Best Mutual Funds for SIP in 2021

Everyone wants to save and invest for their financial goals. But often you may end up waiting too long to accumulate a decent sum to start investing. This could prove to be a hurdle in your investment journey.

If you don't have a large amount to invest in one go, you can opt for the Systematic Investment Plan (SIP) mode of investing offered by mutual funds. The method of investing is similar to your investment in a recurring deposit (RD) with a bank, where you deposit a fixed sum of money (into your recurring deposit account), but the only difference here is, your money is deployed in a mutual fund scheme (equity schemes and/or debt schemes) and not in a bank deposit.

Often investing a lump sum amount in mutual funds becomes a risky proposition, especially when market conditions are expected to be highly volatile, which is why investing regularly via SIP can be more beneficial. Regular investment through SIP helps to average out the cost of investment and compound your wealth. Through the SIP mode, you can buy more units when the markets are low, so when the market bounces back, it results in higher returns.

Image by jcomp -

Here are some of the benefits of investing through SIPs:

  1. It is light on the wallet

  2. It makes timing the market irrelevant

  3. Enables you to lower the average cost of investment

  4. You benefit from the compounding of wealth

  5. It is an effective medium for planning your financial goals

What's more? It gives you the option to step up your contribution so that you can achieve your financial goals faster.

As it's said, "little drops of water make a mighty ocean"; SIP does just that. If you follow the right discipline and ensure that you do not miss or stop SIP instalment, it can help you achieve the envisioned financial goals.


When you choose a scheme to SIP into ensure that you pick worthy schemes that align with your financial goals, risk appetite and investment horizon. While equity investments have the potential to generate high returns, don't ignore the risk involved, and select funds that are most suited for you as per the asset allocation meant for you.

Your equity SIP portfolio should contain a good mix of large-cap funds, multi-cap/flexi-cap funds, mid-cap funds, aggressive hybrid fund, and value style fund for optimum diversification. You can also invest in small-cap funds if your risk-appetite permits it.

Table: Top ranking schemes based on 3-year SIP return

Scheme Name XIRR (%)
1-year 2-year 3-year 5-year 7-year
Quant Small Cap Fund 146.85 69.09 39.98 22.28 16.66
PGIM India Midcap Opp Fund 115.74 61.04 39.18 24.41 19.29
Kotak Small Cap Fund 137.82 60.18 37.75 23.67 20.76
Quant Active Fund 95.90 49.64 33.44 23.57 20.11
PGIM India Flexi Cap Fund 86.69 45.91 31.96 22.25 --
IIFL Focused Equity Fund 76.84 40.44 31.06 22.72 --
SBI Small Cap Fund 98.54 47.43 30.80 22.94 22.80
Nippon India Small Cap Fund 119.06 50.83 30.41 21.10 20.03
Edelweiss Mid Cap Fund 101.16 47.16 30.19 20.67 18.60
Kotak Emerging Equity Fund 99.78 45.46 30.09 20.64 19.45
NIFTY 50 - TRI 69.36 30.98 21.96 17.22 14.76
Nifty LargeMidcap 250 Index - TRI 83.50 37.33 24.40 17.78 16.08
NIFTY 500 - TRI 74.78 33.21 22.31 16.68 14.72
Nifty Smallcap 100 - TRI 127.28 46.23 24.65 13.25 11.53
Nifty Midcap 100 - TRI 100.82 41.91 24.89 15.80 14.69
XIRR (%) as on March 10, 2021
(Source: ACE MF)

*Please note, this table only represents the best performing Mutual Funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Speak to your investment advisor for further assistance before investing.


The table above shows top-performing mutual funds based on 3-year SIP return. However, selecting schemes based solely on past returns may not be the best approach. In fact, out of the hundreds of mutual fund schemes available for investment only a handful can be considered as truly worthy for your portfolio.

