Best Equity Mutual Funds in India 2025 (Rated Reviewed)

How to Choose the Best Equity Mutual Fund?

With hundreds of equity funds available in the market, selecting the right ones for your portfolio is definitely challenging.

This is especially because finding the best equity mutual funds in India requires a systematic approach that goes beyond just looking at past returns.

Here’s a practical framework to help you make informed choices.

Define Your Investment Goals

The first step in selecting the right equity fund is clarifying exactly what you’re investing for.

Different goals demand different fund types. Therefore, you need to think and define your specific financial objectives, including the target amount and time horizon for each goal.

This clarity will guide your fund selection process.

For long-term goals like retirement (15+ years away), you can consider the best equity mutual funds for long-term growth, which might include more aggressive options like mid-cap, small-cap, or multi-cap funds.

These funds typically aim for maximum capital appreciation over extended periods, despite short-term volatility.

For medium-term goals (5-10 years), like saving for a house down payment or your child’s college education, you might want more balanced equity funds or large-cap funds that offer reasonable growth with moderate risk. 

For shorter-term goals (3-5 years), look at the best equity mutual funds for short-term objectives, which generally means more conservative equity options like large-cap funds or equity-oriented hybrid funds.  

These funds typically prioritize capital preservation while still providing some growth potential.

In short, your investment goal also determines whether you should opt for dividend or growth options.

Assess Your Risk Tolerance

“Never test the depth of a river with both feet.” — Warren Buffett 

Risk tolerance refers to your ability and willingness to endure temporary declines in your investment value. 

This is why it’s absolutely crucial to be honest about your risk tolerance.

After all, it’s better to sleep well than to eat well!

In simple words, you basically need to consider both your financial risk capacity (how much risk you can afford to take) and your psychological risk tolerance (how much volatility you can handle emotionally).  

Your age, income stability, existing savings, and family responsibilities affect your risk capacity, while your personality and past reactions to market movements reflect your psychological risk tolerance. 

If you get anxious when your investments drop even 10%, aggressive small-cap or thematic funds might cause you too much stress. And if that is the case, large-cap or index funds might be more appropriate, even if they potentially offer somewhat lower returns. 

On the other hand, if you have a stable income, an adequate emergency fund, a long investment horizon, and the temperament to weather market volatility, you might comfortably include more aggressive funds in your portfolio.

Compare With Peers & Benchmark

Once you’ve narrowed down your fund category based on your goals and risk tolerance, the next step is to compare funds within that category. 

The best way to do this is to select a few popular funds and compare each fund’s performance against its stated benchmark index.

If a fund is consistently beating the benchmark over various time periods (3, 5, and 10 years), it might be a good choice. However, you still need to compare the fund with its peer group—other funds in the same category. A fund consistently ranking in the top quartile of its category across multiple time periods demonstrates relative strength.

Apart from this, you should also check risk-adjusted metrics like Sharpe ratio, standard deviation, and beta.

The Sharpe ratio shows returns earned per unit of risk taken—higher is better. Standard deviation indicates volatility—lower means more stable returns. Beta shows sensitivity to market movements—lower beta funds typically fall less during market corrections but might also rise less during rallies.

Some investors focus excessively on recent performance (recency bias), chasing last year’s top performers. 

This approach often leads to disappointment as performance tends to revert to the mean over time.

Exit Load & Liquidity

Understanding a fund’s liquidity terms is essential, especially if you might need to access your money before your planned investment horizon.

For emergency funds or money, you might need access to on short notice, avoid funds with high exit loads or long exit load periods.

 ELSS funds, while offering tax benefits, come with a mandatory 3-year lock-in period. If liquidity is important to you, consider whether the tax benefit justifies this restriction. For many investors, the tax benefit makes ELSS funds attractive despite the lock-in, especially as part of their 80C tax-saving allocation.

That said, you must look at each fund’s redemption processing time. While most equity funds process redemptions within 2-3 business days, the actual time to receive money in your bank account might vary based on the fund house and your bank.

Mode of Investment

Finally, you need to decide whether you’ll invest through a lump sum or systematic investment plan (SIP) because this can also influence your fund selection.

For lump sum investments, the best equity mutual funds for lumpsum investment often include more conservative options like large-cap or balanced funds, or investing during market corrections for better entry points.

 SIPs work well for most equity funds regardless of market timing, as they allow you to average your purchase price across market cycles. They’re particularly effective for more volatile fund categories like mid-cap and small-cap funds, where timing the market is even more challenging.

