Equity mutual funds aim to generate returns by investing in stocks of publicly listed companies across various market capitalizations. As per SEBI’s mandate, these mutual funds must invest at least 65% of the pooled capital in equities and equity securities, while the remaining 35% may be invested in money-market instruments or debt instruments. The composition of an equity mutual fund’s portfolio relies on the skill of the fund manager, who is in charge of choosing the assets.
Different equity mutual funds may generate different returns depending on factors like portfolio composition, market conditions, investment time period, and risk level. The primary objective of equity funds is to achieve positive returns over an extended time horizon.
Let’s take a look at the Best Rated Equity Mutual Funds in India. The list of funds mentioned below are based on ratings assigned by Value Research.
List of Equity Mutual Funds in India
| Fund Name | Category | Risk | 1Y Returns | Rating | Fund Size(in Cr) |
|---|---|---|---|---|---|
| Bandhan Small Cap Fund | Equity | Very High | 29.6% | 5 | ₹10,244 |
| ICICI Prudential Infrastructure Fund | Equity | Very High | 15.4% | 5 | ₹7,415 |
| Motilal Oswal Midcap Fund | Equity | Very High | 24.6% | 5 | ₹27,780 |
| Motilal Oswal Large and Midcap Fund | Equity | Moderately High | 29.5% | 5 | ₹9,176 |
| Franklin Build India Fund | Equity | Very High | 10.3% | 5 | ₹2,725 |
| ICICI Prudential BHARAT 22 FOF Fund | Equity | Very High | 5.3% | 5 | ₹2,270 |
| HDFC Mid-Cap Opportunities Fund | Equity | Very High | 18.8% | 5 | ₹74,909 |
| Invesco India Smallcap Fund | Equity | Very High | 23.5% | 5 | ₹6,822 |
| SBI Healthcare Opportunities Fund | Equity | Very High | 23.9% | 5 | ₹3,670 |
| Bandhan Core Equity Fund | Equity | Very High | 17.8% | 5 | ₹8,408 |
| Nippon India Multi Cap Fund | Equity | Very High | 15.5% | 5 | ₹40,261 |
| SBI Long Term Equity Fund | Equity | Very High | 13.9% | 5 | ₹28,506 |
| HDFC Focused 30 Fund | Equity | Very High | 18.7% | 5 | ₹18,559 |
| HDFC Flexi Cap Fund | Equity | Very High | 18.4% | 5 | ₹74,105 |
| UTI Large & Mid Cap Fund | Equity | Very High | 17.4% | 5 | ₹4,349 |
How Does Value Research Rate Equity Mutual Funds
Value Research rates equity mutual funds by taking into account a variety of factors. These include returns of the funds over three and five years along with the risk taken to achieve such returns, history of the fund, etc. In simple words, scores are assigned for how risky a fund is and how much return it gives. These scores are then combined to determine the final star rating. Value Research only rates mutual funds that have been operational for at least three years, have at least 10 funds in their group and have not undergone significant changes in recent years.
Who Should Invest in Equity Mutual Funds?
Since equity mutual fund portfolios comprise at least 65% equity and equity-oriented securities, these are well-suited for investors seeking capital appreciation through a diversified portfolio of stocks. Investors who are comfortable with a moderate to high level of risk and are looking for potential higher returns may find these funds aligned with their investment objectives. Equity mutual funds are best suited for:
a) Investors with Moderate to High-Risk Appetite
Equity mutual funds tend to have high to moderate risk levels. Even the top rated equity mutual funds may see price fluctuations and volatility in the short term. Therefore, if you are an investor who has a moderate to high-risk appetite, then these funds may be suitable for you.
b) Investors Who Want to Start Small in Equity Investments
Many investors want to invest in the equity market but are unable to because they may either not have enough capital Through equity mutual funds, such investors can start small – even with an amount as low as Rs. 100.