Best Mutual Funds for SIP in 2021:

Some of the best performing mutual fund based on our analysis and research at PersonalFN are as follows:

- DSP Midcap Fund

- Canara Robeco Flexi Cap Fund

- Parag Parikh Flexi Cap Fund

- Mirae Asset Emerging Bluechip Fund

- Canara Robeco Bluechip Equity Fund

These schemes have delivered superior risk-adjusted returns across various market phases and cycles and have fared well on qualitative parameters as well.

Do keep in mind that past performance is not indicative of future returns.

Here are the parameters to look into while selecting the best mutual funds for SIP:

Quantitative Parameters:

Analyse if the fund has shown consistency in performance across various market periods (bull and bear market phases) compared to the benchmark and category peers. While all funds may perform well during the bull phase, an important parameter while selecting a mutual fund for SIP is to determine its ability to manage the downside risk during tough market conditions.

For this, determine whether the fund has rewarded its investors well for the risk they have taken using risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation over a 3-year period.

Give preference to those funds that stand strong on risk-reward parameters while short listing funds for your portfolio.

Qualitative Parameters

Qualitative parameters are often overlooked though they are a vital aspect in the selection process. It involves determining the quality of the portfolio and the efficiency of fund manager/house.

The fund house should have a significant performance record and must follow robust investment processes with adequate risk management systems in place.

And because a mutual fund's performance is directly dependent on the ability of its fund manager to identify stock/sector/theme with superior potential, check the qualification and experience of the fund manager and the track record of the other schemes they manage.

Look at the fund's portfolio for how well diversified it is across stocks/sectors. Remember that a concentrated portfolio can expose you, the investor, to higher risk. Ensure that the scheme optimally diversifies its portfolio within its stated investment mandate viz. multi-cap, large-cap, mid-cap, large and mid-cap, small-cap to help it sail through adverse market conditions and reduce the impact of volatility.

Moreover, keep a tab on the churning rate of the securities in the portfolio because a high churning rate can make the portfolio prone to volatility and negatively impact the overall returns of the scheme. Analyse the portfolio turnover ratio and expense ratio to assess how efficiently the fund controls the churning and limits the expenses.

Yes, we know that the above list is a lot for an average investor to look at. It involves number crunching and much of the data is not easily available in one place. But if you do need to narrow down on the top funds, these factors are of utmost importance.

Watch this short video on selecting mutual fund schemes:


At PersonalFN, we select and recommend mutual funds based on quantitative and qualitative parameters using our S.M.A.R.T Score Matrix:

  • S - Systems and Processes

  • M - Market Cycle Performance

  • A - Asset Management Style

  • R - Risk-Reward Ratios

  • T - Performance Track Record

The outlook for equity funds in 2021:

The Indian economy, after contracting for two consecutive quarters reported a positive growth rate of 0.4% in Q3FY21. However, the recent resurgence in COVID-19 cases witnessed in many parts of the country has once again raised concerns about the sustainability of the economic recovery.

In addition, not all components of India's GDP are demonstrating growth. It is likely that the reading for the ensuing few quarters could slip back into a contraction, which means we could see a sort of 'W-shaped' recovery, where we would dip again before moving up.

Despite this, the equity market continues to trade at all time high supported by comfortable liquidity conditions. Consequently, the valuations in the Indian equity markets have turned expensive (trail P/E is around 35x) and the margin of safety across the market capitalisations appears to have narrowed. While the Union Budget 2021-22 announcements have set the bulls raging, the chances of intermediate corrections and high volatility cannot be ruled out.

Given the current scenario, it is advisable to be cautious with your investment approach. Invest only in those funds that are well poised to handle uncertain market conditions. In the current scenario, it would be wise to diversify across market capitalisation in a staggered manner (preferably through SIP). This will help you to mitigate the risk better and sensibly negotiate market volatility.

Going forward, even if the market corrects or hits turbulence and volatility increases, do not stop or redeem your SIP. Note that if the Indian equity market corrects from the current high, which is possible, more units would be allotted against your SIP instalment, and when the market begins to ascend again, it would compound your wealth.

Warm Regards,
Divya Grover
Research Analyst

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds