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Mutual funds are pretty popular as investment options. However, because of their slightly complex nature, there are many misconceptions among people about what they are, who they’re for, and how/where to start. These misconceptions lead to a large number of people missing out on the benefits by failing to invest in any mutual fund.

Let’s start by clearing out the most prominent misconception- Mutual funds are not only for the wealthy or elderly, but also for people from all age groups, income levels, and risk appetites who can invest. In this article, we’ll be explicitly talking about students and the best mutual funds to invest in. Before delving further, let us try to understand the basics of mutual funds.

What is a mutual fund and why should you consider investing in one?

A mutual fund is an investment facility where a number of different investors contribute towards a corpus to invest in securities, stocks, bonds, etc. This common fund is managed by a professional fund manager, with the goal of providing potential returns to individual investors. The fund manager charges a certain fee from the investors, which is deducted before distributing the profits/returns to them. The fund manager distributes the returns on the investment to the individual investors in proportion to what they had contributed initially to the fund.

Mutual funds can have a wide range of investment strategies like balanced, aggressive, conservative or growth-focused, where the approach is based on the investor’s requirements and risk appetite. And the best mutual funds to invest for any individual would directly depend on these previously mentioned characteristic trait factors. Investing in mutual funds is much simpler when compared with the stock market as the fund manager takes care of all the technical details for you. As an additional benefit, you don’t even need a DEMAT account to start investing in it.

Systematic Investment Plan(SIP)s offer us the ability to purchase these funds through small monthly payments, giving us tremendous flexibility to diversify our portfolio.

Here are some of the benefits of investing in a mutual fund to help you with the decision.

Fund Managers:

Professional expertise replaces the need for you to learn the complex technicalities of investing in financial markets. Investing in mutual funds is a worthy alternative for someone who does not have the required skills or the time to do it themselves.

Higher Returns:

Mutual fund gives you the opportunity to earn potentially higher returns than other traditional investment options. Mutual fund returns are directly linked to the market performance and thus while you can get a high return in a bullish market, it can’t assure capital protection if the market is bearish.

Diversification:

Nothing explains this funda better than the saying “Don’t put all your eggs in one basket”. Investing in a single asset can be risky if that particular sector crashes suddenly. Seasoned investors avoid this problem by investing in a variety of asset classes. Mutual funds help save your efforts by giving you a diverse portfolio with stocks from a variety of different sectors.

Investing in mutual funds has become extremely easy and can be done within minutes, online. The minimal amount needed to invest can be as low as a mere 100 rupees, and this has made it possible for even school students to invest in the best mutual funds. Mutual funds can help you plan for the future from a very early age and give you a head start as compared to your peers. It can help you sponsor your higher studies or buy that flagship phone you have been planning to buy for the longest time. As a student, you may even invest a meager amount from your allowance or pocket money each month in mutual funds through Systematic Investment Plans. So, there’s no better time to start investing.

What are the different types of funds and which one fits my goals?

Mutual funds are broadly classified into 4 primary groups based on investment objectives.

Growth Funds:

Capital appreciation is the primary goal of a growth fund. Growth funds are relatively riskier than the other three options due to its very nature of putting a chunk of the money in stocks, opening them up to high equity exposure. Hence experts only suggest investing in them for the long term.

Income Funds:

Income funds try to provide the investor with a steady flow of income over the years. They are crafted for a wide range of term goals and are fit for investors with a low-risk appetite. Income funds are debt funds with investments in government securities, bonds, etc.

Liquid Funds:

Liquid funds offer the investor to invest and save their money for a short-term(few days to few months). They let one invest in money market vehicles like treasury bills, commercial papers and term deposits.

Tax Saving Funds:

The investor has the benefit of claiming deductions up to Rs. 1.5 lakh every year when they invest in tax saving funds. These are designed to offer the individual tax benefits under section 80C of the Income Tax Act.

Mutual funds can also be classified based on the securities that it targets. Namely, the three major categories are Equity, Debt and Hybrid Funds. Other mentionable categories include Sectoral or Thematic Funds, Money Market Funds, Index Funds, Exchange Traded Funds, etc.

Below are the chosen few best mutual funds to invest in.

Axis Bluechip Fund

This fund is managed by Mr. Shreyas Devalkar, AMC is Axis AMC. The 3-year absolute returns stand at 17.00%, and the 5-year absolute returns are recorded at 21.00%.

SBI Bluechip Fund

This fund is managed by Ms. Sohini Andani. The 3-year absolute returns stand at 14.50%, and the 5-year absolute returns being recorded at 23.20%.

ICICI Prudential Equity and Debt Fund

It’s an aggressive hybrid fund, has around 69% investment in Indian stocks and the rest in Debts. Five-year absolute returns are around 20%.

Principal Hybrid Equity Fund

It is a hybrid fund, with 5-year absolute returns around 25%.

Franklin India Low Duration Fund

This is a low duration fund, 1 to 3 years. It is ideal for students and college graduates who want to save up money for a vacation or a gadget.