c) Investors Who Want to Save Taxes and Enhance Overall Wealth
Equity funds, especially ELSS Funds are useful for investors who want to avail the combined benefits of tax-saving and long-term wealth creation. They allow investors to save taxes through the tax-saving benefits of Section 80C of the Income Tax Act. An investor can reduce his/her taxable income by Rs. 1.5 lakhs with investments in equity mutual funds. Equity mutual funds also offer the potential of earning positive long-term returns from investments.
d) Long-Term Investors
Equity mutual funds are well-suited for long-term investors because although their returns can be volatile in the short term, they typically have the potential to deliver favorable results over an extended period. This longer horizon allows investors to ride out market fluctuations and benefit from the potential growth of the underlying stocks in the portfolio.
e) Investors Who are New to Stock Investing
Many investors want to invest in the stock market but are unable to do so because they do not have the required market knowledge to pick appropriate stocks.
Equity mutual funds offer new investors an opportunity to gain exposure to stocks. With equity mutual funds, investors can rely on professional and experienced fund managers to pick stocks for them.
Factors to Consider While Investing in Equity Mutual Funds
Before investing in any of the best rated equity mutual funds to invest in 2025, an investor must keep the following factors in mind:
- Track Record of the Fund
When considering the best-rated equity mutual funds for investment, you must scrutinize the fund’s track record, focusing on its historical performance over different time periods. Look for a consistent and positive track record as it reflects the fund’s ability to navigate various market scenarios and deliver reliable returns.
- Objective of the Fund
Consider the fund’s objective and evaluate whether it aligns with your personal investment goals. Understanding the fund’s intended purpose and risk profile is crucial for making informed investment decisions in pursuit of long-term financial objectives.
- Expense Ratio
The expense ratio is the fee charged by the fund house to manage your investments. The lower the expense ratio, the fewer expenses you will incur on your investments. Therefore, while searching for the best equity mutual funds in 2025, you will have to look out for a fund house that offers reasonable fees and charges over your investments.
- Fund Manager’s Expertise
An equity fund may not perform well solely based on market directions. It is also dependent on the fund manager’s expertise. A fund manager’s track record, experience and expertise can play an important role in the fund’s performance. Checking up on the history, performance, and expertise of the fund manager allows you to gauge the fund’s capability to generate positive returns.
Major Advantages
Some of the benefits that investors can avail by investing in best equity mutual funds are:
- Small Size Investment:
Optimal for investors with smaller budgets, top-rated equity mutual funds allow individuals to enter the stock market with modest amounts, promoting accessibility and inclusion.
- Portfolio Diversification:
Equity mutual funds facilitate portfolio diversification by spreading investments across a variety of stocks. This minimizes the impact of poor-performing assets and contributes to a more resilient investment strategy.
- Convenience:
Investing in these funds is convenient as they provide professional management, eliminating the need for individual stock selection and monitoring. This convenience is particularly beneficial for investors with limited time or expertise.
- Risk Mitigation:
The diversified nature of equity mutual funds helps mitigate risk by reducing the impact of volatility in individual stocks. This approach enhances overall portfolio stability and lowers the vulnerability to market fluctuations.
- Regulation:
Equity mutual funds fall under regulatory frameworks. This ensures a level of transparency, security, and compliance. Regulatory oversight provides investors with confidence and trust in the management and operation of these funds.
Risks Involved While Investing in Equity Mutual Funds
As already stated, investments in equity mutual funds involve risks in the short term; the risks can be of the following kinds:
a) Market Risk: A market risk results in losses for any investor because of poor performance of the market. These can be inflation, deflation, political unrest, interest fluctuations, and more.
b) Interest Rate Risk: Interest rate changes depending on the credit available to lenders and the demand from borrowers. An increase in the interest rate during the investment period can result in a reduction in the price of the security, which means it is inversely related to each other.
c) Liquidity Risk: Liquidity risk is the difficulty of redeeming an investment without facing a loss in the value of the fund. This occurs for several reasons, like interest rates increase, changes in the value of currency, and more. Therefore, selling the funds and arranging money can sometimes be hard.
