Starting investing at the age 25 is a great start. Assuming that you have another 30-35 years of professional career, this gives you a lot of time to create financial independence.

One of the most basic principles of investing is to gradually reduce your risk as you get older. Retirees don’t have the luxury of waiting for the market to bounce back after a dip. The dilemma is figuring out exactly how safe you should be relative to your stage in life and accordingly manage your asset allocation by investing in safer option like debts or riskier option like stocks.

For years, a commonly cited rule of thumb – 100 minus age investment allocation rule, has helped simplify asset allocation.

It states that individuals should hold a percentage of stocks equal to 100 minus their age.

So, for a typical 25-year-old, 75% of the portfolio should be equities. The rest would be composed of high-grade bonds, government debt, and other relatively safe assets.

Mutual Funds to Invest in for a 25-year-old

Mutual funds are currently the most lucrative and best investment option in India – for someone who doesn’t have much idea about the markets. They are a great investment option for people who wish to grow their money over a period of time.

There is a wide variety of mutual funds available in the market with different levels of risk and returns on investments. It all depends on your investment goals.

There’s no denying that each mutual fund in the market comes with a purpose defined by the types of assets it invests into and returns it offers over a period.

Division of mutual funds is into following categories:

  1. Equity mutual funds: Invest most of the money gathered from investors in the stock market. The risk level in equity mutual funds are quite high and investors are advised to invest in these funds as per their risk appetite.
  2. Debt mutual funds: Invest most of the money gathered from investors into debt instruments like corporate bonds, government bonds, bonds issued by banks etc. These mutual funds are best for investors who are risk-averse.
  3. Balanced mutual funds: Invest the money gathered into both debt and equity. These are diversified mutual funds having a balance between risk and returns on investment and are most popular mutual funds these days.

At the age of 25 years, going by “100 minus age investment allocation rule” explained above, you should start investing 75% of your total investment amount in equity mutual funds. The rest can be in debt funds. 

There are various types of equity funds available to investors and each category provides different returns depending on the risk associated. Usually, the higher the mutual fund category’s returns, the higher the returns.

So, for the ease of picking right equity mutual schemes, I have divided them into 3 categories depending on the risk-taking appetite of an investor.

You can choose one category of equity mutual funds to invest in or go with multiple mutual fund categories with varying percentages of investment in each type.

Low-Risk Equity Mutual Funds

For an investor with low risk-taking appetite, large-cap equity mutual funds are perfect.

Large Cap Mutual Funds

Large-cap funds invest in large cap companies which are big, well-established companies of the equity market. These companies are strong, reputable, trustworthy, and are among the top 100 companies market cap.

Ideal investment duration for these funds: 4 years and above.

Best Large-cap Funds

1. SBI Bluechip Fund

SBI Bluechip Fund Returns:

Duration Returns
1 year  9.90%
3 years  11.30%
5 years  20.50%
Since launch 17.05%

It invests in the top 100 companies in terms of market capitalization, with the flexibility to invest up to 20% in mid-cap stocks. This fund is one of the most popular large-cap funds available in the market.

2. Mirae Asset India Opportunities Fund

Mirae Asset India Opportunities Fund Returns:

Duration Returns
1 year 11.60%
3 years 13.70%
5 years 23.20%
Since launch 18.88%

Returns from this fund are high as compared to other top funds in the same category, but you have to be patient and invest in for the longer horizon, at least 4 years.

3. Reliance Large Cap Fund

Reliance Large Cap Fund Returns (earlier known as Reliance Top 200 Fund):

Duration Returns
1 year 10.50%
3 years 11.10%
5 years 20.90%
Since launch 16.22%

The secondary objective is to generate consistent returns by investing in debt and money market securities.

Higher-Risk Equity Mutual Funds

For an investor with a higher risk-taking appetite, mid-cap equity mutual funds are perfect.

Mid-cap Mutual Funds

Mid-cap funds invest in compact companies of the equity market, falling between small and large cap companies and are 100-250 companies by market capitalization.

Ideal investment duration for these funds: 6 years and above.

Best Mid-cap Funds

1. Principal Emerging Bluechip Fund

Principal Emerging Bluechip Fund Returns:

Duration Returns
1 year 13.30%
3 years 16.70%
5 years 29.40%
Since launch 23.76%

2. L&T Midcap Fund

L&T Midcap Fund Returns:

Duration Returns
1 year 8.80%
3 years 17.80%
5 years 31.10%
Since launch 24.49%

3. Mirae Asset Emerging Bluechip Fund 

Mirae Asset Emerging Bluechip Fund

Duration Returns
1 year 7.50%
3 years 18.10%
5 years 32.30%
Since launch 26.30%

High-Risk Appetite Investors

For an investor with a high risk-taking appetite, small-cap equity mutual funds are perfect.

Small Cap Mutual Funds

Small-cap funds invest in small companies. Small-cap companies are all the companies apart from large and mid-cap companies in a market.

These funds give high returns but are highly risky mutual funds.

Ideal investment duration for these funds: 6-7 years and above.

Best Small Cap Funds

1. L&T Emerging Businesses Fund

L&T Emerging Businesses Fund Returns:

Duration Returns
1 year 12.70%
3 years 23.70%
5 years NA
Since launch 27.14%

2. HDFC Small Cap Fund

HDFC Small Cap Fund Returns:

Duration Returns
1 year 23.30%
3 years 21.50%
5 years 26.43%
Since launch 21.72%

Equity oriented mutual fund are best suited for long term investment tenure. If you are looking for short term tenure say few days to 2 years of investment tenure, than debt oriented mutual fund are best for you.

Here is the list of 10 best mutual fund for short term duration.

