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Understanding Lump Sum Investments in Mutual Funds

Lump sum investments in mutual funds mean putting a large amount of money into a fund at once instead of spreading it out over several smaller payments. This type of investment is suitable for those who have a significant amount of money ready to invest and are looking for a way to grow this money over time. When you invest a lump sum, your money starts working for you all at once, potentially growing through the fund’s activities and the overall movements of the market.

For example, consider Priya, who got ₹10 lakh from a relative. After consulting with a stock broker like lakshmishree, she decides to invest the entire lump sum in a well-performing mutual fund that aligns with her goal of long-term capital growth. A mutual fund invests in a diversified portfolio to grow the lump sum investment over time, offering benefits like professional management and liquidity. Over the years, the market has had its ups and downs, but because Priya’s investment horizon is over 10 years, she stays invested. Over time, her initial investment grows significantly, showing the potential benefits of lump sum investing in mutual funds for those who can afford to wait out the market’s volatility.

Best Mutual Funds for Lumpsum Investment 2025

Discover the top-performing mutual funds for lump-sum investment in 2025, selected based on their impressive 5-year returns. Our curated list features funds that offer a balance of growth potential and stability, helping you make informed decisions to maximize your wealth this year.

Overview of Best Lumpsum Mutual Funds 2025

Explore a detailed overview of the best mutual funds for lump-sum investment in 2025, including key metrics like expense ratios, NAV, and past returns. This guide will help you evaluate the top funds to make smart, data-driven investment decisions for sustained growth in the coming year.

1. Invesco India Infrastructure Regular Fund

Invesco India Infrastructure fund is one of the best mutual funds for lumpsum investment; targeted at capital growth, this fund invests primarily in stocks related to infrastructure. It is designed for investors looking to capitalize on the growth potential of India's infrastructure development.

• NAV: Rs 74.51
• Expense Ratio: 0.79%
• AUM: Rs 1606.43 crore
• Minimum lump sum investment: Rs.1000

Returns: 

2. Aditya Birla Sun Life PSU Equity Fund Direct-Growth

This mutual fund is designed to invest predominantly in Public Sector Undertakings (PSUs) across India. The fund seeks to capitalize on these entities' stability and growth potential by focusing on government-backed companies.

• NAV: Rs 33.92
• Expense Ratio: 0.55%
• AUM: Rs 5236.98 crore
• Minimum lump sum investment: Rs.500 

Returns: 

3. Parag Parikh Flexi Cap Fund Direct-Growth

This Flexi cap fund invests across market capitalizations and sectors, including a portion in international stocks. It is known for its value investing approach and aims for high-risk-adjusted returns.

• NAV: Rs 86.36
• Expense Ratio: 0.63%
• AUM: Rs 87539.41 crore
• Minimum lump sum investment: Rs.1000

Returns: 

4 SBI PSU Direct Plan-Growth

The SBI PSU Fund Direct Plan-Growth is the best SBI mutual fund for lumpsum investment; this mutual fund primarily invests in public sector undertakings (PSUs) across India. It focuses on companies that the government either partially or fully owns. Here are some key features of this fund:

• NAV: Rs 33.14
• Expense Ratio: 0.78%
• AUM: Rs 4572.13 crore
• Minimum lump sum investment: Rs.5000

Returns: 

5. JM Flexicap Fund Direct Plan-Growth

Aiming to provide capital appreciation, this fund invests in a dynamically balanced portfolio across large, mid, and small-cap stocks. It's suitable for investors looking for diversified exposure within the equity market.

• NAV: Rs 112.59
• Expense Ratio: 0.55%
• AUM: Rs 5338.35 crore
• Minimum lump sum investment: Rs.1000

Returns: 

6. HDFC Flexi Cap Direct Plan-Growth

This diversified fund invests across various market caps and sectors, aiming to offer flexibility and capital appreciation. It adjusts its portfolio based on market conditions and growth prospects.

• NAV: Rs 1981.50
• Expense Ratio: 0.79%
• AUM: Rs 66344.40 crore
• Minimum lump sum investment: Rs.100 

Returns: 

7. Franklin India Flexi Cap Fund Direct-Growth

It is one of the best mutual funds for lumpsum investment; aiming to generate long-term capital growth, this fund primarily invests in large-cap stocks across various sectors. It's known for a robust portfolio that targets leading companies with a stable performance record.

• NAV: Rs 1716.85
• Expense Ratio: 0.93%
• AUM: Rs 17946.77 crore
• Minimum lump sum investment: Rs.5000 

Returns: 

8. Nippon India Large Cap Fund Direct-Growth

Aiming to generate long-term capital growth, this fund primarily invests in large-cap stocks across various sectors. It's known for a robust portfolio that targets leading companies with a stable performance record.

• NAV: Rs 93.63
• Expense Ratio: 0.66%
• AUM: Rs 35699.99 crore
• Minimum lump sum investment: Rs.100 

Returns: 

9. Canara Robeco Bluechip Equity Fund Direct-Growth

This fund focuses on equity and equity-related securities of large-cap companies. With a strategy to invest in quality blue chip stocks, it seeks to offer investors sustainable returns over the long run.

• NAV: Rs 67.66
• Expense Ratio: 0.51%
• AUM: Rs 14799 crore
• Minimum lump sum investment: Rs.5000 

Returns: 

10. Edelweiss Large Cap Fund Direct-Growth

Managed by Edelweiss, this fund invests predominantly in large-cap stocks aiming for capital appreciation. It targets stable and well-established companies, making it suitable for risk-averse equity investors.

• NAV: Rs 90.66
• Expense Ratio: 0.45% 
• AUM: Rs 1109.74 crore
• Minimum lump sum investment: Rs.100 

Returns: 

Top 5 Mutual Funds for lumpsum investment 2025

Focusing on the top tier, the Top 5 mutual funds for lumpsum investment in 2025 offer a blend of dynamism and stability with 1 yr Highest Growth.
The top investment options for 2025 are:

Case Studies: Success Stories of Lump Sum Investments

Suresh, a 50-year-old marketing consultant, invested ₹20 lakh in a high-growth mutual fund with an aggressive growth strategy, targeting an annual return of 15%. He planned to start his consulting firm in 10 years using the proceeds from this investment.

To calculate the future value of Suresh’s investment at a 15% annual return over 10 years, we use the formula for compound interest:

For Suresh, the calculation would be:

Future Value= ₹20,00,000×(1+0.15)¹⁰

Breaking down the calculation:

This calculation shows that Suresh’s initial investment of ₹20 lakh could grow to about ₹80.91 lakh in 10 years with a 15% annual return, approximately 4 times the original amount. The growth factor of approximately 4.04575 confirms that a 15% annual return effectively quadruples the investment in a decade due to the power of compounding. This clarifies how such returns over a decade can substantially increase the initial capital.

Lump Sum vs SIP: Knowing the Difference

Which is Good for You, Lumpsum or SIP Investment?

Choosing between a lump sum investment and a Systematic Investment Plan (SIP) largely depends on your financial circumstances, investment goals, and risk tolerance. Here’s a breakdown to help you decide which might be better suited to your needs:

Lump Sum Investment:

• Best for those with a large sum of money available for investing: If you’ve received a windfall, inheritance, or have accumulated savings, you might consider a lump sum investment. This can be a good choice if you're looking to invest at a potentially opportune market time and are searching for the best mutual funds for lumpsum investment.
• Higher risk and return potential: With a lump sum investment in the best mutual funds, you could see higher returns if the timing aligns well with market conditions. However, this also means your risk of entering the market at the wrong time is higher.

Systematic Investment Plan (SIP):

• Ideal for regular income earners: If you earn a regular income and want to invest a fixed amount periodically (e.g., monthly), SIPs are ideal. This method eases the financial burden by spreading the investment over time.
• Reduces the impact of market volatility: SIPs effectively mitigate the risk associated with market timing by enabling consistent investments, irrespective of market conditions. This strategy employs dollar-cost averaging, where you buy more units when the market is low and fewer when it is high, leading to a lower average cost per unit over time. This approach not only smooths out fluctuations but also lessens the overall investment risk.

How to Invest lumpsum Amount in Mutual funds

Eager to get started? Investing your lump sum in the top mutual funds is straightforward. Here’s how:

1. Set up online trading, and Demat account through a broker like lakshmishree, which is your gateway to the world of investments.
2. Once you’re in, navigate through the online trading portal.
3. Select your preferred mutual fund scheme.
4. Place your order.
5. Confirm whether your transaction is a one-time investment or phased through systematic SIPs.

Evaluating Mutual Fund Categories for Your Lump Sum

When you have a lump sum to invest, you need to consider the various mutual fund categories, each with its own characteristics and investment objectives. From high-growth equity funds to debt funds and balanced hybrid funds, your choice should be based on your financial goals, risk appetite and investment horizon.

Also, Exchange-Traded Funds (ETFs) are gaining popularity as a flexible and cost effective option. With its ability to give diversified exposure on stock exchanges, ETFs are a good choice for lump sum investments in India, with liquidity and low management charges.

Equity Mutual Funds: High Risk, High Potential Returns

Equity mutual funds primarily invest in stocks of various companies with the aim of capital growth. These funds offer the potential for substantial returns as the value of the underlying stocks increases over time.

These funds are ideal for investors with a higher risk appetite, looking to achieve significant growth. While they come with market volatility, they are an attractive option for those who can weather short-term fluctuations for long-term gains.

Investors also enjoy tax advantages, including tax-exempt capital gains up to a certain limit, making equity mutual funds a compelling choice for lump-sum investments.

Debt Funds: Stability and Income Generation

Debt funds invest in fixed income securities like bonds, government securities and other money market instruments. These funds are lower risk and for those who want a steady income.

Conservative investors look for stability and regular returns and relatively low volatility.

Hybrid Funds: Balanced Growth with Risk Mitigation

Hybrid funds combine equities and fixed income in one portfolio to get growth and stability. They allow you to balance the high potential of equities with the security of debt investments.

Hybrid funds are for medium-term investors and those who want a more moderate risk profile. They can adjust to market changes and adjust their asset allocation to get the best returns while managing risk. Plus the tax treatment of hybrid funds mirrors their equity exposure, another thing to consider.

Strategic Considerations for Lump Sum Investors

When considering a lump sum investment, strategic planning is crucial for balancing potential returns with risks. Here are streamlined strategic considerations for investors thinking about lump sum investments:

• Timing the Market: Assess current economic conditions and market trends to choose an optimal entry point. Avoid investing all at once during volatile periods.

• Asset Allocation: Diversify your investments across different asset classes to mitigate risk and potentially enhance returns. Regularly rebalance your portfolio to adapt to changing market conditions.

• Risk Assessment: Align your investment with your risk tolerance and investment horizon. Longer investment periods can usually absorb more volatility.

• Research and Due Diligence: If choosing mutual funds or ETFs, examine their performance, fees, and management quality. For stocks, evaluate the financial health and market position of companies.

• Tax Considerations: Understand the tax implications of your investments and consider using tax-advantaged accounts to optimize returns.

Taxes and Expenses in Lumpsum Investments

When investing in mutual funds through a lump sum investment, it's important to consider the taxes and expenses involved, as they can significantly affect the returns on your investment. Here’s a brief overview:

1. Expense Ratio: This is the fee mutual funds charge yearly for managing your money. It includes administrative costs, management fees and other operational expenses. The expense ratio is expressed as a percentage of the fund’s average assets under management (AUM) and is deducted from the fund’s assets, thus impacting overall returns. If you invest lumpsum in top mutual funds, a higher expense ratio can eat into the profits if the fund doesn’t outperform significantly.

2. Exit Load: Some mutual funds have an exit load—a fee for withdrawing your money within a certain period, usually within a year from the investment date. This fee is a percentage of the amount you’re withdrawing and is meant to discourage short term withdrawals and can impact your lump sum returns.

3. Capital Gains Tax: The profits you make from your mutual fund investments are subject to capital gains tax which varies based on the tenure of your investment. For equity funds, if you sell your investment after more than 1 year, you’ll be taxed 12% on gains above ₹1 lakh annually without indexation. If you sell within a year, the gains are short term and taxed at 20%. For debt funds, the LTCG tax in short-term gains are added to your income and taxed according to your income tax slab.

4. Securities Transaction Tax (STT): STT is levied on every purchase or sale of equity-oriented mutual funds in India. The current rate is 0.001% on the sell-side for equity mutual funds.

Save Tax on Lumpsum mutual funds.

Savvy investors can leverage tax-saving strategies to enhance the efficiency of their lump-sum investments in mutual funds. One prime option is the equity-linked saving scheme (ELSS), offering tax deductions under Section 80C. By wisely investing in ELSS, one can reduce the taxable income by up to ₹1,50,000 annually. However, it’s important to note that the lock-in period and tax on long-term capital gains exceeding ₹1,00,000 per year must be considered.

Each investment portion in ELSS through SIPs or lump sums carries its tax implications, emphasizing the need for strategic investment planning.

Conclusion: Best Mutual Funds for Lumpsum Investment

Investing in the best lumpsum mutual funds requires strategic planning, market intelligence, and an eye for detail. Much like identifying the best performers to understanding the tax implications of your investments and the costs involved, an informed investor is all set to make the most of the year 2025. As success stories illustrate and preparatory steps lead the way, investing your money is less about the actual investment than the whole approach enveloping it.

Also Check

Frequently Asked Questions

Disclaimer: This article is intended for educational purposes only. Please note that the data related to the mentioned companies may change over time. The securities referenced are provided as examples and should not be considered as recommendations.

The post 10 Best Mutual Funds for Lumpsum Investment in 2025 appeared first on Lakshmishree Blogs.

But where should you start? The best infrastructure mutual funds offer a great way to capitalise on India’s economic growth while diversifying your portfolio. These funds invest in companies driving major projects across energy, transportation, and urban development—helping you tap into long-term growth opportunities.

What Are Infrastructure Mutual Funds?

In simple terms, infrastructure mutual funds are investment funds that focus on companies involved in developing and maintaining a nation's infrastructure. This includes sectors like transportation (roads, railways, airports), energy (power plants, renewable energy), telecommunications, and even urban development projects.

Investing in the best infrastructure mutual funds puts your money into the economy's backbone—projects essential for India’s growth. These funds collect money from investors like you and then allocate it to various infrastructure companies, providing a diversified way to invest in this high-potential sector without picking individual stocks.

Infrastructure mutual funds are a great option for investors looking for long-term growth and believe in the country's future development. With the government pushing for large-scale projects under initiatives like Smart Cities and Bharatmala, this sector is poised for continued expansion in 2024 and beyond.

Why Invest in Infrastructure Mutual Funds in 2024?

Investing in infrastructure mutual funds in 2024 is a strategic way to benefit from India's growing infrastructure sector. Here are the key reasons:

• Massive Government Spending: The Indian government has allocated a record ₹10.5 lakh crore for infrastructure development in its 2024-25 Union Budget. This is a significant boost for sectors like highways, railways, and energy, creating strong growth opportunities for infrastructure-focused funds.
• Ambitious Mega Projects: Projects like Bharatmala, Sagarmala, and Gati Shakti are set to transform India’s roadways, ports, and logistics. With these multi-year initiatives in full swing, infrastructure mutual funds provide exposure to companies benefiting from these long-term projects.
• Economic Reforms and Privatization: Ongoing economic reforms, including increased privatization and public-private partnerships (PPP), are driving infrastructure growth. This makes infrastructure mutual funds a smart way to invest in companies positioned to gain from these pro-business policies.
• Green Energy and Sustainability: The government’s push toward renewable energy and sustainable infrastructure, including solar, wind, and electric vehicle projects, is another key driver. Infrastructure mutual funds increasingly invest in green energy, helping you tap into the future of energy development.

