Best Mutual Funds for Beginners

The importance of investing cannot be understated in this day and age. For beginners, mutual funds are among the most popular and effective investment avenues. However, newer investors face challenges in picking the right mutual fund to invest in. In this blog, we will take a look at the top mutual funds for beginners.

The Best Mutual Fund for Beginners

The best mutual fund for beginners should offer them a variety of benefits. Besides returns, the other benefits that beginner-friendly mutual funds should typically offer are tax saving, diversification and growth. The following mutual funds are picked based on their 3-year annualised returns.

(Data as of February 5, 2025)

Overview of the Best Mutual Funds for Beginners 

Let’s take a closer look at the best mutual fund for beginners.

Equity Linked Saving Scheme (ELSS) Funds

SBI Long-Term Equity Fund

•       3Y Annualised Returns – 23.51%
•       Carries very high risk
•       Minimum SIP Amount – Rs 500
•       Assets Under Management (AUM) – Rs 27,791 crore
•       90.3% of the funds allocated to equity, 0.1% to debt, and 9.6% held as cash
•       Expense Ratio – 0.95%
•       Inception Date – May 7, 2007

Motilal Oswal ELSS Tax Saver Fund

•       3Y Annualised Returns – 22.18%
•       Carries very high risk
•       Minimum SIP Amount – Rs 500
•       AUM – Rs 4,414 crore
•       98.9% of the funds allocated to equity and 1.1% held as cash
•       Expense Ratio – 0.69%
•       Inception Date – January 21, 2015

HDFC ELSS Tax Saver Fund

•       3Y Annualised Returns – 21.54%
•       Carries very high risk
•       Minimum SIP Amount – Rs 500
•       AUM – Rs 4,414 crore
•       98.9% of the funds allocated to equity and 1.1% held as cash
•       Expense Ratio – 0.69%
•       Inception Date – 31 March, 1996

ICICI Prudential Long-Term Wealth Enhancement Fund

•       3Y Annualised Returns – 19.77%
•       Carries very high risk
•       Minimum SIP Amount – Not supported
•       AUM – Rs 41.30 crore
•       98.7% of the funds allocated to equity and 1.3% held as cash
•       Expense Ratio – 0.99%
•       Inception Date – March 22,, 2018

Sundaram Long-Term Tax Advantage Fund

•       3Y Annualised Returns – 19.44%
•       Carries very high risk
•       Minimum SIP Amount – Not supported
•       AUM – Rs 22.77 crore
•       95.7% of the funds allocated to equity and 4.3% held as cash
•       Expense Ratio – 1.67%
•       Inception Date – March 22. 2018

Hybrid Funds

JM Aggressive Hybrid Fund

•       3Y Annualised Returns – 21.40%
•       Carries very high risk
•       Minimum SIP Amount – Rs 100
•       AUM – Rs 762.93 crore
•       74.6% of the funds allocated to equity,19.4% to debt, and 6.1% held as cash
•       Expense Ratio – 0.68%
•       Inception Date – April 1, 1995

HDFC Balanced Advantage Fund

•       3Y Annualised Returns – 20.26%
•       Carries very high risk
•       Minimum SIP Amount – Rs 100
•       AUM – Rs 95,521 crore
•       53.7% of the funds allocated to equity, 30.1% to debt, and 14.8% held as cash
•       Expense Ratio – 0.78%
•       Inception Date – September 11, 2000

ICICI Prudential Multi-Asset Fund

•       3Y Annualised Returns – 19.14%
•       Carries high risk
•       Minimum SIP Amount – Rs 100
•       AUM – Rs 51,027 crore
•       48.2% of the funds allocated to equity, 16.8% to debt, and 22% held as cash
•       Expense Ratio – 0.70%
•       Inception Date – October 31, 2002

Quant Multi-Asset Fund

•       3Y Annualised Returns – 18.84%
•       Carries high risk
•       Minimum SIP Amount – Rs 1,000
•       AUM – Rs 3,201 crore
•       54.2% of the funds allocated to equity, 10.5% to debt, and 22% held as cash
•       Expense Ratio – 0.74%
•       Inception Date – March 21, 2001

UTI Multi-Asset Allocation Fund

•       3Y Annualised Returns – 18.44%
•       Carries very high risk
•       Minimum SIP Amount – Rs 500
•       AUM – Rs 4,962 crore
•       55.1% of the funds allocated to equity, 20% to debt, and 14.4% held as cash
•       Expense Ratio – 0.42%
•       Inception Date – November 19, 2008

Things to Know Before Investing in Mutual Funds for Beginners

Although investing in mutual funds has become easy, it is important to know certain aspects about them before making the investment.

Know Your Investment Goals

Regardless of the investment vehicle, it is crucial for investors to know their investment goals. They should have a clear understanding of what they would like to achieve from the investment and the timeframe within which to achieve them. This knowledge is crucial in the decision-making process of choosing the most suited mutual fund scheme(s).

They should have a clear understanding of their investment goals and the timeframe within which to achieve them. This knowledge is crucial in the decision-making process of selecting the most appropriate mutual fund scheme.

Know Your Risk Appetite

In addition to their investment goals, investors should be aware of their risk appetite. Mutual fund investment plans for beginners can carry moderate to high risk. They should invest in a scheme only after considering the risks that they can take on and the returns they are targeting.

Know the Importance of Staying Consistent

Short-term market volatility may shake the confidence of newer investors. However, it is important to know that staying invested for the long term is typically more beneficial. Especially for those investing through a systematic investment plan (SIP), staying disciplined and consistent can be rewarding.

Know the Pros and Cons of Diversification

Diversification refers to allocating one’s funds to different sectors, mutual fund schemes, or asset classes. Diversification can help mitigate risks and provide more stable returns. However, over-diversification can impact the overall performance of the portfolio.

Know the Tax Implications

Before making an investment decision in a mutual fund for beginners, know the tax implications of investing. An ELSS scheme offers tax benefits under Section 80C of the Income Tax Act. Other schemes attract capital gains tax and do not offer similar tax advantages.

Know Your Scheme

Before investing in a mutual fund scheme, investors should evaluate and compare the fund with other funds. Study the fund’s past performance, fund managers, and investment strategy. Consider the lock-in period, fees, and associated costs.

Conclusion

Investing through a mutual fund can be the right step for those just starting out on their investment journey. Although investing can be a rewarding activity, it is important to be aware of the risks and costs associated with investing. Staying consistent and having a long-term investment approach can be fruitful for beginner investors.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.

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Research Analyst - Bavadharini KS