Best Mutual Fund Schemes in India 2025 | Active & Equity Mutual Funds
17 Mar 2025 7 mins Mutual Funds
Investing in mutual funds has become one of the most popular ways to grow wealth in India. Among the various types of mutual funds, active mutual funds in India stand out due to their ability to outperform the market when managed effectively. These funds are designed to generate higher returns by actively buying and selling stocks rather than passively tracking an index.
If you're wondering whether active mutual funds are the right investment choice for you, this guide will provide you with a detailed understanding of their advantages, risks, and key factors to consider.
What Are Active Mutual Funds?
Active mutual funds are investment funds managed by professional fund managers who actively buy and sell securities with the goal of outperforming a benchmark index. Unlike passive funds that simply mirror an index, actively managed mutual funds rely on market research, economic analysis, and the expertise of fund managers to generate better returns.
How Do Active Mutual Funds Work?
Fund managers of active mutual funds in India conduct in-depth research to select the best-performing stocks. Their process includes:
Market Research: They analyze industries, company financials, and macroeconomic trends.
Stock Selection: Based on research, they invest in stocks expected to deliver strong performance.
Portfolio Adjustment: Managers continuously monitor and adjust holdings to capitalize on market trends.
Risk Management: Diversification and hedging strategies are employed to minimize risks.
The goal of actively managed mutual funds is to generate "alpha," meaning returns higher than the market average.
Why Should You Invest in Active Mutual Funds?
1. Potential for Higher Returns
Unlike passive funds, active funds have the potential to beat the market by selecting high-performing stocks. Skilled fund managers can take advantage of market trends and opportunities.
2. Professional Fund Management
Investing in active mutual funds in India allows you to benefit from the expertise of professional fund managers who use detailed research to make informed investment decisions.
3. Flexibility in Changing Market Conditions
Since actively managed mutual funds do not follow a fixed index, they can adapt quickly to market fluctuations, reducing losses during downturns.
4. Risk Diversification
Although active mutual funds carry some risks, professional fund managers mitigate these risks through diversification and strategic asset allocation.
Types of Active Mutual Funds in India
There are different categories of active mutual funds based on asset allocation and investment strategy.
1. Equity Funds
These actively managed mutual funds invest primarily in stocks, aiming for long-term capital appreciation. They can be further classified into:
Large-Cap Funds: Invest in well-established companies with stable growth.
Mid-Cap Funds: Focus on mid-sized companies with high growth potential.
Small-Cap Funds: Target smaller firms with potential for exponential returns.
2. Debt Funds
While equity funds dominate active mutual funds in India, actively managed debt funds also exist. These invest in fixed-income securities and are actively managed to maximize returns while minimizing interest rate risks.
3. Hybrid Funds
Hybrid active funds invest in both equity and debt instruments to balance risk and return.
4. Thematic and Sectoral Funds
These actively managed mutual funds focus on specific industries, such as technology, healthcare, or finance.
5. International Funds
Some active mutual funds in India invest in foreign markets to provide global diversification.
Factors to Consider Before Investing in Active Mutual Funds
1. Fund Manager’s Track Record
Since active mutual funds rely on the expertise of fund managers, it’s crucial to evaluate their past performance and experience in handling investments.
2. Expense Ratio
Actively managed mutual funds usually have higher expense ratios compared to passive funds due to research and management fees. Ensure the fees justify the potential returns.
3. Risk Tolerance
Every investment carries some level of risk. Investors should assess their risk appetite before choosing an active mutual fund.
4. Investment Horizon
Active mutual funds in India are best suited for long-term investors who can withstand market volatility.
5. Consistency of Performance
Instead of chasing high returns from a particular year, look for actively managed mutual funds with a consistent performance track record over multiple years.
Risks Associated with Active Mutual Funds
While active mutual funds offer higher return potential, they come with risks that investors should consider:
1. Market Risks
Since these funds depend on market conditions, economic downturns can impact returns.
2. Higher Costs
The expense ratio of actively managed mutual funds is typically higher due to research, transaction costs, and management fees.
3. Fund Manager Risk
The success of active mutual funds in India largely depends on the fund manager’s skill. Poor decisions can lead to underperformance.
4. Tax Implications
Frequent buying and selling of stocks within active funds may lead to short-term capital gains tax liabilities.
How to Choose the Best Active Mutual Funds in India
To select the best actively managed mutual funds, follow these steps:
Identify Your Investment Goals: Are you looking for capital growth, income generation, or stability?
Compare Fund Performance: Look at historical returns over 5-10 years.
Check Expense Ratios: Opt for funds with competitive costs.
Assess Risk Levels: Ensure the fund aligns with your risk appetite.
Evaluate Fund Management: Choose funds managed by experienced professionals.
Top Performing Active Mutual Funds in India (2024)
If you're considering investing in active mutual funds in India, here are some top-performing funds:
Mirae Asset Large Cap Fund – A well-managed large-cap fund with a strong track record.
SBI Small Cap Fund – A high-growth fund focusing on small-cap stocks.
Axis Bluechip Fund – A stable and high-performing large-cap fund.
Kotak Emerging Equity Fund – A mid-cap fund with strong growth potential.
Parag Parikh Flexi Cap Fund – A diversified fund investing in domestic and international stocks.
How to Invest in Active Mutual Funds in India?
1. Direct Investment through AMC Websites
Visit the official website of an Asset Management Company (AMC) and invest directly.
2. Online Investment Platforms
Platforms like Groww, Zerodha Coin, and Paytm Money allow investors to compare and invest in active mutual funds easily.
3. Mutual Fund Distributors
Registered distributors provide guidance and facilitate investment in actively managed mutual funds.
4. Through a Financial Advisor
A financial advisor can help you choose the right active funds based on your financial goals.
Conclusion
Active mutual funds in India offer investors the opportunity to generate higher returns through professional fund management and strategic decision-making. These funds provide flexibility, risk management, and the potential to outperform market indices. However, they come with higher costs and risks, making it essential for investors to conduct thorough research before investing.
If you're looking for a dynamic investment strategy with the possibility of high returns, active mutual funds could be an excellent addition to your portfolio. Evaluate your goals, risk appetite, and fund performance before making a decision.
FAQs
1. Are active mutual funds better than passive funds?
It depends on your investment goals. Active funds aim to outperform the market, while passive funds track a benchmark index with lower costs.
2. How much should I invest in actively managed mutual funds?
The investment amount depends on your financial goals and risk tolerance. Diversification is recommended to balance risks.
3. Can I invest in active mutual funds with a small amount?
Yes, most active mutual funds in India allow Systematic Investment Plans (SIPs) starting as low as ₹500 per month.
4. How long should I stay invested in an active mutual fund?
A long-term investment horizon (5-10 years) is ideal for maximizing returns from actively managed mutual funds.
5. Are active mutual funds safe?
While no investment is risk-free, active funds offer diversification and professional management to mitigate risks.
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Author - Abhishek Sonawane
Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam (IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.