List of Top 10 Best Infrastructure Mutual Funds in India for 2024

Here is a list of the top 10 best infrastructure mutual funds for 2024. These funds have shown strong returns in the past three years and provide a balanced way to invest in key areas like energy, transport, and urban development.

Overview of the Best Infrastructure Mutual Funds in India

Below is an in-depth look at India's top infrastructure mutual funds for 2024. Each fund has its unique investment strategy, focus sectors, and performance history. We'll give detailed information for each fund, such as expense ratios, market caps, NAV, and returns.

1. ICICI Prudential Infrastructure Fund

ICICI Prudential Infrastructure Fund is one of the top-performing funds in the infrastructure sector and has consistently provided solid returns over the years. It invests in a mix of large-cap and mid-cap companies across sectors such as power, telecom, and transportation. Its investment strategy is aligned with India's infrastructure growth story, making it one of the best infrastructure mutual funds for long-term investors seeking exposure to this high-growth sector.
Fund Launch Date: August 31, 2005

• NAV: Rs 212.01
• Expense Ratio: 1.18%
• AUM: Rs 6062.77 crore
• Minimum lump sum investment: Rs.5000

Returns: 

2. HDFC Infrastructure Fund

Widely regarded as one of the best infrastructure mutual funds, the HDFC Infrastructure Fund focuses on companies involved in developing and maintaining infrastructure across India. This fund invests heavily in energy, transportation, and telecommunications sectors, aiming for long-term capital appreciation. Its strategy revolves around capitalizing on India's rapid infrastructure growth, making it a top choice for investors looking to benefit from both government projects and private sector initiatives.
Fund Launch Date: March 10, 2008

• NAV: Rs 53.82
• Expense Ratio: 1.11%
• AUM: Rs 2533.24 crore
• Minimum lump sum investment: Rs.100

Returns: 

3. DSP India T.I.G.E.R Fund-Reg

The DSP India T.I.G.E.R Fund is one of the best infrastructure mutual funds and stands out for its focus on economic reforms and infrastructure growth in India. T.I.G.E.R stands for "The Infrastructure Growth and Economic Reforms," and this fund invests in sectors that will benefit from India’s economic reforms, such as capital goods, construction, utilities, and transport.
Fund Launch Date: May 16, 2004

• NAV: Rs 362.64
• Expense Ratio: 0.89%
• AUM: Rs 5360.43 crore
• Minimum lump sum investment: Rs.100

Returns: 

Also check: 10 Best EV Stocks in India 2024

4. Bandhan Infrastructure Fund-Reg

Formerly known as the IDFC Infrastructure Fund, the Bandhan Infrastructure Fund primarily invests in physical infrastructure sectors like roads, energy, and construction. It takes a relatively conservative approach compared to other funds, making it ideal for risk-averse investors.
Fund Launch Date: March 28, 2011

• NAV: Rs 63.53
• Expense Ratio: 0.82%
• AUM: Rs 1934.06 crore
• Minimum lump sum investment: Rs.1000

Returns: 

5. Franklin Build India Fund

Franklin Build India Fund focuses on long-term capital appreciation by investing in companies involved in infrastructure and infrastructure-related sectors. Its portfolio includes companies from the construction, engineering, and industrial sectors that are benefiting from government policies and India's growing demand for infrastructure.
Fund Launch Date: September 04, 2013

• NAV: Rs 163.54
• Expense Ratio: 0.91%
• AUM: Rs 2880.67 crore
• Minimum lump sum investment: Rs.5000

Returns: 

6. Invesco India Infrastructure Fund

Invesco India Infrastructure Fund is a balanced option for investors looking for moderate risk. It invests in a diversified portfolio across various infrastructure-related sectors like energy, telecom, and construction. This fund focuses on large and mid-cap companies, giving investors exposure to stable, established companies as well as growing businesses.
Fund Launch Date: November 21, 2007

• NAV: Rs 79.67
• Expense Ratio: 0.70%
• AUM: Rs 653.12 crore
• Minimum lump sum investment: Rs.1000

Returns: 

7. Kotak Infra & Eco Reform Fund

This fund has a unique focus on infrastructure as well as economic reforms. Kotak Infra & Eco Reform Fund invests in companies that benefit from both infrastructure growth and government reforms in India. It offers a balanced portfolio of large-cap and mid-cap companies operating in the construction, utilities, and engineering sectors.
Fund Launch Date: December 25, 2005

• NAV: Rs 86.21
• Expense Ratio: 0.60%
• AUM: Rs 2436.73 crore
• Minimum lump sum investment: Rs.100

Returns: 

8. Quant Infrastructure Fund

Quant Infrastructure Fund is known for its aggressive investment style, focusing on high-growth opportunities within the infrastructure sector. This fund is considered as one of the best infrastructure mutual funds because it has consistently delivered impressive returns, investing in companies across sectors like power, telecommunications, and transportation. It takes a high-risk, high-reward approach, which has attracted investors looking to capitalise on India's rapid infrastructure development.
Fund Launch Date: January 01, 2008

• NAV: Rs 45.30
• Expense Ratio: 0.66%
• AUM: Rs 3990.92 crore
• Minimum lump sum investment: Rs.5000

Returns: 

9. Tata Infrastructure Fund-Reg

Tata Infrastructure Fund focuses on delivering long-term capital appreciation by investing in infrastructure sectors such as power, telecom, and construction. The fund maintains a well-diversified portfolio, spreading its investments across different sub-sectors of infrastructure to reduce risk while aiming for stable growth. It is suitable for investors looking for consistent returns over a longer period.
Fund Launch Date: December 31, 2004

• NAV: Rs 210.09
• Expense Ratio:  1.18%
• AUM: Rs 2645.35 crore
• Minimum lump sum investment: Rs.5000

Returns: 

10. HSBC Infrastructure Fund-Reg

HSBC Infrastructure Fund is designed for conservative investors looking for steady, low-risk returns. It primarily focuses on sectors like energy, transportation, and utilities. This fund aims to provide stable returns by investing in well-established companies with predictable cash flows and a solid growth outlook. While it may not offer the highest returns, it’s a safer bet for those looking for long-term investment in the infrastructure space.
Fund Launch Date: March 27, 2008

• NAV: Rs 55.95
• Expense Ratio: 0.96%
• AUM: Rs 2847.57 crore
• Minimum lump sum investment: Rs.5000

Returns: 

Benefits of Investing in Best Infrastructure Mutual Funds

Infrastructure mutual funds offer unique advantages that can significantly boost your long-term financial growth. Here are some key benefits:

• Exposure to High-Growth Sectors: These funds allow investors to gain exposure to fast-developing sectors like transportation, energy, and telecom—areas that benefit from the ongoing infrastructure push in India.
• Diversification: Infrastructure mutual funds diversify your portfolio by investing across multiple infrastructure sectors, reducing the risk of relying too heavily on a single sector.
• Professional Fund Management: Managed by experts, these funds ensure your investment is aligned with the best opportunities in the infrastructure space, especially in line with government policies and economic trends.
• Long-Term Wealth Creation: Infrastructure projects typically have long development cycles, meaning they offer the potential for steady, long-term capital appreciation.
• Government Support: With ongoing government initiatives like Bharatmala and Smart Cities, infrastructure mutual funds are poised to benefit from significant public and private sector investments.

Risks Associated with Infrastructure Mutual Funds

While infrastructure mutual funds offer promising returns, they do come with certain risks that investors should carefully consider:

• Sector Concentration Risk: These funds are heavily focused on the infrastructure sector, which means their performance is tied closely to sector-specific events like policy changes or economic downturns.
• High Volatility: Infrastructure stocks can experience significant price swings due to changes in government regulations, raw material costs, or geopolitical events.
• Political and Economic Risk: Shifts in government policy, budget cuts, or slow project approvals can delay infrastructure development, impacting the fund's performance.
• Long Gestation Periods: Infrastructure projects can take years, even decades, to complete. As a result, the returns may be slow to materialise compared to other sectors.
• Interest Rate Risk: Many infrastructure companies are capital-intensive and rely on loans. Rising interest rates could increase their debt costs, negatively affecting profits and, consequently, the mutual fund’s returns.

Also check: 10 Best SWP Mutual Funds in India 2024

Trends in Infrastructure of India (2024)

India's infrastructure landscape is evolving rapidly in 2024, creating opportunities for investors. Key trends include:

• Renewable Energy Growth:
  India aims for 500 GW of renewable energy by 2030, with a strong focus on solar and wind power projects in 2024. Investments in green energy are critical as the country shifts towards cleaner energy sources.
• Smart Cities and Urban Development:
  The Smart Cities Mission continues, with 100 cities receiving ₹6,450 crore for projects enhancing urban infrastructure using technologies like IoT and AI. Affordable housing under the Pradhan Mantri Awas Yojana also remains a priority, with ₹50,000 crore allocated.
• Transport and Logistics Expansion:
  ₹1.99 lakh crore has been allocated for road and highway development, including Bharatmala Phase-II, which will improve connectivity across India. Railways will receive ₹2.40 lakh crore for network expansion and freight corridors.
• 5G and Telecom Infrastructure:
  India is ramping up its 5G rollout, targeting 80% coverage by 2024, which boosts investments in telecom infrastructure and data centres.

Impact of Union Budget 2024-25 on the Infrastructure Industry

The Union Budget 2024-25 plays a pivotal role in driving infrastructure growth across sectors. Here's a breakdown of key allocations and goals impacting the industry:

• Record Infrastructure Spending:
  The government has allocated a historic ₹11.7 lakh crore for capital expenditure in 2024-25, a 33% increase from the previous year. This is aimed at boosting infrastructure projects, with a focus on roads, railways, airports, and renewable energy. 
• ₹1.99 Lakh Crore for Roads and Highways:
  A substantial portion of the budget has been dedicated to the Ministry of Road Transport and Highways. This includes ₹1.99 lakh crore to expand national highways, complete Bharatmala projects, and construct new expressways and bridges.
• ₹2.40 Lakh Crore for Railways:
  The Indian Railways received a record budgetary allocation of ₹2.40 lakh crore, marking a significant increase compared to previous years. This will be used to expand rail networks, upgrade rail infrastructure, and increase the capacity of freight corridors.
• Green Growth Initiatives:
  With the launch of the National Green Hydrogen Mission, the Union Budget 2024-25 earmarked ₹19,700 crore for green energy projects. This is set to accelerate the transition to renewable energy and develop green hydrogen infrastructure, supporting India’s goal to become energy-independent and reduce emissions by 45% by 2030.
• Focus on Affordable Housing:
  Affordable housing has received a boost with ₹50,000 crore allocated for the Pradhan Mantri Awas Yojana (PMAY). This allocation is expected to accelerate urban housing projects and cater to the growing need for affordable housing in India’s cities and towns.
• Focus on Renewable Energy and Sustainability:
  The Budget also earmarked ₹35,000 crore to support the energy transition toward cleaner fuels. This includes investments in grid modernisation, solar power projects, and battery storage systems to facilitate uninterrupted renewable energy supply.

How to Start Investing in Infrastructure Mutual Funds

Investing in Infrastructure Mutual Funds with Lakshmishree is simple and straightforward. Follow these quick steps to begin your investment journey:

• Step 1: Open Your Account: Visit the Lakshmishree website or download our app to create your free investment account. Complete your KYC (Know Your Customer) process to get started.

• Step 2: Explore Infrastructure Mutual Funds: Once your account is active, Head to the mutual fund section. Search for Infrastructure Mutual Funds and explore options based on performance, expense ratios, and other key metrics.

• Step 3: Choose Your Investment Method: You can invest via SIP (Systematic Investment Plan) or lump sum investment. Select your preferred option on the fund’s page.

• Step 4: Set Up Payments: Complete your payment via UPI or net banking, or set up an auto-pay for SIP through a bank mandate for seamless investments.

Segments of the Infrastructure Sector in India

The infrastructure sector in India is diverse, contributing to overall economic growth. Key segments include:

• Transportation: This covers roads, highways, railways, airports, and ports. Investments in these areas aim to improve connectivity and logistics.
• Energy: Includes power generation (renewable and conventional), transmission, and distribution. Renewable energy projects like solar and wind are rapidly expanding.
• Telecommunications: Focused on expanding fibre networks, data centres, and 5G infrastructure to support the growing digital economy.
• Urban Infrastructure: Includes smart cities, affordable housing, water supply, and sewage systems, driving urbanisation and improving living standards.
• Social Infrastructure: This involves hospitals, schools, and other public utilities, which are essential for the welfare of the population.

Conclusion

Investing in India's best infrastructure mutual funds can be a great strategy for long-term wealth creation, especially given the government's focus on infrastructure development. With sectors like transportation, energy, and telecom set to grow significantly, these funds offer both growth potential and diversification. If you're looking for a way to capitalise on India's infrastructure boom while managing risk, infrastructure mutual funds could be the right choice for your portfolio. Make sure to assess your risk appetite and financial goals before investing.

Frequently Asked Questions

Disclaimer: This article is for educational purposes only and should not be considered financial advice. Always conduct your research and consider consulting with a financial advisor before making any investment decisions.

The post 10 Best Infrastructure Mutual Funds in India 2024 appeared first on Lakshmishree Blogs.

What are Mutual Funds?

Mutual funds are investment vehicles that pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. Mutual funds represent professionally managed investment vehicles for an easier and relatively less risky mode of investment by individual investors in financial markets. Investing in a mutual fund will offer you diversification to reduce risk and professional management to realize good returns.

Mutual funds have become popular in India because they cater to different financial goals and appetites for risk. Whether saving for retirement, child education, or a dream home, there is probably a mutual fund scheme designed for your needs. The other biggest positive for mutual funds is that they are regulated by the Securities and Exchange Board of India (SEBI), which means some degree of safety and transparency for investors.

10 Best Mutual Funds in India 2024

Knowing which funds stand out is very important whether you're aiming for high returns or looking for stability. Below, we list the top 10 high-return mutual funds in India based on 3-year returns to ensure you have a clear picture of some of the best available options. Let's look at the top & best mutual funds to invest in to help make an informed decision on investment.

Overview of Best Mutual Funds in India 2024

In this overview, we'll provide essential details like return, NAV (Net Asset Value) and AUM (Assets Under Management) for each fund. Understanding these metrics will give you a comprehensive view of why these funds are considered the best mutual funds to invest in India for 2024.

