Which Mutual Funds Should You Invest in as a Beginner?

The feeling of getting your first salary is unimaginable. You might want to splurge it all on a new phone or bike. Yet, financial consultants and elders will always advise you to start investing wisely from your first salary onwards.

But as a beginner, one is never sure where to invest. You may put it in the bank, but the returns are lesser. In comparison, the stock market gives high returns but is quite volatile. So, where do you invest as a beginner?

The answer to this problem is toinvest in mutual funds. This strategy is one of the most popular ways to build wealth over time and save for various financial needs along the way. Let us understand better.

What aremutual funds?

Mutual funds are an investment that pools money from various investors to buy securities such as company shares, stocks, or bonds. SEBI (Securities and and Exchange Board of India) registered professional managers manage these investments. These skilled mutual fund managers use their market insight to generate higher returns over time.

But before beginners invest in mutual fund, they should understand the different kinds of funds and the risk involved with each:

1. Equity funds:

These funds invest in the equity shares of various listed companies. This type is ideal for investors looking for long-term capital appreciation and can take a medium to a high level of risk.

2.  Debt funds:

Invest in government fixed-income assets such as treasury bills, bonds, or corporate deposits. Investors who are risk-averse or want to invest for a short-term horizon can invest in such funds.

3.      Hybrid funds:

This kind is a combination of the above two options. It provides a balance between the risk involved and returns generated.

Keeping the above details in mind, below are some of the best mutual funds for beginners:

●     ICICI Prudential equity & debt fund:

This aggressive hybrid mutual fund scheme has been beating the index for over two decades.

FundAUM (in Crores)1-year return (in %)3-year return (in %)5-year return (in %)
ICICI Prudential equity & debt fund18,74050.5119.3115.45

This fund has given double-digit returns even during the boom-bust cycle, helping investors reach their financial goals. The fund has allocated 74.42% to equity, 17.14% to debt, and the rest to cash. It is one of the best mutual funds for new investors as a quarter of its investment is in risk-averse securities.

●       Mirae Asset hybrid equity fund:

This medium-sized hybrid aggressive mutual fund scheme has been one of the best performers in the past six years.

FundAUM (in Crores)1-year return (in %)3-year return (in %)5-year return (in %)
Mirae asset large-cap fund6,24629.5417.7716.86

Since its inception, the fund has been a market leader in its category, doubling investors’ income in the past five years. It has 74.36% allocated to equity, resulting in safer instruments. Investing in this fund can help beginners earn higher returns than banks and other products.

●     SBI blue-chip fund

This is one of the best funds for beginners looking for long-term growth opportunities.

FundAUM (in Crores)1-year return (in %)3-year return (in %)5-year return (in %)
SBI blue-chip fund32,03133.5217.8914.86

Of the total fund value, 98.4% is invested in the equity, of which over 88% is in large-cap stocks. The fund invests in companies that are leaders in their categories. This approach ensures organic growth of wealth while inflating beating returns for investors.

●       Axis focused 25 funds:

This fund invests in equity instruments in only 25 companies from the top 200 companies from the SEBI list of large, mid, and small caps.

FundAUM (in Crores)1-year return (in %)3-year return (in %)5-year return (in %)
Axis focused 25 funds20,40432.8221.8321.22

The fund has 90% in equity, of which over 80% is in large-cap companies only. Depending on the market cycle, it can increase exposure to mid and small caps or remain heavy on large caps. This fund is the best choice for beginners who wish to increase their risk exposure for higher returns.

Final thoughts

Like any other financial product in the market, one might face a fair share of risk when investing in mutual funds. Yet, this is one of the safest and easiest products for beginners to start their investment journey.

Various fund houses offer different types of mutual funds. Thus, beginners should understand their needs and risk appetite and choose the fund that best fits the bill. The mutual funds highlighted above have a proven track record of market-beating returns and are best for those investing for the first time.