For Few Days to Few Weeks of Investment Tenure

Liquid mutual funds are best investment option that can be considered for few days or few weeks. As the name suggests, these are the debt funds which can be easily converted in to cash that too within a working day’s time.

They invest in instruments with a maturity period of up to 91 days like Commercial Paper(CPs), Treasury Bills and Certificate of Deposit(CDs). Here’s the best liquid fund you can choose for 2018:

1. Axis Liquid Fund

Axis Liquid Fund returns:

Duration Returns
1 year 6.97%
3 years 7.40%
5 years 8.12%
Since launch 8.19%

Axis Liquid Fund is one of the most popular liquid fund.

2. Indiabulls Liquid Fund

Indiabulls Liquid fund returns:

Duration Returns
1 year 6.97%
3 years 7.53%
5 years 8.20%
Since launch 8.27%

Currently, Indiabulls Liquid Fund is one of the top rated liquid funds in the market and aims to provide a high level of liquidity with returns commensurate with low risk through.

3. Principal Cash Management Fund 

Principal Cash Management Fund returns:

Duration Returns
1 year 6.99%
3 years 7.44%
5 years 8.71%
Since launch 8.22%

This fund is another top-rated mutual fund scheme in liquid category. The primary investment objective of the scheme is to provide investors with a high level of income from short-term investments.

For 6 Months to 1 Year of investment tenure

For this time period of investment, the best options are Ultra Short Term Funds. Here are the best fund in this category for 2018:

4. Franklin India Ultra-Short Bond Fund

Franklin India Ultra-Short Bond Fund returns:

Duration Returns
1 year 7.66%
3 years 8.94%
5 years 9.41%
Since launch 9.45%

This is a debt fund with very low risk and has given a return of 9.53% since its launch and aims to provide a combination of regular income and high liquidity by investing primarily in a mix of short-term debt and money market instruments.

5. Kotak Savings Fund

Kotak Savings Fund returns:

Duration Returns
1 year 6.90%
3 years 7.90%
5 years 8.50%
Since launch 9.35%

This fund aims to reduce the interest rate risk associated with investments in fixed rate instruments by investing predominantly in floating rate securities, money market instruments and using appropriate derivatives.

For 1 Year to 2 Years of investment tenure

For this time period of investment, the best options are Short Term Funds (with ideal tenure of 1-3 years), Income Funds (with ideal tenure of 1-3 years) and Gilt Funds (with ideal tenure of more than 1 year). Here is the best funds for such an investment duration for 2018:

6. HDFC Short Term Opportunities Fund

HDFC Short Term Opportunities Fund returns:

Duration Returns
1 year 5.70%
3 years 7.80%
5 years 8.50%
Since launch 8.49%

This is one of the best short-term mutual funds which seeks to generate regular income through investments in Debt/Money Market Instruments and Government Securities with maturities not exceeding 30 months.

7. L&T Low Duration Fund

L&T Low duration fund returns:

Duration Returns
1 year 6.41%
3 years 8.87%
5 years 8.77%
Since launch 9.96%

This is a Short Term type debt fund with the investment objective of the Scheme is to generate reasonable returns primarily through investments in fixed income securities and money market instruments.

8. Reliance Low Duration Fund

Reliance Low Duration Fund returns:

Duration Returns
1 year 6.50%
3 years 7.81%
5 years 8.52%
Since launch 8.60%

A highly popular short-term mutual fund, this fund has highest AUM and NAV. The investment objective of the scheme is to generate optimal returns consistent with moderate levels of risk and liquidity by investing in debt securities and money market securities.

9. Axis Income Fund

Axis Income Fund returns:

Duration Returns
1 year 5.88%
3 years 9.25%
5 years 9.01%
Since launch 9.16%

This is an income fund in which investors invest their money in debt instruments like corporate debentures and government securities.

10. SBI Magnum Constant Maturity Fund

SBI Magnum Constant Maturity Fund Returns:

Duration Returns
1 year 4.56%
3 years 8.92%
5 years 9.55%
Since launch 7.77%

This is a gilt fund in which investors invest their money in securities issued by both central and state government. There no risk associated with gilt funds as these are backed by the government. However, these not completely risk free and are vulnerable to change in interest rates.

Things to Remember

Investors who are planning to start invest in mutual funds must have basic knowledge. There are a lot of factors you should look into before selecting a mutual fund scheme which will match your investment goals. Following the few important things you should always remember before investing in Mutual Funds :

  1. Higher rates: Don’t blindly invest in the fund with the highest returns. Invest based on the duration you want to invest for.
  2. Every person’s financial condition is different. Evaluate the funds you invest in yourself – don’t invest in a fund because of its popularity.
  3. Equity oriented mutual fund are best for long-term investment tenure and through Systematic Investment Plan (SIP). SIP is much better and safer option for investing in equity oriented mutual funds.
  4. Direct plan for mutual fund gives you higher returns as compared to the regular plan of mutual fund schemes.
  5. STP route is best for all those investors who wish to invest a lump sum in mutual fund schemes because this way they get the dual benefits of comparative risk investment.
  6. Review your investment from time to time but not too often. Once a few weeks is good enough.

Also, there are many myths and false beliefs about mutual funds circulating in the markets from time to time. The most successful investors are the ones that ignore the myths and pay attention only to what actually needs their attention.

Read More: 10 Secrets Only Successful Mutual Fund Investors Know

Investing in mutual funds online is very simple and paperless. Simply log in to your Groww account, choose a fund, and invest using net banking – exactly like you would when shopping online.

To look at some of the best performing funds from every category of mutual funds, check out Groww 30: Top funds in every mutual fund category. 

Happy Investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.