1. ICICI Pru Infrastructure Direct Growth

ICICI Prudential launched a fund to invest in India's infrastructure sector, and it is one of the best mutual funds to invest in India. It picks stocks of only those companies engaged in infrastructure and related sectors with an aim to provide long-term capital appreciation. Managed by the best professionals, this fund provides excellent investment opportunities.
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• NAV: Rs 204.40
• Expense Ratio:  1.19%
• AUM: Rs 5703.04 crore
• Risk: Very High risk 
• Minimum SIP investment: Rs.100

Returns: 

2. Motilal Oswal Midcap Direct Growth

The Motilal Oswal Midcap Direct Growth Fund endeavours to create wealth through investments made in high-growth, mid-sized companies. It aims to realize long-term capital appreciation at the very start through quality investments in mid-cap stocks. The strategy of this fund is to pick stocks with good fundamentals and excellent growth managed by a Motilal Oswal-acknowledged team.
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• NAV: Rs 109.35
• Expense Ratio:  0.59%
• AUM: Rs 12627.68 crore
• Risk: High risk 
• Minimum SIP investment: Rs.500

Returns: 

3. Franklin Build India Direct Growth

This Franklin Templeton scheme endeavours to take advantage of infrastructural development within India. Franklin Build India Direct Growth Fund will invest in companies engaged in activities in the construction, engineering, and associated infrastructure sectors. The main objective will be to seek capital appreciation over a long horizon from investments based on a global socioeconomic trend of growth in the Indian infrastructure sector.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 161.61
• Expense Ratio: 0.98%
• AUM: Rs 2738.26 crore
• Risk: High risk 
• Minimum SIP investment: Rs.500

Returns: 

4. Quant Mid Cap Direct Growth

Quant Mid Cap Direct-Growth Fund is one of the best mutual funds in India, which mainly diversifies investments in mid-cap stocks with an objective to earn continuously; in this way, the funds are managed systematically through stock selection. The fund heavily concentrates on stocks with the possibility of tremendous revenue growth. Quant Mid Cap fund, managed by Quant Mutual Fund, is looking for long-term capital appreciation by investing in a diversified basket of mid-cap companies.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 272.56
• Expense Ratio: 0.62%
• AUM: Rs 8747.40 crore
• Risk: High risk 
• Minimum SIP Investment: Rs 1000

Returns: 

5. JM Flexicap Direct Growth

The fund shall buy and hold shares capital merging the purchase of such large-cap, mid-cap, and small-cap stocks. The fund shall aim to provide long-term capital growth by dynamically managing—with a view on risk exposures—invested positions across various market capitalizations to creatively exploit a flexible and diversified platform structure under all precursory market conditions.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 116.91
• Expense Ratio: 0.40%
• AUM: Rs 3216.32 crore
• Risk: High risk 
• Minimum SIP investment: Rs.100

Returns: 

6. Nippon India Small Cap Direct Growth

Nippon India manages this fund, and it is one of the best mutual funds in India for risk-takers because they invested in small-cap companies with immense growth potential. The Fund's investment objective is to realize the capital's long-term value proposition to investors by investing in a diversified portfolio primarily consisting of small-cap companies. The most suitable investment class under this option is one seeking the potential growth offered in smaller companies distributed over different locations in India.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 192.16
• Expense Ratio: 0.64% 
• AUM: Rs 56468.75 crore
• Risk: High risk 
• Minimum SIP investment: Rs.100

Returns: 

7. Nippon India Multi Cap Direct Growth

It invests in companies across large, mid, and small market capitalization segments to achieve long-term capital appreciation. Nippon India Multi Cap Direct-Growth Fund is one such fund from the bucket of Nippon India AMC House, following balanced approaches to investments and showing exposure to different market portions and their potential toward growth.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 312.93
• Expense Ratio: 0.76%
• AUM: Rs 34943.27 crore
• Risk: High risk 
• Minimum SIP investment: Rs.100

Returns: 

8. ICICI Pru Dividend Yield Eq Direct Growth

ICICI Prudential Dividend Yield Equity Direct Growth Fund is one of the best mutual funds with an equity-oriented offering that provides regular income and long-term capital appreciation from investments made in a diversified portfolio of dividend-yielding stocks. ICICI Prudential is managed by one of the strongest investment teams with very sound investment "ICICI Prudential Dividend Yield Equity Direct Plan-Growth is to generate capital appreciation by investing in a diversified portfolio of Dividend Yielding Equities and related securities of large-cap companies.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 55.88
• Expense Ratio: 0.54%
• AUM: Rs 4256.91 crore
• Risk: High risk 
• Minimum SIP investment: Rs.100

Returns: 

9. Quant Large and Mid Cap Dir Gr

Quant Large and Mid Cap Direct Growth Fund aims to seek capital appreciation over a long period by investing in large-cap and mid-cap stocks. Quant Mutual Fund manages it for an appetite that must balance with stability through diversified equity exposure but still seeks out high-growth opportunities.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 138.68
• Expense Ratio: 0.66% 
• AUM: Rs 3290.34 crore
• Risk: High risk 
• Minimum SIP investment: Rs.1000

Returns: 

10. HSBC Small Cap Fund Dir Gr

HSBC Small Cap Fund Direct-Growth is an open-ended scheme in the category of equity funds focusing on small-cap companies. In this case, the fund house is HSBC, which shall invest in companies ranked as Small-Cap or, basically, any other security of potential high growth. This shall be an investment suitable for investors who desire exposure to emerging companies that have the potential to become market leaders in the future.
^{_{(Data taken on 22/07/2024)}}

• NAV: Rs 92.41
• Expense Ratio: 0.68%
• AUM: Rs 16396.94 crore
• Risk: High risk 
• Minimum SIP investment: Rs.500

Returns: 

5 Best Mutual Funds to Invest in 2024 for long-term

Looking for stable and profitable long-term investment options? These top 5 mutual funds for 2024 based on 5Yr Returns. They are expected to deliver solid and steady returns, making them ideal choices for long-term investors. Explore these best mutual funds to invest in India for long-term a, secure and prosperous future.

Factors to Consider Before Investing in Mutual Funds

Investing in mutual funds requires careful consideration of several factors:

1. Risk Tolerance: Understand your ability to withstand market volatility. High-risk funds may offer higher returns but come with greater fluctuations.
2. Investment Horizon: Determine how long you plan to invest. Longer investment periods can weather market ups and downs better.
3. Financial Goals: Align your fund selection with your financial objectives, whether it's saving for retirement, education, or a significant purchase.
4. Fund Performance: Evaluate the fund's past performance, but remember that past results don’t guarantee future returns.
5. Expense Ratio: Consider the cost of managing the fund. Lower expense ratios generally mean better net returns for you.
6. Fund Manager’s Track Record: Look at the experience and success rate of the fund manager.

You can choose mutual funds that best fit your investment strategy and financial goals by considering these factors.

Types of Mutual Funds

Various types of mutual funds cater to different investment needs and hence the different risk profiles. Major heads include equity funds, debt funds, and hybrid funds.

1. Equity Funds: These funds primarily get directed into stocks with high growth possibilities and, therefore, would be fit for any long-term investor. For instance, a large-cap equity fund invests in well-established companies with a track record of stable returns.

2. Debt Funds: These funds invest in fixed-income securities such as government and corporate bonds. They are ideal for conservative investors seeking regular income and lower risk.

3. Hybrid Funds: These funds are a mix of equity and debt investment. They are funds whose mission is to provide a diversified portfolio in their approach to strike a balance between growth and income from these classes. A balanced advantage fund may be one typical example of a hybrid fund, which is dynamically allocated according to market conditions.

Criteria for Selecting the Best Mutual Funds

Several criteria must be listed while selecting the best mutual funds to invest in India. The most important one is getting to know how it performed in the past; and whether the fund has been consistent over some time. Although past performance does not ensure the same in the future, it shows how skilful the fund manager is and how stable the fund is. Finally, the expense ratio, the lower the ratio, the higher the percentage of your money working for you. Also, fund manager reputation/experience: experienced managers can handle market fluctuations better. Finally, how does the fund match your financial goals and risk tolerance?

Advice to Get Good Returns from Mutual Funds

Please take care of the points mentioned below to get good returns on your mutual fund investments:

• Stay Invested: Run your SIPs for at least 5 years to witness reasonable returns. Do not eye for short-term returns.
• Keep Calm: Do not discontinue existing SIPs when returns are low because markets fluctuate, and staying invested helps.
• Choose Growth Option: Opt for a growth option in mutual funds to gain from compounding.
• Avoid Lump Sum in Bull Run: Do not deploy huge amounts in peak-performing equity funds to just garner short-term returns. Market peaks can reverse—losses are quite possible.
• Invest After Market Corrections: Consider investing lump sum amounts in equity mutual funds only after markets correct from their peaks.
• Prefer Debt Funds Over FDs: Do not switch from debt funds to fixed deposits because of guaranteed returns. The interest on fixed deposits is fully taxable, and it may give you even lower post-tax returns for people in higher tax brackets. Moreover, debt funds enjoy better tax treatment when investments are held for more than 3 years.
• Long-Term Perspective: Concentrate on the long-term prospects of your investments and not on short-term variations of market prices.
• Regular Review: You need to review your mutual fund portfolio periodically and check that it is still aligned with what you want to achieve and matches your capacity for risks.
• Diversification: Diversify across different mutual funds. Spreading investments over different kinds of mutual funds reduces risk and increases potential returns.
• Sell in Cash Panic: Do not sell your mutual funds in panic when the market sees a downturn; stay invested to ride out the volatility.

How to Select the Top Performing Mutual Funds in India

Selecting top-performing mutual funds involves a blend of research and strategy:

1. Research and Analysis: Do research and analysis using financial websites, tools, and reports.
2. Fund Ratings: Check the ratings from credible sources like CRISIL or Morningstar.
3. Speak to Financial Advisors: Having professional advice will offer you personal insights tailored to your specific financial scenario.
4. Performance Metrics: Concentrate on steady performance through various market cycles, not just current gains.
5. Fund Management: Look for experience and strategy from the team in charge of fund management.
6. Peer Comparison: Compare the fund's performance with similar funds falling under the category.

These steps will help you identify mutual funds that have gained a strong performance in the past and future growth potential.

How to Invest in Mutual Funds

Investing in mutual funds can be done in two primary ways: SIP (Systematic Investment Plan) and lump sum. Each method has its own benefits and flexibility, catering to different types of investors.

1. Through a Systematic Investment Plan (SIP)

SIPs allow investors to invest a fixed amount of money at periodic intervals, thereby reaping the benefit through rupee-cost averaging. This would hence be the perfect way for investing to people with stable incomes since it assists in disciplined investment without worrying about the rise and fall of the market. This is highly flexible because it allows starting with a relatively small sum and increasing your investment over time. This is ideal for anyone looking to adopt a very hands-off, consistent investment strategy.

2. Through Lump Sum Investment

Lump sum investments involve investing a significant amount of money in one go. This strategy can be particularly beneficial when the market is low, potentially leading to higher returns. However, timing is crucial; investing at a market peak could result in lower gains or even losses. Lump sum investments are suitable for those with substantial money who are ready to invest and comfortable with market timing. While it requires a bit more risk tolerance, the rewards can be significant if executed well.

Regardless of which road is taken, mutual fund investing can be rather easy through the Shree Varahi app offered by Lakshmishree. First, download the app from the App Store or Play Store; then, open your account and do your KYC. You can view the list of top mutual funds, select any fund you want to invest in, decide on the investment amount, and start investing in either a systematic investment plan or a lump sum.

Taxes on Best Mutual Funds in India

Knowing the tax implications that mutual funds have will prove more useful in gaining the maximum possible returns. We provide here details on the taxability of mutual fund investments in India.

1. Types of Earnings: Mutual funds will offer earnings in two forms; in terms of capital gains or dividends. Tax treatment varies for each.
2. Taxation of Dividends: The dividends you receive are included in your income and taxed at the tax rates applicable to your income.
3. Capital Gains Tax:
   • Equity Funds:
     • Short-Term Capital Gains (STCG): On the gains from equity mutual funds, which have been cashed within one year, the tax rate is 20%.
     • Long-term Capital Gains (LTCG): Gains from equity mutual funds, which were held for over a year, shall be taxed at 12.5% for amounts above Rs 1.25 lakh.
   • Debt Funds:
     • Short-Term Capital Gains (STCG): Gains on the sale of debt funds within 3 years are taxed at the rate according to your income tax slab.
     • Long-Term Capital Gains (LTCG): For the gain on debt funds held for more than three years, the tax rate is 20% after indexation.
4. Hybrid Funds Taxation: It depends on the underlying allocation of assets.
   • If the fund invests at least 65% in equities, it's taxed like an equity fund.
   • Tax treatment is like a debt fund in case less than 65% of the allocation goes into equity.

In India, AMCs collect investments from the public and run mutual funds that invest in a well-diversified portfolio of stocks, bonds, and securities. Knowledge of the tax rules helps one better plan investment and reduce possible tax liabilities.

Who Should Invest in the Best Mutual Funds?

Mutual funds are flexible investment alternatives that can serve different types of investors.

1. New Investors: Mutual funds will be a blessing for people just getting started with investing, considering the fact that professionals manage mutual funds and offer sound diversification.
2. Busy Professionals: People too busy to keep track of development of their investments can always rely on mutual funds for management professionally.
3. Long-Term Planners: Mutual funds are utilized by long-term investors with financial goals such as retirement or children's education funds because of the potential in these funds.
4. Risk-Averse Investors: Individuals who seek safer investment options may prefer investing in debt or balanced mutual funds, which expose the investor to lesser market volatility.

The scheme of mutual funds is framed to satisfy the needs of everyone according to his or her financial goals and appetite for risk.

Conclusion

The best mutual funds to invest in India in 2024 can significantly improve your financial portfolio and help to live up to your long-term financial goals. You can enhance returns from your investments by selecting the right mix of mutual funds based on performance, risk alignment with their objectives, and the caution of making mistakes.

Whether you are an amateur or a seasoned investor, mutual funds are the most versatile and quickest way to choose for wealth creation. So, start investing today and take the first step toward a secure financial future!

Frequently Asked Questions

Disclaimer: This article is for educational purposes only and should not be considered financial advice. Always conduct your research and consider consulting with a financial advisor before making any investment decisions.

The post 10 Best Mutual Funds in India 2024: Top Mutual Funds appeared first on Lakshmishree Blogs.

What is Midcap Mutual Funds?

Midcap mutual funds invest in mid-sized companies that have a market capitalization ranging from Rs 5,000 crores to Rs 20,000 crores. These companies are typically in a growth phase, offering a blend of stability and potential for high returns. Midcap funds are positioned between large-cap funds, which invest in well-established companies, and small-cap funds, which target emerging firms with higher risk and reward profiles.

Investing in midcap mutual funds can be an excellent way to capitalize on the growth potential of mid-sized companies. These firms often have substantial room to expand and innovate, leading to higher returns for investors. Unlike large-cap funds, which offer more stability but lower growth prospects, midcap funds strike a balance between risk and reward. They are less volatile than small-cap funds, making them a more attractive option for moderate risk-takers.

10 Best Midcap Mutual Funds to Invest in 2024

As we enter 2024, let’s highlight the 10 Top Midcap Mutual Funds to invest in, considering 'fund performance' as a key criterion for selection. Each fund’s unique strategy and asset allocation promises to cater to different investor profiles and financial goals. The chart below is prepared as per the highest 5-year return.

Why to Invest in Midcap Mutual Funds?

