For long, market gurus have been at loggerheads over which matters more to investors when it comes to gauging the best performing mutual funds in India — ‘timing the market’ or ‘time in the market’. An indisputable answer to this would be that both are necessary to make investments worth the while. While a longer time horizon can help diffuse the risk in returns, getting the market timing right can be even more rewarding.

Sample this: Over a 20-year period, while the Sensex delivered a compounded annual return of 11 percent, top performing diversified equity funds raked in a tidy 23 percent return for investors.

But with 42 fund houses offering over 300 equity-oriented schemes, investors are often intimidated by the plethora of choices. And these are just one category of funds.

Let’s tour the various categories and get an idea of the best performing mutual funds in India:

For the moderate risk-taker

The best performing mutual funds in India such as Reliance Small Cap, Mirae Asset Emerging Blue chip and DSPBR Micro-Cap Fund have delivered tidy returns of 31, 30 and 31 per cent over a five-year period. Multi-cap funds invest across the market capitalization spectrum, though most have a large-cap bias.

For instance, ICICI Pru Focused Blue chip Equity Fund, one of the top performing large-cap funds, fell by 16 per cent in the 2011 bear phase, while the Sensex lost a higher 23 per cent.

For the aggressive investor

Thematic funds such as Franklin Build India Fund (infrastructure), Birla SL MNC fund (MNC), Taurus Ethical Fund (Shariah) and Tata Dividend Yield Fund (dividend yield) and contra funds (Invesco India Contra Fund) and sector funds such as those under categories like FMCG, technology, banking, pharma, etc., fall under this category.

But these funds can deliver spectacular returns when the tide turns. ICICI Pru Banking and Financial Services Fund, for instance, delivered chart-topping returns of 60 percent over the past year, as banking stocks gained handsomely on hopes of a revival in the economy.

For the conservative investor

Liquid funds are the safest in the category, investing only in debt securities with a residual maturity of less than or equal to 91 days. With the maturity period, this short, both interest rate risk and credit risk (default risk) are minimal. Liquid funds, on an average, have delivered 7-9 percent returns annually over the last five years

For the moderate risk-taker

For investors with a slightly higher risk appetite and longer time horizon of, say, 2-3 years, debt funds, which generate returns both from accruals and duration calls (only moderately), may be considered. Short-term income funds and Banking and PSU Debt Funds fall under this category.

For the high-risk taker

Credit opportunities funds invest a relatively higher portion in lower-rated bonds. Hence, they carry higher credit risk, while duration is maintained at 2-4 years, minimizing rate risk. Regular income funds carry higher rate risk but lower credit risk.

A recently released Crisil Ranking of the best performing mutual funds in India as on 15th April 2017:

Large Cap Crisil Rank Assets NAV
ICICI Pru Top 100 funds(G) Rank 1 1318.55 293.69
Kotak Select focus funds(G) Rank 1 5239.20 29.30
SBI Blue chip fund(G) Rank 1 7320.88 33.73
Small & Mid Cap Crisil Rank Assets NAV
DSP- BR MICRO Cap fund (G) RP (G) Rank 1 3,591.84 58.98
L&T MidCap fund (G) Rank 1 487.72 120.91
Diversified Equity Crisil Rank Assets NAV
Birla Sunlife Equity Fund (G) Rank 1 2,734.99 628.96
Principal Emerging Bluechip (G) Rank 1 602.72 91.98

The simplest way to classify the best performing mutual funds in India is by way of the various asset classes — stocks and bonds — that they invest in. The three broad categories — equity, hybrid and debt — are further divided by fund houses based on style, objective and strategy.

While the differentiation is endless, what matters to you, as an investor, is how well you can construct a fund portfolio based on your risk tolerance, investment objective and time horizon.

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