“Which mutual fund should a beginner choose?” Someone recently asked me this question after a talk. A discussion.
Let us assume that the person is a young earner who has subscribed to the EPF via her employer. If she is a freelancer or entrepreneur, the PPF is a good substitute. That will be the fixed-income part of the portfolio.
Now, assuming the goal (retirement) is several years away, we need to choose an equity mutual fund for the equity part of the portfolio. We will aim for an asset allocation of 50% to 60% in an equity MF and the rest in PPF or EPF.
Now, before we begin, you must recognise that there is no ideal or best choice. Some choices appeal to you, and others do not. Just because you choose something does not make it superior and all other choices inferior.
1. Index Funds: You can choose from Nifty 50, Nifty 100, Nifty 500. There are other choices like Nifty LargeMidcap 250, but this has 50% mid cap by mandate, and that can be risky. But if you think you can stomach it, go ahead.
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You can use a Nifty Next 50 fund alongside a Nifty 50 fund to try to get a little extra return, but it can be a frustrating index to hold. The same applies to Nifty Midcap 150. Avoid the small cap index.
For some data, see: Nifty vs Nifty Next 50 vs Nifty Midcap 150 vs Nifty Smallcap 250: Return Comparison Sep 2025.
2. Equity-oriented Hybrid Funds: If you are not a fan of index funds and prefer lower volatility than a pure equity fund, you can choose an actively managed aggressive hybrid fund. For recommendations, see: Plumbline: Handpicked Mutual funds.
To understand why, see: Why is diversification the only free lunch in investing?
At the time of writing, there is one hybrid index fund: Edelweiss Nifty LargeMidcap250 Plus 8–13 yr G-Sec 70:30 Index Fund Review. I would prefer a Nifty 100/200/500 + a composite bond index combo. If you can stomach the volatility of both the equity and debt components in the available fund, then you can go for it.
You can also choose an equity-oriented multi-asset fund instead. This will also hold some gold and silver to satisfy the metal FOMO. There are no index funds in this space. For fund recommendations, see: Plumbline: Handpicked Mutual Funds.
3. Flexicap or Multicap Funds: If you prefer a purely actively managed fund, then you can choose a flexicap fund
- a large-cap-oriented one if you prefer lower volatility, or
- a truly flexicap fund (then choose something with low AUM that no one talks about) or
- a multi-cap fund if you want more mid- and small cap exposure – but be mindful of risks during market downturns.
There is no need for a dedicated mid cap or small cap fund. The truly low-maintenance choice is index funds, but it’s up to you. Just do not assume outperformance or underperformance will last forever. Everything is cyclical in investing. If you choose active funds, be ready for periods of poor performance.
Now that covers equity funds. If you want a debt or debt-like fund, choose liquid, money market, or arbitrage for short-term goals, and conservative hybrid, gilts, and corporate bonds for long-term goals. For fund recommendations, see: Plumbline: Handpicked Mutual Funds.
Don’t try to overthink your choices. If you want active funds, look for consistent, reasonable rolling returns-outperformance instead of toppers in the last 1-3 years. You can use our equity mutual fund screeners to do that.
Don’t clutter your portfolio out of FOMO or portfolio reviews. Focus on investing more and more.
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