For several reasons, investing in the best midcap mutual funds is a smart choice. First, midcap companies are in their growth phase, meaning they have significant potential to expand and increase their market share. This growth phase can translate into higher returns for investors compared to large-cap funds, which invest in more established companies with less room for rapid growth. By investing in midcap mutual funds, you can benefit from the success of companies on their way to becoming industry leaders.

Moreover, midcap mutual funds offer a balanced risk-reward profile. While they are riskier than large-cap funds, they are generally less volatile than small-cap funds. This makes them a good option for investors who are willing to take on some risk for the possibility of higher returns but do not want the extreme volatility that comes with small-cap funds. Overall, midcap mutual funds are a great way to diversify your investment portfolio and take advantage of the growth potential of mid-sized companies.

Advantages of Midcap Mutual Funds

1. High Growth Potential: Midcap mutual funds invest in rapidly expanding companies. These companies often have innovative products or services and are growing their market presence, which can lead to higher returns for investors.
2. Diversification: Investing in midcap mutual funds means spreading your money across various mid-sized companies. This diversification helps reduce the overall risk of your investment portfolio because it does not rely on the success of a single company.
3. Professional Management: Midcap mutual funds are managed by skilled professionals who carefully select companies with strong growth prospects. Their expertise can help identify promising investment opportunities and manage the associated risks.
4. Moderate Risk: While mid-cap funds are more volatile than large-cap funds, they are generally less risky than small-cap funds. This moderate risk level makes them an attractive option for investors seeking a balance between risk and reward.

Who Should Invest in Midcap Mutual Funds?

1. Investors with Higher Risk Tolerance: Midcap mutual funds are ideal for those comfortable taking on more risk for higher returns. If you can handle short-term market ups and downs, these funds might be a good fit for you.
2. Long-term Investors: These funds are best for people who plan to invest their money for several years. Midcap companies need time to grow and reach their full potential, so a long-term investment horizon can help you benefit from this growth.
3. Portfolio Diversifiers: If you already have investments in large-cap and small-cap funds, midcap mutual funds can add a good balance to your portfolio. They offer a middle ground between the stability of large-cap funds and the high risk and reward of small-cap funds.
4. Investors Seeking Growth Opportunities: Midcap mutual funds often invest in emerging companies with strong growth potential. If you want to invest in companies that could become the leaders of tomorrow, these funds provide a great opportunity.

Factors to Consider Before Investing in Midcap Mutual Funds

Before investing in midcap mutual funds, evaluating several factors to ensure they align with your investment goals and risk tolerance is important. Here are some key points to consider:

• Past Performance: Look at the fund's historical returns over different time periods. While past performance doesn't guarantee future results, it can give you an idea of how the fund has performed in various market conditions.
• Fund Manager Expertise: The experience and track record of the fund manager are crucial. A skilled manager can make a significant difference in the fund's performance by making informed investment decisions.
• Expense Ratio: The expense ratio represents the annual fees the fund charges its investors. A lower expense ratio means more money stays invested, potentially leading to higher returns.
• Volatility: Midcap funds can be more volatile than large-cap funds but less so than small-cap funds. Consider your comfort level with market fluctuations when choosing a midcap mutual fund.
• Investment Horizon: Midcap mutual funds are generally better suited for long-term investments. Be prepared to stay invested for several years to benefit fully from mid-sized companies' growth potential.
• Downside Capture Ratio: This ratio shows how well the fund performs in a falling market. A lower downside capture ratio indicates that the fund tends to lose less than the market during downturns, which can be reassuring for risk-averse investors.

Risks Involved in Midcap Mutual Funds

Investing in midcap mutual funds comes with certain risks that you should be aware of before committing your money. Here are some key risks to consider:

• Market Volatility: Midcap funds can experience significant price swings due to market fluctuations. The value of your investment can go up or down rapidly, making them riskier than large-cap funds.
• Limited Track Record: Mid-sized companies often have shorter histories than large-cap companies. This limited track record can make predicting their future performance and stability harder.
• Managerial Dependency: The success of midcap mutual funds heavily relies on the skills and decisions of the fund manager. If the manager makes poor investment choices, it can negatively impact the fund's returns.
• Economic Sensitivity: Midcap companies can be more sensitive to economic changes than larger companies. Economic downturns, interest rate changes, or sector-specific challenges can significantly affect their performance.
• Liquidity Risk: Some midcap stocks may have lower trading volumes, making it harder to buy or sell shares without affecting the stock price. This can impact the fund’s ability to manage its portfolio efficiently.

Taxation on Midcap Mutual Funds

Understanding the tax rules for midcap mutual funds can help you plan your investments better. Here are the key tax aspects you need to know:

• Short-term Capital Gains (STCG): If you sell your midcap mutual fund units within one year of buying them, any profit you make is considered a short-term capital gain (STCG). This gain is taxed at 15%, regardless of your income tax bracket.
• Long-term Capital Gains (LTCG): If you hold onto your midcap mutual fund units for over one year before selling them, the profit is called a long-term capital gain (LTCG). Gains up to Rs 1 lakh in a financial year are tax-free. However, any amount over this is taxed at 10% without indexation benefits.

Tax Benefits Under Section 80C for ELSS Funds

Equity Linked Savings Schemes (ELSS) are a special type of mutual fund that offer tax benefits. By investing in ELSS, you can deduct up to Rs 1.5 lakh from your taxable income under Section 80C of the Income Tax Act. These funds come with a three-year lock-in period, which is shorter compared to other tax-saving options. ELSS funds mainly invest in stocks, including midcap stocks, giving you both tax savings and the potential for good returns. This makes them a popular choice for investors looking to save on taxes while also growing their money.

Dividend Distribution Tax (DDT) and Its Implications

Previously, dividends from mutual funds were taxed before reaching investors, known as Dividend Distribution Tax (DDT). Now, dividends are added to your total income and taxed according to your income tax slab. This means if you receive dividends from your midcap mutual funds, you will pay tax on them based on your overall income level.

Overview of Best Midcap Mutual Funds to Invest in 2024

Here is an overview of the 10 Top Midcap Mutual Funds and their Expense Ratio, NAV, and Returns.

1. Quant Mid Cap Direct Growth

Quant Mid Cap Fund Direct-Growth is one of the best midcap mutual funds introduced by Quant Mutual Fund. Investors were allowed to access this programme on April 15, 1996. Sanjeev Sharma is the current fund manager of the Quant Mid Cap Fund Direct-Growth fund.

• NAV: Rs 264.48
• Expense Ratio: 0.62%
• AUM: Rs 6920.17 Cr
• Minimum lump sum investment: Rs.1000

Returns: 

2. Motilal Oswal Midcap Direct Growth

Motilal Oswal Mutual Fund introduced the Motilal Oswal Midcap Fund Direct Growth equity mutual fund scheme. Investors were allowed to access this plan on December 29, 2009. The Motilal Oswal Midcap Fund Direct Growth fund's current fund managers are Abhiroop Mukherjee, Akash Singhania, and Siddharth Bothra.

• NAV: Rs 100.23
• Expense Ratio: 0.65%
• AUM: Rs 9819.09 Cr
• Minimum lump sum investment: Rs.500

Returns: 

3. Mahindra Manulife Midcap Direct Growth

Mahindra Manulife Mid Cap Fund is one of the best Midcap mutual funds introduced by Mahindra Mutual Fund. Investors were allowed to access this plan from February 4, 2016. The current fund manager of the Mahindra Manulife Mid Cap Fund Direct-Growth fund is V Balasubramanian.

• NAV: Rs 34.43
• Expense Ratio: 0.45%
• AUM: Rs 2433.01 Cr
• Minimum lump sum investment: Rs.500

Returns: 

4. PGIM India Midcap Opps Fund Direct-Growth

PGIM India Mutual Fund introduced the PGIM India Midcap Opportunities Fund Direct Growth equity mutual fund scheme. Investors were allowed to access this plan on May 13, 2010. The current fund manager of the PGIM India Midcap Opportunities Fund Direct Growth fund is Avinash Agarwal, Kumaresh Ramakrishnan.

• NAV: Rs 67.51
• Expense Ratio: 0.45%
• AUM: Rs 10154.97 Cr
• Minimum lump sum investment: Rs.1000

Returns: 

5. Edelweiss Mid Cap Direct Growth

The Edelweiss Mutual Fund introduced the Edelweiss Mid Cap Direct Plan-Growth, an equity mutual fund scheme. Investors were allowed to access this plan on April 30, 2008. Edelweiss Mid Cap Direct Plan Growth fund's current fund manager is Harshad Patwardhan.

• NAV: Rs 99.53
• Expense Ratio: 0.41%
• AUM: Rs 5534.33 Cr
• Minimum lump sum investment: Rs.100

Returns: 

6. Nippon India Growth Direct Growth

Nippon India Mutual Fund introduced the Nippon India Growth Fund Direct-Growth equity mutual fund scheme; it is one of the best-performing midcaps under its category. Investors were eligible to access this plan on June 30, 1995. The Nippon India Growth Fund Direct Growth fund's current fund manager is Manish Gunwani.

• NAV: Rs 4004.87
• Expense Ratio: 0.81%
• AUM: Rs 27931.43 C
• Minimum lump sum investment: Rs.100

Returns: 

7. HDFC Mid-Cap Opportunities Direct Growth

An equity mutual fund scheme called HDFC Mid Cap Opportunities Direct Plan Growth was introduced by HDFC Mutual Fund. Investors were allowed to access this plan on December 10, 1999. Currently serving as the fund manager for the HDFC Mid Cap Opportunities Direct Plan Growth fund is Chirag Setalvad.

• NAV: Rs 188.19
• Expense Ratio: 0.76% 
• AUM: Rs 63413.49 Cr
• Minimum lump sum investment: Rs.100

Returns: 

8. Kotak Emerging Equity Direct Growth

Kotak Mahindra Mutual Fund introduced the Kotak Emerging Equity Fund Direct-Growth equity mutual fund scheme. Investors were eligible to access this plan on August 5, 1994. Pankaj Tibrewal is currently serving as the fund manager of the Kotak Emerging Equity Fund Direct-Growth fund.

• NAV: Rs 136.76
• Expense Ratio: 0.38%
• AUM: Rs 42699.18 Cr
• Minimum lump sum investment: Rs.100

Returns: 

9. SBI Magnum Midcap Direct Growth

SBI Mutual Fund introduced the Equity Mutual Fund Scheme SBI Magnum Mid Cap Direct Plan Growth. Investors were eligible to access this programme on June 29, 1987. Currently serving as the SBI Magnum Mid Cap Direct Plan Growth fund's fund manager is Sohini Andani.

• NAV: Rs 246.51
• Expense Ratio: 0.82%
• AUM: Rs 17910.24 Cr
• Minimum lump sum investment: Rs.500

Returns: 

10. Invesco India Midcap Direct Growth

An equity mutual fund scheme called Invesco India Mid Cap Fund Direct-Growth was introduced by Invesco Mutual Fund. Investors were allowed to access this plan on July 24, 2006. The current fund manager of the Invesco India Mid Cap Fund Direct-Growth fund is Vinay Paharia.

• NAV: Rs 172.06
• Expense Ratio: 0.61%
• AUM: Rs 4629.98 Cr
• Minimum lump sum investment: Rs.500

Returns: 

How to Start Investing in the Best Midcap Mutual Funds

Ready to invest in a small-cap mutual fund? Here’s how you can get started easily with Lakshmishree.

• Step 1: Download the Shree Varahi app, sign up, and complete your KYC process to open your investment account for free.
• Step 2: Once your account is ready, go to the mutual fund section in the Shree Varahi app and search for mid-cap mutual funds.
• Step 3: Review the options by looking at their past performance, risk level, fund size, fees, and investment focus to choose a mid-cap mutual fund that suits you.
• Step 4: Decide whether you want to invest regularly through a Systematic Investment Plan (SIP) or make a one-time lump sum investment. On the fund's page, select "One-time" for a lump sum or "SIP" for regular instalments.
• Step 5: Enter the amount you wish to invest either as an SIP or a lump sum.
• Step 6: Set up your payment method. For SIP, you can arrange auto-payment through your bank or UPI. You can pay a lump sum via UPI, net banking, NEFT, or RTGS.

Conclusion

Investing in midcap mutual funds can be a smart move for those looking to balance growth potential and risk. These funds provide an opportunity to invest in mid-sized companies that are on the path to becoming industry leaders. With their higher growth potential compared to large-cap funds and a more balanced risk profile than small-cap funds, midcap mutual funds can be a valuable addition to your investment portfolio. By understanding key factors like past performance, fund manager expertise, and expense ratios, you can make informed decisions and choose the best midcap mutual funds for your needs.

Frequently Asked Questions

The post 10 Best Midcap Mutual Funds in India to Invest in 2024 appeared first on Lakshmishree Blogs.

What is Small Cap Mutual Funds

Small cap mutual funds are investment vehicles that focus on companies with relatively small market capitalizations, typically between ₹2,000 crores and ₹10,000 crores. These funds are known for their potential to deliver high returns as they invest in smaller, often more dynamic companies with significant room for growth. Unlike large-cap companies, which are already well-established, small-cap firms are in their early stages of development and can offer substantial upside as they expand.

Investing in the best small-cap mutual funds in India can provide Indian investors with an opportunity to diversify their portfolios and capitalize on the growth potential of emerging businesses. However, it's important to remember that with higher growth potential comes increased volatility. Also, there is a risk of economic effects, so careful selection and a long-term perspective are essential when investing in these funds.

10 Best Small Cap Mutual Funds to Invest in 2024

As we enter 2024, let’s highlight the 10 Best Small Cap Mutual Funds, considering 'fund performance' as a key criterion for selection. Each fund’s unique strategy and asset allocation promises to cater to different investor profiles and financial goals.

Overview of Best Small Cap Mutual Funds to Invest in 2024

Here is an overview of the 10 Top Small Cap Mutual Funds and their Expense Ratio, NAV, and Returns.

1. Quant Small Cap Direct Growth

Quant Mutual Fund is one of the best small cap mutual fund under the Equity Mutual Fund Scheme. Investors were allowed to access this programme on April 15, 1996. The current fund manager of the Quant Small Cap Fund Direct Plan-Growth fund is Pushpa Rai.

• NAV: Rs 271.11
• Expense Ratio: 0.64% 
• AUM: Rs 20164.09 Cr
• Minimum lump sum investment: Rs.1000

Returns: 

2. Bank of India Small Cap Direct Growth

The Bank of India Mutual Fund introduced the Bank of India Small Cap Fund Direct-Growth equity mutual fund scheme. Investors were allowed to access this plan on March 31, 2008. Currently serving as the fund manager for the Bank of India Small Cap Fund Direct Growth fund is Ajay Khandelwal.

• NAV: Rs 45.58
• Expense Ratio: 0.61% 
• AUM: Rs 1052.37 crore 
• Minimum lump sum investment: Rs.100 

Returns: 

3. Nippon India Small Cap Direct Growth

Nippon India Mutual Fund introduced the Equity Mutual Fund Scheme Nippon India Small Cap Fund Direct-Growth, which is one of the best small-cap mutual fund in India 2024. Investors were eligible to access this plan on June 30, 1995. The current fund manager of the Nippon India Small Cap Fund Direct Growth fund is Samir Rachh, Dhrumil Shah.

• NAV: Rs 174.65
• Expense Ratio: 0.67%
• AUM: Rs 50422.78 crore 
• Minimum lump sum investment: Rs.100

Returns: 

4. Edelweiss Small Cap Direct Growth

The Edelweiss Mutual Fund introduced the Edelweiss Small Cap Fund Direct Growth Equity Mutual Fund Scheme. Investors were allowed to access this plan on April 30, 2008. Currently serving as the Edelweiss Small Cap Fund Direct Growth fund's fund manager is Harshad Patwardhan.

• NAV: Rs 42.35
• Expense Ratio: 0.43%
• AUM: Rs 3361.40 crore 
• Minimum lump sum investment: Rs.100

Returns: 

5. Canara Robeco Small Cap Direct Growth

Canara Robeco Mutual Fund introduced the Canara Robeco Small Cap Fund Direct Growth Equity Mutual Fund Scheme. Investors were eligible to access this plan on December 19, 1987. Currently serving as the fund manager for the Canara Robeco Small Cap Fund Direct Growth fund is Cheenu Gupta.

• NAV: Rs 39.26
• Expense Ratio:  0.42%
• AUM: Rs 10085.98 crore 
• Minimum lump sum investment: Rs.1000

Returns: 

6. Tata Small Cap Fund Direct Growth

Tata Mutual Fund introduced the Tata Small Cap Fund Direct-Growth equity mutual fund scheme. Investors were eligible to access this plan on June 30, 1995. The Tata Small Cap Fund Direct-Growth fund's current fund manager is Chandraprakash Padiyar.

• NAV: Rs 67.50
• Expense Ratio: 0.34%
• AUM: Rs  6951.59 crore 
• Minimum lump sum investment: Rs.1000

Returns: 

7. Kotak Small Cap Direct Growth

Kotak Mahindra Mutual Fund introduced the Kotak Small Cap Fund Direct Growth equity mutual fund scheme. Investors were eligible to access this plan on August 5, 1994. Currently serving as the Kotak Small Cap Fund Direct Growth fund's fund manager is Pankaj Tibrewal.

• NAV: Rs 279.42
• Expense Ratio: 0.46%
• AUM: Rs 14815.19 crore 
• Minimum lump sum investment: Rs.100

Returns: 

8. Invesco India Smallcap Direct Growth

An equity mutual fund scheme called Invesco India Smallcap Fund Direct Growth was introduced by Invesco Mutual Fund. Investors were allowed to access this plan on July 24, 2006. The current fund manager of the Invesco India Smallcap Fund Direct Growth fund is Taher Badshah.

• NAV: Rs 38.51
• Expense Ratio: 0.46%
• AUM: Rs 3964.76 crore 
• Minimum lump sum investment: Rs.500

Returns: 

9. Axis Small Cap Fund Direct Growth

Axis Mutual Fund introduced the Equity Mutual Fund Scheme Axis Small Cap Fund Direct Growth. Investors were allowed to access this plan from September 4, 2009. The current fund manager of the Axis Small Cap Fund Direct Growth fund is Ashish Naik.

• NAV: Rs 105.35
• Expense Ratio: 0.55%
• AUM: Rs 20136.63 Cr crore 
• Minimum lump sum investment: Rs.100

Returns: 

10. ICICI Prudential Smallcap Direct Growth

ICICI Prudential Mutual Fund introduced the Equity Mutual Fund Scheme ICICI Prudential Smallcap Fund Direct Plan Growth. Investors were given access to this plan on October 12, 1993. The current fund managers of the ICICI Prudential Smallcap Fund Direct Plan Growth fund are S Naren, Atul Patel, and Priyanka Khandelwal.

• NAV: Rs90.84
• Expense Ratio: 0.66%
• AUM: Rs 7658.9 crore 
• Minimum lump sum investment: Rs.100

Returns: 

5 Best Performing Small Cap Mutual Funds

Focusing on the top tier, the 5 Top Performing Small Cap Mutual Funds offer a blend of dynamism and stability with 1 yr Highest Growth.
The top investment options for 2024 are:

Best Small Cap mutual funds For Long-term investment

Focusing on stability in the long run, the 5 Top Small Cap mutual funds for the long term offer a blend of dynamism and growth with 10 yr Highest Growth.

Why to Invest in Small Cap Mutual Funds in 2024

1. High Growth Potential: Small-cap companies are often in their early stages of growth, which means they have more room to expand than larger, more established companies. By investing in small-cap mutual funds, you're targeting these companies with the potential for significant growth in the future.
2. Economic Recovery: As India's economy recovers and grows, smaller companies can benefit from increased consumer demand and business expansion opportunities. This economic backdrop can create a favourable environment for small-cap companies to thrive, making it an opportune time to invest in them.
3. Innovation and Agility: Small-cap companies are known for their innovation and agility. They can quickly adapt to changing market conditions and capitalize on new opportunities, leading to rapid growth.
4. Diversification: Investing in small-cap mutual funds allows you to diversify your investment portfolio. By spreading your investments across different types of companies, including small caps, you can reduce the overall risk of your portfolio. This diversification can help mitigate the impact of any underperformance in one sector or company.
5. Long-Term Growth Potential: While small-cap investments may be more volatile in the short term, they have the potential to deliver attractive returns over the long term. By staying invested and riding out the market's ups and downs, you can benefit from the growth of small-cap companies and see your investments grow over time.

Key Factors to Consider When Choosing Funds

• Investment Goals: Understand your investment timeline - short-term or long-term. Small-cap funds are best for long-term investors aiming for growth over 5 years.
• Expense Ratio: Monitor the expense ratio covering fund management costs. Lower expenses mean more of your money goes into investments rather than fees.
• Past Performance: Look at how the fund has performed historically to gauge its potential in different market conditions. It does not guarantee future success but gives insights into its track record.
• Fund Manager Skills: Assess the expertise and experience of the fund manager. Their decisions impact your investment, so choose someone with a solid track record and market insight.
• Small Cap Fund Portfolio: Analyze the mix of assets in the fund's portfolio composition. Ensure it aligns with your investment goals and it recommended focusing on small Caps with diversified compositions of all sectors of stocks.
• Direct and Regular Plans: Opt for direct plans to minimize costs by bypassing intermediaries and their commissions. These plans typically have lower expense ratios, maximizing your investment returns.

Tax Considerations for Small Cap Mutual Funds

When it comes to taxes and small-cap mutual funds, there are a few important things to consider. Here's what you need to know:

• Capital Gains Taxes: Profits from selling your small cap mutual fund shares may be subject to capital gains taxes. Understanding how these taxes work and impact your overall returns is crucial for effective tax planning.
• Dividend Taxes: If your small-cap fund distributes dividends, these earnings are typically taxed at your regular income tax rate. Be aware of the tax implications of these dividends and plan accordingly.
• Tax-Efficient Strategies: Some small-cap funds employ tax-efficient strategies to minimize the tax burden on investors. These strategies may include tax-loss harvesting, which involves selling investments at a loss to offset capital gains and reduce taxes.
• Consulting a Tax Advisor: Given the complexities of tax laws and regulations, consulting with a tax advisor or stock broker like lakshmishree is advisable. They can provide personalized guidance based on your individual financial situation and help you optimize your tax strategy when investing in small cap mutual funds.

How to Start Investing in Small Cap Mutual Funds?

Ready to invest in a small-cap mutual fund? Here’s how you can get started easily with Lakshmishree.

• Step 1: Download the Shree Varahi app, sign up, and complete your KYC to open your investment account at no cost.
• Step 2: Once your account is set up, navigate to the mutual fund section in the Shree Varahi app and search for small-cap mutual funds.
• Step 3: Choose a small-cap mutual fund by reviewing its past performance, risk level, fund size, fees, and investment focus.
• Step 4: Decide whether you want to invest a regular amount periodically (SIP) or a lump sum. On the fund's page, select "One-time" for a lump sum or "SIP" for investing in instalments.
• Step 5: Enter the amount of money you wish to invest as SIP or lump sum.
• Step 6: Arrange your payment. For SIP, you can set up an auto-payment with your bank or UPI. You can pay a lump sum through UPI, net banking, NEFT, or RTGS.

Limitations of Investing in Small Cap Mutual Funds

1. Higher Volatility: Small-cap stocks tend to experience larger price swings due to market sentiment and lower trading volumes, leading to significant fluctuations in fund value.
2. Market Sensitivity: Small-cap companies are more vulnerable to market downturns, experiencing sharper declines in tough economic times than larger firms.
3. Longer Investment Horizon: Investing in small-cap funds requires a longer time horizon for potential growth and returns than other equity mutual funds.
4. High Volatility: Small-cap funds can exhibit dramatic price fluctuations, posing substantial risks to investors if prices don't align with expectations.
5. Risky Performance: The performance of small-cap funds is influenced by various factors, including stock selection and market conditions.
6. Low Liquidity: Small-cap mutual funds often have lower liquidity due to limited institutional investment, low retail investor engagement, and economic effects, making buying or selling units in the market challenging.
   In cases to prevent breaches of industry-wide overseas limits permitted by the RBI, they temporarily suspended investment in the schemes of MAMF (Mirae Asset Technology Fund), leading to no volatility.

Conclusion

Investing in small-cap mutual funds in 2024 offers a promising opportunity for those seeking high growth potential in their portfolios. The dynamic nature of small-cap companies and India's economic recovery and technological advancements create an environment ripe for significant returns. However, it's crucial to acknowledge the inherent risks associated with these investments, such as higher volatility, market sensitivity, and longer investment horizons. By carefully selecting the best small-cap mutual funds, diversifying their portfolios, and maintaining a long-term perspective, investors can effectively capitalize on the growth potential of emerging businesses while mitigating potential downsides.

Also Check

Frequently Asked Questions

The post 10 Best Small Cap Mutual Funds to Invest in 2024 appeared first on Lakshmishree Blogs.

Key Takeaways

• AUM (Assets Under Management) represents the total market value of all financial assets managed by a mutual fund and fluctuates based on market performance, investor contributions and withdrawals.
• Different types of mutual funds, such as equity, debt, and small-cap funds, respond uniquely to changes in AUM, influencing their performance, expense ratios, and investment strategies.
• While It is often used to evaluate the size and performance of a mutual fund, it should not be confused with NAV (Net Asset Value). Investors should consider other factors when selecting mutual funds.

What is AUM in Mutual Funds

Assets under management(AUM) represent the total market value of a mutual fund company's assets, including the mutual fund’s portfolio. This encompasses everything from investments in stocks and bonds to cash reserves and other financial assets.

A larger AUM often signifies a more established and potentially trustworthy mutual fund, which can attract further investor interest. It reflects a fund's ability to pool a significant amount of capital from various investors, which can then be utilized to secure a more diversified portfolio, potentially leading to reduced risks and improved returns. Moreover, a sizable asset can indicate the fund's market success and capacity to sustain operational efficiencies.

With a broad base of assets, these funds can negotiate lower transaction fees and better access to high-quality investment opportunities. Additionally, a large asset management can imply investor confidence in the fund's management team and investment strategies, often supported by a track record of strong performance and robust risk management practices.

Therefore, while AUM in Mutual funds should not be the sole factor in making investment decisions, it is a significant indicator of a mutual fund's scale and the trust placed in it by the investing community.

AUM Components

It isn’t just a single number; it’s a composite of several components. One is a financial institution's various investments, such as stocks, bonds, and other financial assets. These investments are integral to a fund’s AUM, contributing to its total market value.

Another key component of AUM is the cash reserves held by the financial institution. Additionally, the market value of securities is a dynamic component that reflects current market conditions, valuations, and the performance of underlying investments.

AUM Fluctuations

Market movements directly affect assets, with positive market performances leading to an increase and negative performances causing a decrease in Assets under management.

But market movements aren’t the only factor at play. Investor inflows and outflows are primary drivers of AUM changes. Investor inflows refer to the new capital coming into the fund from investors, and outflows, indicating the withdrawal of capital by investors, are primary drivers of changes. These cash movements and market performance issues directly influence whether a fund may experience growth through higher inflows or shrinkage due to greater outflows.

Managing these fluctuations is critical, and strategies such as diversifying investments and regular portfolio rebalancing can help achieve a more stable management. Financial advisors often recommend these approaches to their clients.

AUM Calculation Methods

Calculating Assets Under Management involves considering three key components: investor inflows, outflows, and the market price of the fund's assets. To begin, the number of shares or units held by investors is multiplied by the current market price of each share or unit. This multiplication yields the total value of assets under management.

For instance, if a mutual fund scheme has 10,000 shares outstanding and the current market price per share is ₹50, the AUM would be ₹500,000 (₹50 * 10,000 shares).

This method helps determine the total value of assets the fund manages. It's essential to note that its calculations can be conducted on various timeframes, such as daily, monthly, or annually, depending on the requirements and practices of the managing institution.

Formula: AUM = Number of Shares or Units * NAV

Example: Consider a mutual fund with 20,000 units outstanding and a current market price per unit of ₹75. To calculate the AUM: AUM = 20,000 units * ₹75 per unit = ₹1,500,000

Example 2: Let's say another mutual fund has 15,000 shares outstanding and a current market price per share of ₹100. The AUM would be ₹1,500,000 (₹100 * 15,000 shares).

AUM's Role in Different Mutual Fund Types

Asset under management is a critical metric for mutual funds, influencing their strategy, performance, and investor appeal. However, the impact of it varies among different types of mutual funds, with equity funds, debt funds, and small-cap funds each responding differently to changes in mutual fund schemes.

Equity Funds and Asset Under Management

Equity funds invest in stocks and other equity securities, with their AUM affecting operational efficiency and potential investor returns.

Regarding equity funds, AUM isn’t as important as performance consistency. These funds rely less on AUM and more on the asset manager’s expertise to improve returns.

The success of an equity fund isn’t determined by its AUM alone but by its consistency of returns and compliance with its investment aim. The performance of large-cap funds doesn’t primarily depend on asset management, as market yields more influence them.

Debt Funds and AUM

Debt funds primarily invest in fixed-income securities such as bonds and treasury bills, with larger assets often leading to lower expense ratios and potentially higher returns for investors.

In contrast to equity funds, a larger AUM can be advantageous for debt funds managed by a reputable fund house. With a larger pool of assets, the total expense ratio, the cost to manage and operate the fund, is distributed across a wider base of investors. This leads to a lower per-investor expense ratio.

In simpler terms, the fixed costs of running the fund are spread out over more investors when the AUM is substantial, which can improve the individual returns for each investor. Thus, the larger the assets, the more benefit each investor potentially gains regarding reduced costs and enhanced returns.

Small-Cap Funds and AUM

Small-cap funds focus on investing in companies with small market capitalizations, with their AUM impacting their ability to navigate market volatility and potentially influencing company decisions and market dynamics.

Small-cap funds, including hedge fund investments, present a unique case for Assets under management. When the assets of these funds grow significantly, they can be negatively impacted, especially if the mutual fund company or fund houses become major shareholders of a specific company. This can lead to potential conflicts of interest and influence over the company’s decisions.

On the other hand, funds with smaller assets to manage may have greater flexibility to pursue diverse investment opportunities and potentially higher returns in a mutual fund scheme. During market uncertainty, small-cap funds prefer investing through Systematic Investment Plans (SIPs) to avoid restrictions on cash inflows and difficulty trading shares if they become significant stakeholders in a company.

