If you’re wondering what is mutual fund, you’re not alone. With rising interest in personal finance, mutual funds have become one of the most popular investment choices for beginners and experts alike. In simple terms, mutual funds are investment vehicles that pool money from various investors to invest in diversified assets like stocks, bonds, and other securities. This article will guide you through what mutual funds are, how they work, their benefits, and provide a list of the best performing mutual funds in India today.
Table of Contents
- What is Mutual Fund?
- How Do Mutual Funds Work?
- Types of Mutual Funds
- Benefits of Investing in Mutual Funds
- Risks Associated with Mutual Funds
- Best Performing Mutual Funds in India (2025)
- How to Start Investing in Mutual Funds
- Final Thoughts
1. What is Mutual Fund?
A mutual fund is a professionally managed investment fund that collects money from multiple investors and invests that money in diversified assets. These funds are managed by Asset Management Companies (AMCs), where professional fund managers make investment decisions on behalf of investors.
The goal of mutual funds is to generate returns for investors, depending on the type of fund and its investment objective (growth, income, tax-saving, etc.).
2. How Do Mutual Funds Work?
Here’s how mutual funds operate:
- Pooling of Funds: Investors put their money into a mutual fund.
- Fund Manager Role: A fund manager allocates this money to different investment avenues (stocks, bonds, etc.).
- Returns: Any profit/loss from the investment is proportionally distributed to all investors based on the number of units they hold.
- NAV: The value of each unit is called the Net Asset Value (NAV), which fluctuates daily depending on the fund’s performance.
3. Types of Mutual Funds
There are various types of mutual funds based on the investment objective and risk appetite:
a. Equity Mutual Funds
- Invest mainly in stocks.
- Higher returns, higher risk.
b. Debt Mutual Funds
- Invest in government and corporate bonds.
- Lower risk, moderate returns.
c. Hybrid Mutual Funds
- Invest in both equity and debt.
- Balanced risk and return.
d. ELSS (Equity Linked Savings Scheme)
- Tax-saving mutual fund under Section 80C.
- 3-year lock-in period.
4. Benefits of Mutual Funds: Why They’re Smart Investments
✅ Diversification
Your money is spread across different assets, reducing risk.
✅ Professional Management
Experienced fund managers handle your investments.
✅ Liquidity
Most mutual funds can be redeemed quickly (except ELSS).
✅ Affordability
Start with as low as ₹100 via SIP (Systematic Investment Plan).
✅ Tax Benefits
Invest in ELSS to save tax under Section 80C.
5. Risks Associated with Mutual Funds
Though mutual funds are managed by experts, they are not risk-free:
- Market Risk: Values can go down due to market volatility.
- Interest Rate Risk: Affects debt mutual funds.
- Credit Risk: If the fund invests in poor-quality bonds.
It’s important to choose funds based on your risk tolerance and investment goals.
6. Best Performing Mutual Funds in India (As of 2025)
Here’s a list of top mutual funds based on consistent performance, returns, and asset quality:
| Fund Name | Category | 3-Year Return (CAGR) | Risk Level |
|---|---|---|---|
| Quant Small Cap Fund | Equity – Small Cap | 38.4% | High |
| Axis Growth Opportunities Fund | Equity – Large & Mid Cap | 22.1% | High |
| Parag Parikh Flexi Cap Fund | Equity – Flexi Cap | 21.5% | Moderate |
| SBI Equity Hybrid Fund | Hybrid – Aggressive | 17.3% | Moderate |
| ICICI Prudential Corporate Bond Fund | Debt – Corporate | 8.9% | Low |
| Mirae Asset Tax Saver Fund (ELSS) | Tax Saving | 20.4% | High |
Note: Past performance is not a guarantee of future results. Always check latest data and consult a financial advisor.
7. How to Start Investing in Mutual Funds
Step-by-Step Guide:
- KYC Compliance: Complete your KYC online (PAN, Aadhaar, bank proof).
- Choose Platform: Use apps like Groww, Zerodha Coin, Paytm Money, or your bank’s AMC.
- Select Fund: Choose based on goals (short/long term), risk appetite, and past performance.
- Start SIP or Lumpsum: Begin with SIPs or one-time investment.
- Monitor Performance: Review periodically and rebalance if needed.
Final Thoughts
Understanding what is mutual fund is the first step toward making smart investment decisions. Mutual funds offer an accessible, diversified, and professionally managed path to grow your wealth. However, like any financial product, they come with risks. The key is to align your investments with your long-term goals and risk appetite.
Explore the best performing mutual funds, start small with SIPs, and build your portfolio over time for a more financially secure future.
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