 If you’re planning to invest regularly, check if the fund house offers convenient SIP features like: 

• Step-up SIPs (automatically increasing your investment amount annually)
• Flexible SIPs (ability to vary contribution amounts)
• Pause facility (temporarily stopping SIPs during financial constraints)
• SIP Top-up (adding extra amounts occasionally)

By methodically addressing these five aspects, you’ll be able to narrow down the vast universe of equity funds to a select few that best match your specific requirements.

Most importantly, remember that the “best” fund is ultimately the one that aligns with your personal financial situation and helps you reach your goals with an acceptable level of risk.

How are Equity Mutual Funds Taxed?

Understanding the tax implications of your equity mutual fund investments is crucial for calculating your actual returns. 

This is because equity mutual funds might deliver excellent gross returns, but your after-tax returns are what ultimately matter. 

India’s tax laws for equity mutual funds have undergone significant changes in recent years, so let’s break down the current tax structure in simple terms.

Short-Term Capital Gains (STCG) Tax

When you sell your equity mutual fund units within 12 months of purchase, any profit you make is considered Short-Term Capital Gains (STCG).

These gains are taxed at a flat rate of 20%, regardless of your income tax slab, and apply to all types of equity-oriented funds.

For example, if you invest ₹1,00,000 in an equity fund and redeem it after 8 months for ₹1,10,000, your gain is ₹10,000. The tax on this would be ₹2,000 (20% of ₹10,000), which makes your after-tax profit ₹8,000. 

STCG tax is higher than long-term capital gains tax, which is why most financial advisors recommend holding equity investments for at least one year when possible. 

However, if you need to withdraw before the one-year mark, the 15% tax rate still makes equity funds more tax-efficient than fixed deposits or debt funds for many investors in higher tax brackets.

Long-Term Captial Gains (LTCG) Tax

When you sell equity mutual fund units after holding them for more than 12 months, any profit is classified as Long-Term Capital Gains (LTCG).

For equity-oriented funds, LTCG is taxed at 12.5% without indexation benefits, but only if the total LTCG from all equity investments (including equity mutual funds and direct stocks) exceeds ₹1.25 lakh in a financial year.

This means your first ₹1.25 lakh of long-term capital gains from equity investments each year is completely tax-free.

For example, if you invest ₹5,00,000 in an equity fund and after 3 years, it grows to ₹7,00,000, your gain is ₹2,00,000. If this is your only equity investment, the first ₹1,25,000 of gain is tax-free, and you pay 12.5% tax on the remaining ₹75,000, which comes to ₹9.375. Your after-tax profit would be ₹1,90,625.

Another key point is the “grandfathering” provision. If you purchased equity mutual funds before January 31, 2018, the appreciation up to that date is exempt from LTCG tax. Only the gains accrued after that date are subject to the 10% tax.

Dividend Taxation

Prior to April 2020, dividends from equity mutual funds were tax-free in the hands of investors, but fund houses paid Dividend Distribution Tax (DDT) before distributing dividends. This system changed with the 2020 budget.

Now, dividends from all mutual funds, including equity funds, are taxable in the hands of investors at their applicable income tax slab rates. This means if you’re in the 30% tax bracket, any dividends you receive from equity funds will be taxed at 30% (plus applicable surcharge and cess).

This change has made dividend options less tax-efficient than growth options for most investors, especially those in higher tax brackets. 

For example, if you receive a ₹10,000 dividend from your equity mutual fund and you’re in the 30% tax bracket, you would pay approximately ₹3,000 as tax on this dividend.

In contrast, if the same ₹10,000 remained invested in a growth plan, it would continue to compound and would eventually be taxed at only 12.5% (after the ₹1.25 lakh exemption) if withdrawn after 12 months.

For those who need regular income from their investments, a more tax-efficient alternative to dividend plans is to invest in growth options and set up a Systematic Withdrawal Plan (SWP). 

With an SWP, you can withdraw a fixed amount regularly, and only the capital gain portion of each withdrawal is taxable.

 This provides better tax efficiency compared to dividend options where the entire dividend amount is taxable.

The tax implications for your equity investments include: 

• Short-term gains (under 12 months) are taxed at 20%
• Long-term gains (over 12 months) are taxed at 12.5%, but only on amounts over ₹1.25 lakh per year
• Dividends from equity funds are now taxed at your income tax slab rate
• Growth options are generally more tax-efficient than dividend options
• Only the gain portion of SWP withdrawals is taxable, unlike dividends which are fully taxable
• Units purchased before January 31, 2018 have special “grandfathering” tax benefits