AUM vs NAV: Key Differences

While Asset Under Management and Net Asset Value (NAV) are both crucial to understanding mutual funds, they represent different aspects of fund valuation. NAV reflects the per-unit value of a fund’s assets minus its liabilities, while AUM signifies the total market value of all assets managed by mutual fund houses, including cash.

Despite common misconceptions, these two metrics are not the same. NAV is essentially the unit price for purchasing shares within a mutual fund which depends on the performance of the fund's underlying assets. In contrast, assets under management reflect the overall size and market influence of the fund.

Analysing AUM's Impact on Mutual Fund Fees

In India, the size of a mutual fund's Assets Under Management (AUM) plays a big role in determining the fees investors pay. Let's break it down:

1. Expense Ratio Impact: The expense ratio, which is the percentage of AUM used to cover fund expenses, is directly affected by asset size. When a mutual fund's assets to manage grows, its expense ratio decreases. For example, if a fund has a total asset of ₹10 crore and expenses of ₹10 lakh, the expense ratio would be 1%. But if the assets to manage grow to ₹100 crore while expenses remain the same, the expense ratio would decrease to 0.1%.
2. SEBI Regulation: SEBI, the regulatory authority in India, keeps a close watch on expense ratios to ensure they are reasonable relative to the fund's AUM. This oversight helps protect investors from excessive fees and promotes transparency in the mutual fund industry.
3. Cost Distribution: With a larger AUM, mutual funds can spread their fixed costs, like administrative and operational expenses, across a larger investor base. This means that each investor bears a smaller portion of the total expenses, potentially lowering fees for everyone involved.
4. Resource Requirements: Managing a larger pool of assets requires additional resources, such as skilled personnel and advanced technology. These resources come at a cost, reflected in the expense ratio. However, the economies of scale achieved with a larger AUM can help mitigate the impact of these additional expenses on individual investors.

Role Of AUM in Mutual Fund Selection

Understanding the significance of Assets Under Management is pivotal when selecting mutual funds. However, Investors must grasp that a higher AUM doesn't always guarantee superior returns.

While it is a vital metric for assessing a fund's performance, Investors should also consider other critical factors such as investment objectives, historical performance, and the fund manager's expertise. These aspects collectively contribute to the fund's overall success and align with the investor's financial goals.

Moreover, although a larger AUM may signal stability and credibility in the fund, Indian investors should be mindful of potential drawbacks. For instance, as the fund's size increases, the fund manager may encounter challenges in efficiently deploying capital, potentially affecting the fund's ability to outperform the market. Indian investors must carefully weigh these factors when evaluating mutual funds for their investment portfolios.

Investors should also recognize that a larger asset can offer certain advantages. For example, funds with substantial AUM may benefit from economies of scale, allowing them to negotiate better deals and access exclusive investment opportunities. Additionally, a larger asset to manage can enhance the fund's visibility and attract more institutional investors, further bolstering its market presence and potentially leading to improved performance over time.

AUM Volatility and Mitigation Strategies

AUM volatility means the it goes up and down a lot. When this happens, it can be tough for fund managers to deal with certain types of investments. Some assets, like ones that can't be easily turned into cash without losing value, become tricky to manage during these times.

But here's the thing: when a fund has a lot of assets under management, it's better prepared to handle big withdrawals from investors. This means the fund can stay stable even when investors want to take out a lot of money.

Having a bigger asset to manage also gives fund managers more flexibility. They can make smarter decisions about when to enter or exit the market, which helps them deal better with ups and downs in the market. So, while AUM volatility can be tricky, having a large assets to manage can be an advantage for fund managers.

As an investor, Look for funds with a track record of effectively managing AUM volatility. Additionally, consider the fund's investment strategy and whether it aligns with your risk tolerance and investment goals. Finally, keep an eye on the fund's performance relative to its peers and benchmark indices to gauge its ability to generate returns consistently over time.

Passive vs Active Investing: Impact on AUM

Active investing involves actively managing a portfolio to outperform the market through frequent buying and selling based on market analysis. Passive investing aims to replicate market index performance by investing in index funds or ETFs, minimizing costs with a buy-and-hold strategy.

Passive and active investing strategies impact AUM in different ways. Passive funds, known for their straightforward investment approaches and lower fees, have seen significant growth, with a 31% increase in AUM over the previous year. The growing popularity of passive funds is due to their simpler investment structures and lower costs, which have positively impacted their assets.

Active investing has the potential to generate higher returns, which can attract more clients. As a result, this can lead to an increase in assets under management.

For more clarification, consult financial advisors or a popular stock brokerage firm like Lakshmishree to make an informed decision.

Summary

In conclusion, understanding the role of AUM in mutual funds is essential for investors looking to make informed investment decisions. AUM is a crucial metric for evaluating a mutual fund's size, stability, and market presence. While a higher assetmanagement can indicate trust and confidence in a fund, investors should consider other factors such as performance consistency, investment objectives, and fund manager expertise.

Frequently Asked Questions

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Investing in mutual funds can be a powerful tool for building long-term wealth. But just like any journey, there can be hidden obstacles. One such obstacle is the expense ratio, a fee that can silently diminish your potential returns. We'll explain what is expense ratio, why it matters, and how to make informed decisions when choosing mutual funds. 

By the end, you'll be equipped with the knowledge to navigate the world of mutual funds confidently and maximise your investment returns.

What Is An Expense Ratio?

The expense ratio is a fee associated with mutual funds and ETFs. It's a percentage of the fund's total assets that covers the costs of managing the fund, like fees paid to the fund manager and administrative expenses. It's like a service charge for managing your investment basket within the mutual fund.

This might sound complicated, but it's a simple concept. Imagine you invest ₹10,000 in a mutual fund. The expense ratio is a percentage of that ₹10,000 that covers the costs of managing the fund. 

Here's a breakdown:

• Expense Ratio: A percentage (e.g., 1.5%) of a mutual fund's total assets used for management and operational costs.
• Lower Expense Ratio: This means more of your money stays invested and has the potential to grow (e.g. if the ratio is 1%, only ₹100 goes towards fees from your ₹10,000 investment).
• Higher Expense Ratio: A larger portion goes towards fees (e.g. if the ratio is 2%, ₹200 comes out for fees from your ₹10,000 investment).

Imagine two mutual funds, A and B, investing in similar companies and aiming for similar returns. However, Fund A has a lower ratio of 1%, while Fund B has a higher ratio of 2%.

• Investment: ₹10,000 in each fund
• Expense Ratio:
  • Fund A: 1% (₹100)
  • Fund B: 2% (₹200)
• Remaining Investment:
  • Fund A: ₹9,900
  • Fund B: ₹9,800

While the difference might seem small initially, the impact of a lower expense ratio can be significant over time, especially when considering compounding interest.
We'll delve deeper into this concept in later sections.

How to Calculate Expense Ratio?

The expense ratio is calculated using a formula, but fear not; investors don't need to be math wizards! Most mutual fund houses and stock brokers like lakshmishree display the expense ratio online.
However, if you're curious, here's a quick peek at the formula:

Expense Ratio = Total Annual Expenses / Average Net Assets

Let's break it down with an example:

Imagine you and your friends decide to pool money for a monthly grocery basket. You hire a friend (like a fund manager) to handle the shopping and ensure you get the best deals. Throughout the month, your friend incurs transportation costs (administrative fees) and a small service charge (management fees).

To calculate the expense ratio for your grocery basket investment:

1. Total Annual Expenses: Add up all the costs incurred by your friend throughout the year (transportation + service charge).
2. Average Net Assets: This would be the average amount of money available in the basket throughout the year. Let's say you and your friends contribute ₹5,000 each month, resulting in an average of ₹30,000 in the basket (₹5,000/month x 6 months).

Expense Ratio = Total Annual Expenses / Average Net Assets

Example: If the total annual expenses for your friend are ₹2,000 and the average net assets are ₹30,000, the expense ratio would be:

Expense Ratio = ₹2,000 / ₹30,000 = 0.066 ≈ 6.6%

While it's good to be curious, most mutual fund houses will readily display the expense ratio for their funds. You can focus on comparing the ratios of different funds you're considering and choose the one with a lower percentage.

Key Components of Mutual Fund Expense Ratio

Think of the expense ratio as a pie, with each slice representing a different cost associated with managing your mutual fund investment. Here are the key ingredients in this pie:

1. Management Fees: This is the salary paid to the fund manager, the expert chef overseeing your investment basket. Their job is to research, select, and manage the fund's various investments to grow your money potentially. (Consider the salary for the cook in our grocery basket example.)

2. Administrative Expenses:  Just like maintaining a kitchen requires utensils, recordkeeping, and maybe even security, these expenses cover the day-to-day operations of the fund. This includes costs like recordkeeping of your investment, shareholder communication, legal and audit fees, etc. (Think: Costs of maintaining utensils and electricity in the kitchen.)

3. Marketing and Distribution Costs: This could include advertising campaigns, commissions paid to advisors who sell the fund, etc. Similar to how a grocery store might advertise fresh produce, mutual funds incur costs to promote themselves and make them available to investors.

Note: Exit loads and fees charged if you redeem your investment within a specific period are not typically included in the expense ratio. However, it's important to consider when choosing a mutual fund. We'll discuss exit loads in a later section.

Remember, a lower expense translates to a larger slice of the pie remaining invested and potentially growing for you in the long run.

Best Lowest Expense Ratio Mutual Funds

How Does Expense Ratio Work? 

We've established that the expense ratio is a fee for managing your mutual fund. But how exactly does it impact your investment? Let's explore the mechanics behind the scenes.

Expense Ratio Deduction Before NAV Calculation

This isn't a separate charge you pay upfront. Instead, it's deducted directly from the fund's total assets before calculating the Net Asset Value (NAV), which represents the price per unit of the mutual fund.

Here's a breakdown of the process:

1. Total Fund Assets: Imagine a mutual fund starting with ₹100 crore in total assets from all investors.
2. Expense Ratio: The fund has a ratio of 1.5%.
3. Expense Deduction: The ratio is applied to the total assets. In this case, ₹100 crore * 1.5% = ₹1.5 crore is deducted for expenses.
4. Net Asset Value (NAV) Calculation: The remaining amount, which is the actual value of the fund's holdings, is then divided by the total number of outstanding units investors hold. This will give you the NAV per unit.

Example:

Let's take a more specific example. Imagine you invest ₹10,000 in a mutual fund with a NAV of ₹10 per unit. This means you purchase 1000 units (₹10,000 / ₹10 per unit).

• Scenario 1: Lower Expense Ratio (0.5%)
  • The fund has a 0.5% ratio.
  • Expense deduction: ₹10,000 (total assets) * 0.5% = ₹50.
  • NAV after expense deduction: ₹9,950 (₹10,000 - ₹50).
  • Adjusted NAV per unit: ₹9.95 (₹9,950 total asset value / 1000 units).
  • Your 1000 units are now worth ₹9,950 (1000 units * ₹9.95 per unit).
• Scenario 2: Higher Expense Ratio (1.5%)
  • The fund has a 1.5% ratio.
  • Expense deduction: ₹10,000 (total assets) * 1.5% = ₹150.
  • NAV after expense deduction: ₹9,850 (₹10,000 - ₹150).
  • Adjusted NAV per unit: ₹9.85 (₹9,850 total asset value / 1000 units).
  • Your 1000 units are now worth ₹9,850 (1000 units * ₹9.85 per unit).

As you can see, even a small difference in expense ratio (0.5% vs 1.5%) can slightly reduce the NAV and, ultimately, the value of your investment.

Here's the key takeaway: A lower ratio means more of your money stays invested and has the potential to grow through compounding. Choosing funds with lower ratios can maximise your returns in the long run.

What is a Good Expense Ratio for a Mutual Fund?

Imagine filling your grocery basket with fresh ingredients for a delicious meal. You want to maximise the amount of money going towards the actual food, not on delivery charges or service fees. The concept of expense in mutual funds is similar.

A mutual fund incurs various costs for management, administration, and marketing. These costs are reflected in the expense ratio. The lower the ratio, the less money is deducted for fees, leaving more of your investment working for you in the market. 

Expense Ratio Benchmarks for Indian Investors

There's no single "perfect" expense ratio, but here's a general guideline for the Indian mutual fund market:

• Equity Funds: A good ratio is below 1.20% for actively managed equity funds.
• Debt Funds: Debt funds generally have lower ratios than equity funds. A good ratio for debt funds could be below 1%.
• Index Funds & ETFs: These passively managed funds typically have lower ratios due to their simpler structure. Look for ratios below 0.80% for Index Funds and ETFs.

Important Note: These are just benchmarks, and the ideal ratio can vary depending on several factors:

• Fund Type: As mentioned above, ratios are lower for debt and passively managed funds (like Index Funds and ETFs) than actively managed equity funds.
• Actively vs. Passively Managed Funds: Actively managed funds, where fund managers make investment decisions, typically have higher ratios to cover their research and management fees. Passively managed funds, like Index Funds and ETFs, track a specific market index and have lower ratios.

While a lower ratio is desirable, choosing a mutual fund shouldn't be the sole deciding factor. Consider the fund's past performance, investment strategy, and risk tolerance. However, keeping an eye on the ratio can help you compare similar funds and maximise your returns over the long run.

Active And Passive Mutual Funds Expense Ratio

When choosing mutual funds, you'll encounter two main management styles: active and passive. Understanding these styles and their connection to expense is crucial for making informed investment decisions.

Active Management: Imagine a captain steering a ship through unpredictable waters, constantly making decisions and adjustments. Actively managed funds function similarly. Fund managers research, select, and trade investments aiming to outperform the market. This hands-on approach requires a skilled team, leading to higher costs. As a result, actively managed funds typically have higher expense ratios (often exceeding 1% for equity funds) due to:

• Fund Manager Fees: Actively managed funds, paying salaries and bonuses to the fund manager and their research team for their expertise and effort in selecting investments.
• Trading Costs: Active management involves frequent buying and selling of securities, resulting in higher transaction costs than passively managed funds.

Passive Management: They passively track a specific market index, like the Nifty 50, and invest in the same proportions as the index. There's minimal intervention from a fund manager. This "set-and-forget" approach translates to lower costs. Passively managed funds (like Index Funds and ETFs) typically boast lower expense ratios (often below 0.80%) because:

• Limited Management Intervention: There's no need for a large research team or extensive trading activity, reducing overall costs.
• Index Tracking: There are fewer investment decisions and associated costs by simply mirroring an index.

The choice between active and passive management depends on your investment goals and risk tolerance. Actively managed funds might offer higher returns but come with a higher expense ratio. Passively managed funds offer a more low-cost, diversified approach, but returns are typically tied to the market performance of the tracked index.

Why Does the Mutual Fund Expense Ratio Matter?

Imagine you're growing a vegetable patch in your backyard. You invest time and resources to boost your plants, hoping for a bountiful harvest. But what if there was a hidden fee – a portion of your vegetables taken each season for maintenance? The expense in mutual funds acts similarly, silently affecting your potential returns.

Lower Expense Ratio = More Money Compounding Over Time

The ratio might seem like a small fee, but it can significantly impact your returns, especially when considering the magic of compound interest. Compound interest allows your earnings to grow on your initial investment and the accumulated returns from previous periods. Even a small difference in ratio can translate to a substantial difference in your wealth over the long term.

Let's see this in action with a real-life example:

• Scenario 1: Mutual Fund A with Lower Expense Ratio (0.5%)
  • You invest ₹10,000 in a mutual fund (Fund A) that offers a 10% annual return and has a very low ratio of 0.5%.
  • Year 1: You earn a return of ₹1,000 (10% of ₹10,000). After the 0.5% ratio deduction (₹50), your ending balance is ₹10,950 (₹10,000 + ₹1,000 - ₹50).
  • Year 5: With a continued 10% annual return and expense deduction, your balance grows to approximately ₹17,148 (consider using a compound interest calculator for the exact figure).
• Scenario 2: Mutual Fund B with Higher Expense Ratio (1.5%)
  • You invest ₹10,000 in another mutual fund (Fund B) with the same 10% annual return but a higher ratio of 1.5%.
  • Year 1: Your return is ₹1,000, but the expense deduction is ₹150 (1.5% of ₹10,000). Your ending balance is ₹10,850 (₹10,000 + ₹1,000 - ₹150).
  • Year 5: With the higher ratio, your balance after five years grows to approximately ₹15,982 (again, use a compound interest calculator for a precise figure).

In our example, even a 1% difference in expense ratio resulted in a ₹1,166 lesser return in just five years. This gap widens further over extended investment horizons due to compounding.

The Takeaway: Choosing Funds with Lower Expense Ratios

Keeping ratios low allows more of your money to stay invested and benefit from compounding over time. This can significantly impact your investment goals, especially for long-term investments like retirement planning.

Expense Ratio vs Management Fees

There might be some confusion between the expense ratio and management fees. Let's clear things up:

• Expense Ratio: This is a broader term that refers to the total percentage of a mutual fund's assets used to cover all its operational costs. This includes:
  • Management Fees: The fees paid to the fund manager for their expertise in selecting and managing the investments within the fund.
  • Administrative Expenses: Costs associated with day-to-day operations like recordkeeping, shareholder communication, legal and audit fees, etc.
  • Marketing and Distribution Costs: Expenses incurred to promote the fund and make it available to investors (advertising, commissions to advisors, etc.)

Think of it like this: The expense ratio is the total bill for managing your investment basket in a mutual fund. It has various components, and the management fee is one of the key ingredients.

Here's a table summarising the key differences:

The Role of Management Fees:

Management fees are crucial because they compensate the fund manager for their expertise in researching, selecting, and overseeing the investments within the fund.  Ideally, the fund manager's skills can help the fund outperform the overall market and potentially generate higher returns for investors. However, it's important to remember that a higher management fee doesn't guarantee better performance.

What is the Total Expense Ratio (TER)?

TER stands for Total Expense Ratio, the same concept as the expense ratio discussed earlier. It signifies the overall cost, expressed as a percentage of a fund's assets, associated with managing the fund. Think of it as the fees you pay for professional management of your investment basket within the mutual fund.

What's Included in TER?

The TER encompasses various expenses incurred by the mutual fund house to operate the fund. These expenses are identical to what we saw with the expense ratio:

• Management Fees: The fees paid to the fund manager for their expertise in selecting and overseeing the investments within the fund.
• Administrative Expenses: Costs associated with day-to-day operations like recordkeeping, shareholder communication, legal and audit fees, etc.
• Marketing and Distribution Costs: Expenses incurred to promote the fund and make it available to investors (advertising, commissions to advisors, etc.)

SEBI Regulations on Expense Ratio Caps

The Securities and Exchange Board of India (SEBI) plays a vital role in regulating expense ratios (also referred to as TER) in the Indian mutual fund industry. SEBI has set specific ratio caps for different categories of mutual funds. These caps help ensure transparency and prevent excessive charges for investors.

The table below shows the maximum limit of the Total Expense Ratio (TER) a fund can charge.

Why TER Matters for Indian Investors?

A lower TER (expense ratio) translates to a larger portion of your investment staying invested and potentially growing over time. This is because lower fees mean less money is deducted for operational costs. When comparing mutual funds, keeping an eye on the TER can help you choose a cost-effective option that maximises your returns in the long run.

Beyond Expense Ratio: Additional Cost Considerations

While the expense ratio is a key cost in mutual funds, other fees can chip away at your returns. Here's a breakdown of some additional costs to be aware of:

• Entry Load: A one-time fee is charged by some mutual fund houses when you invest in a scheme. It's typically a percentage of the investment amount. This upfront cost can disincentivise smaller investments and reduce your initial invested capital. Usually, mutual funds don’t charge an entry load, but checking it before investing is good.
• Exit Load: Some mutual fund houses charge an exit load if you redeem your units within a specific period from the investment date. This fee discourages short-term investments and aims to promote longer investment horizons that align with the fund's goals. Sometimes, the exit load get reduced after 1 or 2 years of investment. 
• SIP Charges: Systematic Investment Plan (SIP) is a popular method for regularly investing in mutual funds. While SIP is a great way to inculcate discipline, some fund houses might charge a small fee for processing each SIP transaction. This fee, though minimal, can add up over time, especially for long-term SIPs.
• Brokerage Charges: If you invest in mutual funds through a broker, you might be charged a brokerage fee for each transaction. This fee can vary depending on the broker and the amount invested. Discount brokers like Lakshmishree typically offer lower brokerage charges than full-service brokers.
• Account Maintenance Charges: Some fund houses or platforms might have annual account maintenance charges. This is a fixed fee, irrespective of your transaction activity, but you can choose a broker like lakshmishree, which offers a lifetime with no annual charges.

Expense Ratio On SIP Investments

Many investors utilise Systematic Investment Plans (SIPs) to grow their wealth gradually. However, a common question arises: How does the expense ratio impact SIP investments?

The ratio applies to SIP investments as well. It's not a one-time fee you pay upfront. Instead, a proportionate amount is deducted from each SIP instalment. With every SIP contribution, a small percentage covers the fund's operational costs, and the remaining amount is invested in the fund's underlying assets.

For example, if you invest ₹1,000 in a mutual fund with an expense ratio of 1%, around ₹10 will be deducted for expenses, and ₹990 will be invested in the fund. This deduction happens proportionally for every SIP instalment.

While SIPs are a fantastic way to inculcate discipline and benefit from rupee-cost averaging, keeping expense ratios low adds another advantage for long-term investors. By choosing funds with lower expenses, you can maximise the returns on your SIP investments and reach your financial goals faster.

Also Check

Conclusion

What is Expense Ratio? Simply, it's a percentage of a mutual fund's assets used to cover operational costs like management fees, administrative expenses, and marketing.

Investing for the future? Don't let expense ratios be the silent thief of your returns!  Research these fees, choose cost-effective funds, and watch your money grow to its full potential. Remember, a smart investor is an informed investor!

Frequently Asked Questions

The post What is Expense Ratio in Mutual Funds with Example? appeared first on Lakshmishree Blogs.

If you're planning to invest in mutual funds, it's important to understand what Net Asset Value means. A mutual fund's price per unit reflects its current market value. Understanding the concept and its significance in mutual fund investments allows you to make informed decisions and achieve your financial goals. Let's explore what is NAV and how it impacts mutual fund investments in India.

What is NAV?

NAV stands for Net Asset Value. It represents the per-unit market value of a mutual fund scheme on a specific date. NAV indicates the fund's performance and determines the buying and selling price of mutual fund units.
It is calculated once a day, typically at the end of the trading day, based on the closing prices of the fund's underlying assets.

In simpler terms, Consider a mutual fund a large basket filled with different investment options, like shares of popular companies (Reliance or Infosys), government bonds, or even gold ETFs. It tells you the current worth of each unit (like a single item) in that basket. It's like a price tag that reflects the combined value of the mutual fund's investments on a specific date.

Just like the price of groceries changes, the NAV of a mutual fund can go up or down daily based on the performance of their underlying investments. If the mutual fund invests in companies doing well, the NAV might rise, and vice versa.

Let's say you invest ₹10,000 in a mutual fund with an NAV of ₹10 per unit. This means you'll be able to purchase 1000 units (₹10,000 / ₹10 per unit). If the NAV of the fund increases to ₹12 per unit after a year, the value of your 1000 units will become ₹12,000 (1000 units * ₹12 per unit)

Components of NAV:

To understand, we need to break down its components:

• Assets: These are the investments held by the mutual fund scheme, including stocks, bonds, and other financial instruments. Each asset's current market price is considered when calculating it.
• Liabilities: These are any expenses associated with managing the mutual fund, such as fees paid to the fund manager, administrative costs, and other operational expenses.
• Outstanding Units: This refers to the total number of units investors currently hold in the mutual fund.
  For example, imagine a delicious cake. This cake represents a mutual fund's total assets (all its investments). The bakery decides to cut the cake into 1,000 slices (each being a single unit or share). These 1,000 slices are then sold to different customers. In this scenario, the outstanding shares would be 1,000, representing the total number of slices currently owned by investors.

What is the NAV Formula?

Breaking Down the Equation:

The formula is a simple mathematical equation that calculates the net asset value per unit of a mutual fund:

This formula highlights the key components influencing the Asset Value.

How to Calculate the NAV of a Mutual Fund

Step-by-Step Guide:

While you don't necessarily need to calculate it yourself, understanding the process can be empowering. Here's a step-by-step guide:

1. Gather Information: You'll need the following information about a specific mutual fund scheme:
   • The total market value of the fund's assets (can be obtained from the fund house website or annual reports).
   • Total liabilities associated with the fund (similarly accessible through fund house resources).
   • Number of outstanding units of the scheme (available on the fund house website or financial portals).
2. Apply the Formula: Once you have this information, plug it into the formula:

NAV= (Total Market Value of Assets - Liabilities) / Number of Outstanding Units

3. Calculate the Value: Perform the calculations to arrive at the Value per unit of the mutual fund scheme.

Example of NAV Calculation:

Let's say you're interested in a mutual fund named " Lakshmishree Growth Plus," and you've gathered the following information:

• Total market value of assets: ₹100 crore
• Total liabilities: ₹5 crore
• Number of outstanding units: 10 lakh units (1 million units)

Applying the Formula:

Based on this calculation, the current NAV of "Lakshmishree Growth Plus" is ₹9.50 per unit. This means that each unit in the fund is currently worth ₹9.50. Remember, it can fluctuate daily based on market movements.

Asset and Liabilities of Mutual Fund in NAV Calculation

Assets and liabilities play a crucial role in the calculation. Here's how they influence:

• Assets: The total market value of the assets in the fund's portfolio directly contributes to the net value. As the market value of the assets increases, the net value tends to rise, indicating potential growth in the value of your investment. Conversely, a decline in the market value of the assets can lead to a lower net value.
• Liabilities: Liabilities act as a deduction from the total market value of assets. Higher liabilities, such as expense ratios, can lead to a slightly lower net value. Fund managers strive to keep expenses under control to maximise net value and, ultimately, the returns for investors.

Factors Influencing NAV

We learned that it reflects the per-unit value of a mutual fund. But what makes this value go up and down? Here's a breakdown of the key factors influencing NAV, explained in relatable terms:

1. Market Movements (Up and Down)

Imagine you invest in a mutual fund that holds shares in companies like Reliance and Infosys. The NAV of your fund is directly linked to the performance of these companies' shares.

• Market Goes Up (Bull Run): If Reliance's share price jumps from ₹1,000 to ₹1,200, the overall value of the investments in your mutual fund increases. This typically leads to a rise in the net value.
• Market Goes Down (Bear Market): If Reliance's share price falls to ₹800, the total value of your fund's holdings decreases. This can cause the NAV to decline.

2. Fund Inflows and Outflows

Think of your mutual fund like a large basket holding investment units.

• More Investors, More Units (Inflows): When new investors buy units in the fund (inflows), it's like adding more units to the basket. This can potentially dilute the value per unit in the short term but also signifies growing investor confidence in the fund.
• Investors Redeeming Units (Outflows): If many investors sell their units (outflows), it's like taking units out of the basket. This might lead to a temporary increase in the NAV per unit (as there are fewer units to share the total value) but could also indicate a decrease in investor sentiment.

3. Dividend Distribution

Mutual funds might sometimes distribute some of their profits as dividends to investors. This is like taking a slice out of the investment pie.

• Dividend Payout: When a dividend is distributed, the total market value of the fund's holdings decreases proportionally. This can lead to a slight dip in the NAV per unit. However, remember, you receive the dividend as an investor so that it can contribute to your overall returns.

What is the Full Form of NAV?

NAV stands for Net Asset Value in Mutual Funds.
Contrary to popular belief, It doesn't have a formal full form. It's a widely accepted term used in the financial world to represent the Net Asset Value per unit of a mutual fund scheme.

NAV in Mutual Funds

Mutual funds are investment vehicles that pool money from multiple investors and invest it in a diversified portfolio of assets. This allows investors to participate in the stock market with smaller investment amounts and benefit from professional management expertise.

Incorporating NAV into Mutual Fund Dynamics:

It plays a vital role in the functioning of mutual funds:

• Subscription Price (Buying Units): Imagine buying a delicious samosa chaat. The price you pay typically reflects the cost of ingredients and preparation, just like the asset value reflects the value of the mutual fund. In most cases, the subscription price you pay to buy units is linked to the net value on the purchase date.

  Entry Load (Not Always Present): Some funds might charge an extra "entry load" fee when buying units. This is like a small service charge on top of the NAV. However, many funds don't have entry loads, so checking before investing is important.

• Redemption Price (Selling Units): When you're done enjoying your samosa chaat and want to leave, you typically pay the bill based on the price listed. Similarly, when you redeem your mutual fund units, the price you receive is based on the NAV on the redemption date.

  Exit Load (Not Always Present): Some funds might charge an exit load, a small fee deducted from the profit when you sell units. This is like a service charge for exiting the investment. However, many funds don't have exit loads either.
  Sometimes, the exit load may decrease or even disappear if you hold your investment for a certain period. Always check the fund's prospectus for any exit load and potential reduction schedule details.

Focus on Overall Costs:

While entry and exit loads might exist in some funds, they're not always present. When choosing a mutual fund, consider the overall expense ratio (discussed earlier) and any potential loads to understand the total cost involved.

How is NAV Important for Mutual Fund Investors?

Assessing Investment Performance:

Tracking the Value of your mutual fund investments gives you a sense of their performance over time. A rising Asset Value suggests your investment might grow, while a falling might indicate a potential decline.

While a rising NAV is generally positive, but it's not the sole indicator of a good mutual fund. Here's why:

• NAV reflects current market value, not future performance. A high NAV today doesn't guarantee future growth.
• Focus on your investment goals and risk tolerance. Choose a fund that aligns with your long-term plans and risk appetite, not just the current NAV.

Impact on Portfolio Management:

Understanding this allows you to make informed decisions about your mutual fund investments. You can compare the Net Value of different funds within the same category to assess their relative performance and adjust your portfolio allocation accordingly.

How to Check the Net Asset Value of a Mutual Fund?

Checking the Net Asset Value of your mutual fund investments is a breeze. Here are some ways to do it:

• Fund House Website: Most Asset Management Companies (AMCs) display the Value of their mutual fund schemes on their websites. Look for a dedicated "Unit Price" section or a search function for specific schemes.
• Financial Portals: Several online financial portals and investment platforms like Lakshmishree Investments provide information on mutual funds. These can be convenient one-stop shops for tracking your investments.
• Investor Account Statements: Your investor account statements from the AMC or your broker will also reflect the Value of your mutual fund holdings.

Charges On Net Asset Value

Imagine you invest ₹10,000 in a mutual fund today. The money you invest goes towards buying units of the fund, which hold various investments like stocks and bonds. However, some ongoing costs are involved in managing this basket of investments. These costs are called "expense ratios" and are a percentage of the fund's total value deducted before calculating the NAV.

Think of your mutual fund as a delicious dosa filled with different investment options. The expense ratio is like the cost of the ingredients and the chef's expertise in preparing the dosa.
A lower expense ratio (0.5%) means a smaller portion is deducted for managing the fund (around ₹50 per year on your ₹10,000 investment) before calculating the NAV. This translates to a potentially higher price per unit.
A higher expense ratio (1.5%) means a larger chunk is taken out before calculating the net value. While it might initially seem small, it can significantly impact your overall returns.

According to SEBI regulations, the expense ratio of mutual funds cannot exceed 2.25%, though most mutual funds maintain ratios well below this limit. For instance, Bandhan Regular Savings Fund Direct Plan Growth's expense ratio is 1.19%, comparatively higher than other mutual funds. Generally, good mutual funds typically range between 0.20% to 1.00%, which is considered favourable for investors. Like ICICI Prudential Nifty 50 Index Fund has 0.34%.

In certain instances, some brokers may impose a higher expense ratio when you invest through them, as they include their commission. Therefore, selecting a reliable stock broker like Lakshmishree is crucial, who doesn't charge any additional commission over the mutual funds' expense ratio. This ensures transparency and helps you maximize your returns on investments.

This expense is taken out before calculating the next net asset value, which means fund managers won't charge you separately for it from your investment amount.

Role of NAV in the Performance of a Fund

This is like a window into the world of a mutual fund. It tells you the current worth of each unit, but its role extends far beyond just a price tag. Let's delve deeper into how it can be a valuable tool for evaluating a fund's performance:

Evaluating Fund Efficiency:

Imagine two mutual funds, Fund A and Fund B, investing in similar large-cap stocks. Here's where net value can help you differentiate:

Lower Expense Ratio, Higher Potential Returns: Fund A might have a lower expense ratio, meaning the fees charged to manage the fund are lower. This translates to a larger portion of the fund's assets being available for potential investment returns. If both Fund A and B experience similar market movements, a lower expense ratio in Fund A could lead to a higher net value over time, potentially indicating more efficient management.

Rising Net Value, Potential Growth: A rising net value over time can suggest the underlying value of the fund's investments is increasing. This might indicate a well-performing fund, but remember, past performance does not guarantee future results.

Key Considerations:

Net Value is a Snapshot, Not a Crystal Ball: It reflects the current market value but doesn't predict future performance. Market fluctuations can cause it to rise and fall.

Look Beyond the Numbers: While It is a helpful tool, consider the fund's investment strategy, risk profile, and your own financial goals. A high-risk fund might have a higher potential return and a higher chance of experiencing significant fluctuations. Align your investment choices with your risk tolerance and investment horizon.

Compare Within Categories: When comparing Net values, focus on funds within the same category (e.g., large-cap, small-cap, debt). Comparing an equity fund's value to a debt fund's value wouldn't be an apples-to-apples comparison due to their inherent risk-return profiles.

NAV - Misconceptions

Here are some common misconceptions to be aware of:

• NAV is the exact price you pay for a unit. The subscription price might differ slightly due to entry loads charged by some funds.
• Higher Net Value always equals better performance: While a rising value generally suggests a well-performing fund, consider its investment horizon and compare it to similar funds within the category for a more comprehensive picture.
• Net Asset Value is updated constantly: They are typically calculated and published at the end of the trading day. They might not reflect the very latest market movements.

The Bottom Line

Net Asset Value is a critical concept for Indian investors venturing into mutual funds. Understanding what is NAV, how it is calculated, and its implications allows you to make informed investment decisions. 

Remember: It is a powerful tool but just one piece of the puzzle. When investing in mutual funds, consider your risk tolerance, investment goals, overall portfolio diversification, and Net Value analysis.

Additional Considerations:

Beyond the core concepts, here are some additional points to ponder:

• Types of Mutual Funds and Net Value: Different mutual fund categories (equity, debt, hybrid) slightly vary in how net value is calculated. For example, debt funds with fixed-income securities might have a more stable value than equity funds with higher market fluctuations.
• Investing in Direct vs Regular Plans: Direct plans typically have lower expense ratios than regular plans, potentially leading to a slightly higher value for direct plan units.
• Seeking Professional Guidance: Consulting a financial advisor or registered stockbroker like lakshmishree can benefit new investors. They can help you understand asset value in terms of your overall investment strategy and risk tolerance.

The world of mutual funds offers exciting investment opportunities in India. By equipping yourself with knowledge about net value and other key concepts, you can confidently make informed decisions to achieve your financial goals.

Quick Summary - NAV Full Form

• NAV stands for Net Asset Value
• It represents the current market value per unit of a mutual fund scheme, reflecting the value of its underlying investments.
• NAV Formula: Per unit = (Total Market Value of Assets - Liabilities) / Number of Outstanding Units (Optional to memorize, but good to understand). A rising value suggests potential growth and a falling value indicates a decline.
• Use it to compare similar funds, but consider other factors too.
• NAV on the purchase date affects what you pay per unit.

Frequently Asked Questions

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Mutual funds are fast becoming a very lucrative way of investing money. In this era of digitalisation, it is becoming easier day by day to start investing in the stock market. There are many ways through which an investor can buy a mutual fund. We will discuss this more in this blog and also discuss whether having a demat account for mutual funds is necessary.

What Is A Mutual Fund?

A mutual fund is an investment strategy where the investors pool their money and then invest it in various bonds, stocks, other securities, etc. It is managed by a professional who is known as the Fund Manager. Investing in mutual funds helps investors diversify their portfolios, which in turn helps them lower the risks. The investor can open or use his demat account for mutual funds investments or invest directly through the AMC.

The fund manager guides the investors towards making the best decisions as these managers have relevant experience in this field. This manager takes the investment decisions for all the funds which he manages. 

There are many different types of mutual funds. To know more about Mutual Funds, read our blog - Mutual Funds For Beginners 

What Is Demat Account 

The dematerialised account, often known as a Demat account, is an account where the investors can hold their share certificates and other securities digitally without risk of theft, tear or any damage. The demat account holds share certificates, government securities, ETFs, bonds, Mutual Funds, etc., making it easier for the investor to handle. 

You can easily open a Demat account with us at Lakshmishree. After doing all the necessary procedures, you can easily access all the documents from your laptop or mobile phone.

Benefits Of Demat Account

There are various benefits of Demat account. Some of them are - 

• One of the main benefits of having a Demat account is that there is less chance of important documents getting lost or misplaced.
• With the help of a paperless demat account, the forgery or theft of physical shares and bonds has also become less.
• In the demat account, the investor can quickly transfer shares and trade in volumes.
• In the demat account, the investor also has the facility of nomination. Here the investor appoints a nominee. In case the investor dies, the nominee will get the securities in the account.
• Investors can use the demat account for mutual funds investments and share trading. 

Know more details about a Demat account, click here to read this blog- What is a Demat Account.

Ways To Buy A Mutual Fund

There are many ways through which an investor can invest in a mutual fund. Some of them are:

Through a Demat Account

Opening a demat account for mutual funds is one of the ways through which mutual fund investments can take place. We have discussed the meaning of the demat account in the previous section. If you don't have a Demat account, you can open it easily with us at Lakshmishree and start investing. 

To open a Demat account, the investor must submit the application form and must have all the essential KYC documents, which DP will further verify, and then your application will be approved.

Through Independent Online Portal

Investors can also choose an independent portal for investing in mutual funds. If he decides the way through a portal, he has a chance to manage all of his mutual fund schemes at the same time and through the same account. But you need to be aware of the present scammers and thoroughly research the authenticity of the portal you are looking to invest your money. 

Through an Asset Management Company (AMC)

The investor can also directly invest in mutual funds through the company itself by visiting the asset management company’s website and completing the registration process. The Asset Management Company invests the money in various securities.

After choosing the fund in which you want to invest, it is required that the investor must complete his application and submit the Pan Card and KYC documents. The investor is also required to visit the branch of the AMC physically.

Through Banks

Some of the banks also offer their customers the service of investing in mutual funds. If the investors use the bank, he has the option of using online banking services for investment which will be linked with the bank account number.

Mutual Fund and Lakshmishree

We at Lakshmishree Investments provide mutual fund services to our clients. Shree MF is an app for a mutual fund that can be downloaded from the play store and iOS platform very easily. The investor can sign up digitally and create his own watchlist. With the use of this app, the investor can select the fund in which he wants to apply and also monitor them regularly.

We also have experts in mutual funds with whom you can connect, and they will guide you through the processes.

Bottom Line

Mutual funds are becoming an investment option for upcoming investors. These investors want to invest part of their capital either through SIP or a Mutual Fund. A demat account is not necessary for investing in a mutual fund, but having a demat account for mutual funds makes it accessible for investors to check on their investments. 

It is your choice to invest by opening a demat account for mutual funds, but if you prefer this choice, you can manage your investments safely. If you don’t have a demat account, open one with us at Lakshmishree and start investing.

Frequently Asked Questions

The post Do We Need Demat Account For Mutual Funds? appeared first on Lakshmishree Blogs.

"If you don't find a way to make money, while you sleep, you will work until you die"

Warren Buffet

Mutual funds are the preferred choice among investors to earn stable, consistent returns over a protracted period of time.

More importantly, investors lacking the expertise, knowledge, and time to conduct extensive research to pick and select stocks with a promising future are trading less than their intrinsic value.

An extensive list of factors is taken into account when selecting mutual funds for investment. There are several factors to consider, including your investment objective, return expectation, risk tolerance, and the period you intend to hold the portfolio.

Once all these basic factors are considered, other incisive fund-specific parameters are unique and distinct to each fund, such as expense ratio, past performance, fund manager's experience, credentials, and assets under management.

Even though you may encounter the acute scarcity of time to determine which is the best mutual fund, there is still some preliminary research needed to zero on the best, most appropriate mutual fund:

Investment objective:

You need to have unambiguous clarity as to what is the objective behind purchasing mutual funds. Over a prolonged period, you may accumulate sufficient returns to finance your daughter's wedding, or you may be able to build up a portfolio with sufficient funds to afford an overseas education in the future.

Sometimes, it can be relatively short-term, such as buying a car, international holiday, down payment on a house, etc.

Ideally, the objective of the mutual funds should be long-term, as mutual funds will be able to sustain see-sawing price fluctuations, withstand corporeal economic changes in the present, and provide substantial returns over a long period.

"He who has a why to live can bear almost any how."

Fredrich Nietzsche

You can cope with transient and temporary changes in the NAV of the mutual fund if you are clear on the "WHY" of investing. Or you would fizzle out or go into panic mode over volatile short-term changes in the stock market.

Time Horizon:

An investor's time horizon refers to the length of time he/she is prepared to keep their money invested in a mutual fund scheme.

As the legendary investor Warren Buffet quips, "If you aren't willing to own a stock for ten years, don't even think about owning it for 10 minutes."

It can be as short as one day or as long as five years. There are different types of funds that work best for different time horizons.

Liquid funds are debt mutual funds that generally invest in short-term debt instruments with fixed rates of return.

Among these debt securities are treasury bills, commercial paper, and certificates of deposit with maturities up to 91 days. Investing in such mutual funds has the advantage of offering high liquidity.

In finance, liquidity refers to the ease with which an asset can be bought, sold, and converted into cash.

Typically, ultra-short duration funds invest in short-term debt and money market instruments. SEBI guidelines require ultra-short duration funds to have a duration of 3-6 months.

Many investors are pulled between two tensions: considerable returns and risk minimization. It is possible for such investors to benefit from hybrid/balanced funds, which are mutual funds that invest in more than one asset class, i.e., equity, debt, and other asset classes, based on their investment objectives.

Investing in a mix of asset classes aims to diversify the portfolio to minimize risk. There is a potential for hybrid funds to produce better returns than debt funds while being less risky than equity funds. In general, hybrid/balanced funds last between 3 and 5 years. Equity funds are purely equity-oriented funds with more than 5 years.

Past Performance:

Historically, good funds have given desirable past performance. In any mutual fund prospectus, it will explicitly state that past performance is not a guarantee or harbinger of future results.

It is seen in most cases, however, that good funds outperform in most market conditions. In volatile market conditions, they may not outperform in the short run, but in the long run, they do.

The benchmark index of a mutual fund scheme is the barometer and gauge against which its performance and stock allocation are compared. It is imperative to note that the benchmark index reflects the scheme's investment objective.

For example, a large-cap mutual fund's benchmark index should include all of the large-cap stocks in that fund.

It is also important to assess the mutual fund's performance in comparison to its active peers. As a result, a holistic understanding of the fund's performance can be gained. It should be a comparison between the same mutual fund schemes.

For instance, a large-cap equity fund should be compared with other large-cap funds and not against any mid-cap or small-cap funds.

Consistency:

The consistency of returns over time is as important as the magnitude of returns. The concept of consistency is quite straightforward and straightforward.

A fund that generates 13%, 14%, and 15% over three years offers the same CAGR as a fund that generates 5%, -4%, and 47%. As a result, the first fund is more predictable when it comes to returns, whereas the second fund is extremely unpredictable and volatile.

A mutual fund must generate consistent returns for its investors rather than whirlwind returns. A fund needs to provide consistent returns in both bullish and bearish markets.

Fund Management Team and Experience:

Another important factor to consider is the elaborate length of time the fund manager has been at the helm of the mutual fund scheme while not overlooking his past performance.

The fund management team should be consistent over time. You should avoid a fund witnessing a lot of churn and attrition in senior personnel like CEO, CIOs, Fund managers, etc.

That is not very favourable for consistency of investment policy and long-term performance as every fund manager will have his own distinct set of ideas and investment philosophy. Investors may have to forego the compounding effect of investments being untouched for long periods.

Ideally, the best mutual funds for investment are funds that have a consistent and long-standing management team at the helm of the mutual fund scheme.

Expense Ratio:

In fund management, the expense ratio refers to the commission or fee the fund manager charges for properly managing investments. A fund manager's fee is a charge levied on investors for generating profits.

You should invest in mutual funds with low expense ratios as an investor. Despite the minuscule percentage, when calculated across all investments, it can significantly affect the NAV of a mutual fund scheme.

As a derivative of Assets Under Management, the Expense Ratio is considered lower when AUM is higher.

Conclusion

We have discussed some basic factors to consider when picking and choosing a mutual fund scheme. To pick the best mutual fund, you should focus on buying units of mutual funds that align with your values and investment philosophy and meet your needs determined by your risk tolerance.

The next step is to explore alternative options. The right mix and composition of equities, debt, money market instruments, etc., should be included in a mutual fund.

Monitoring funds regularly and being hyper-aware of the ever-changing needs of investors and market dynamics needs to be tweaked and fine-tuned consistently.

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