%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/liquid-fund.html)

 

  • Short duration funds

These funds invest in instruments that have a maturity ranging from 1 year to 3 years. The returns are better than liquid funds since the instruments have a higher duration.

Some of the best short duration funds for 2021 are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
HDFC Short Term Debt Fund 11.04% 9.07%
ICICI Prudential Short Term Fund 10.81% 8.48%
Kotak Bond Short Term Fund 10.09% 8.45%
Aditya Birla Sun Life Short Term Fund 10.52% 8.47%
Axis Short Term Fund 10.17% 8.57%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/short-duration-fund.html)

 

  • Corporate Bond Funds

Corporate bond funds invest in corporate bonds issued by established companies for their financial needs. Fund managers invest in high rated corporate bonds for maximum gains at minimal risks.

Some of the best corporate bond funds are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
HDFC Corporate Bond Fund 11.85% 9.25%
Aditya Birla Sun Life Corporate Bond Fund 11.87% 9.31%
L & T Triple Ace Bond Fund 12.91% 9.93%
IDFC Corporate Bond Fund 11.66% 8.62%
Sundaram Corporate Bond Fund 10.91% 8.69%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/corporate-bond-fund.html)

 

  • Gilt Funds

Gilt funds invest in Government securities and promise the highest safety in terms of credit risk. They are, usually, long term investment avenues where the underlying assets have long maturity tenures.

The best-gilt funds to invest in 2021 include the following –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
IDFC Government Securities Fund 15.19% 10.80%
DSP Government Securities Fund 14.64% 11.04%
Edelweiss Government Securities Fund 14.52% 10.25%
ICICI Prudential Gilt Fund 14.25% 9.53%
Axis Gilt Fund 13.54% 9.48%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/gilt-fund.html)

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3) Hybrid Mutual Funds

Hybrid mutual funds combine equity as well as debt instruments and give you a diversified portfolio. While the equity component of the portfolio allows better returns compared to debt funds, the debt component reduces the risk compared to pure equity funds.

Thus, if you are looking for a moderate risk-return profile, hybrid mutual funds are the best mutual funds to invest in 2021.

Hybrid funds are divided into different categories depending on their asset allocation. So, let’s have a look at the best funds in popular hybrid categories –

 

  • Aggressive Hybrid Funds

Aggressive hybrid funds are those that invest primarily in equity stocks.

At least 65% of the portfolio is allocated to equity stocks and instruments while the remaining is allocated to the debt.

These funds offer equity taxation and attractive returns and some of the best aggressive hybrid funds for 2021 include the following –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Quant Absolute Fund 29.78% 11.49%
Canara Robeco Equity Hybrid Fund 17.26% 10.41%
DSP Equity and Bond Fund 16.41% 9.41%
BNP Paribas Substantial Equity Hybrid Fund 13.06% 9.92%
Mirae Asset Hybrid Equity Fund 12.46% 8.78%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/aggressive-hybrid-fund.html)

 

  • Conservative Hybrid Funds

Contrary to aggressive funds, conservative hybrid funds invest primarily in debt instruments and a part of the portfolio in equity. The fund is suitable for those looking for a low-risk investment with returns better than those provided by debt funds.

The top conservative hybrid funds are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
Canara Robeco Conservative Hybrid Fund 13.31% 8.71%
Baroda Conservative Hybrid Fund 13.85% 9.00%
Kotak Debt Hybrid Fund 13.95% 7.84%
SBI Debt Hybrid Fund 13.39% 6.54%
Axis Regular Saver Fund 12.83% 6.21%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/conservative-hybrid-fund.html)

 

  • Arbitrage Funds

Arbitrage funds are those which invest in arbitrage opportunities and bank on the price difference between the stock’s value in the spot and futures market.

Arbitrage funds are a good bet in times of market volatility when the price difference between spot and futures market increases thereby promising better returns.

The top arbitrage funds for 2021 are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
ICICI Prudential Equity Arbitrage Fund 4.17% 5.49%
Nippon India Arbitrage Fund 4.16% 5.75%
L & T Arbitrage Opportunities Fund 4.60% 5.60%
UTI Arbitrage Fund 4.22% 5.59%
Edelweiss Arbitrage Fund 4.35% 5.60%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/arbitrage-fund.html)

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4) Other Mutual Fund Schemes

Besides the popular equity, debt and hybrid mutual fund schemes, if you are looking to invest in other, unconventional mutual fund schemes, there are many options.

You can choose international funds, gold funds, sectoral funds, index funds and other types of funds which have a different asset allocation.

Let’s check out the best mutual funds to invest in 2021 under the special category of mutual fund schemes –

Read more about how to choose the right mutual funds as per your financial goals.

 

  • International Mutual Funds

International mutual funds are ideal if you want investment exposure in international markets. These funds invest in stocks of companies listed in international stock exchanges usually by investing in international funds.

Let’s check out some of the best international funds which you can choose in 2021 –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
PGIM India Global Equity Opportunities Fund 69.30% 30.31%
Franklin India Feeder – Franklin US Opportunities Fund 45.72% 26.46%
Edelweiss Greater China Equity Off-shore Fund 60.08% 23.71%
DSP US Flexible Equity Fund 26.81% 17.12%
Kotak Global Emerging Market Fund 32.76% 11.50%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/fund-of-funds.html)

 

  • Gold Funds

As the name suggests, gold funds invest in gold instruments to offer you returns linked to the price movement of gold. Gold mutual funds are, usually, fund of funds which invest in gold ETFs to generate returns.

Some of the best gold funds are as follows –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
DSP World Gold Fund 39.81% 18.21%
Axis Gold Fund 27.61% 18.82%
HDFC Gold Fund 27.42% 17.83%
Kotak Gold Fund 27.20% 18.67%
ICICI Prudential Regular Gold Savings Fund 27.00% 17.67%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/fund-of-funds.html)

 

  • Sectoral Funds

Sectoral funds are equity-oriented mutual funds which invest in stocks of companies engaged in a particular sector.

For example, banking funds invest in banks and NBFCs while pharma funds invest in pharmaceutical companies.

Some of the best sectoral funds for investment in 2021 include the following –

Name of the fund (all are Regular Growth funds) 1-year return* 3-year returns*
ICICI Prudential Technology Fund 58.57% 26.23%
Aditya Birla Sun Life Digital India Fund 49.14% 24.80%
Franklin India Technology Fund 50.64% 23.93%
Tata India Pharma & Healthcare Fund 59.38% 20.11%
Nippon India Pharma Fund 64.49% 21.67%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/sectoralthematic.html)

These are some of the best mutual funds to invest in 2021. These schemes have been picked based on their returns, consistency and performance over a long term period.

You can select one or more of these funds and build up a diversified mutual fund portfolio. When investing, however, keep in mind the tax implications of your investments. Equity funds attract equity taxation wherein-

  • Short term capital gains, if redeemed within 12 months, are taxed at 15%
  • Long term capital gains, if redeemed after 12 months, are tax-free up to Rs.1 lakh. Excess returns are taxed only at 10%

Debt funds, on the other hand, have a different taxation norm. Under such funds –

  • Short term capital gains, if redeemed within 36 months, are taxed at your income tax slab rate
  • Long term capital gains, if redeemed after 36 months, are taxed at 20% with the benefit of indexation

So, understand the taxation rules and choose the best schemes for a wealth maximizing portfolio.

(Disclaimer – The funds mentioned in the article are just our recommendations based on the returns offered by them. These recommendations do not certify any fund to be the best.) (*Returns as on December 2020)

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