Synopsis- One of the best financial moves you can make in your life is to start investing in your 20s. This is when you can use the power of compounding by investing in mutual funds as a salaried employee with a long term reliable income, decades left ahead of you. With a very long way ahead, you can afford to take calculated risks, and accumulate a lot of wealth to achieve your future ambitions. In this article we talk about the best mutual funds you can invest from your 20s.
Why Your 20s Are the Golden Years for Investing
- The Time Advantage: When you are in your 20s, you have a 30-40 year investment horizon to retirement. You have ample time to have your investments compound, even a small amount of ₹5,000 SIP that yields 12% returns can increase to about ₹4.12 lakhs in 5 years alone. The outcomes are really impressive over the longer terms.
- Higher Risk Tolerance: Young professionals are able to assume an 80-90% equity exposure in their portfolios as they have time to overcome any market downturns. This aggressive allocation has the potential to provide better returns than conservative strategies, so it is best used in wealth creation when your earning level is at its highest.
- Creating Financial Discipline: By beginning SIPs in your 20s, you can develop systematic practices in investing that will benefit you throughout the career. The art of saving through small investments regularly provides a pillar towards future financial prosperity.
Essential Fund Categories for Your Portfolio
1. Tax-Saving ELSS Funds
Equity Linked Savings Schemes (ELSS) which has a two-fold advantage of saving tax and wealth creation. These funds offer deductions up to ₹1.5 lakh under Section 80C and have given an average 15-18% returns over the last ten years. ELSS funds are best suited to young professionals.
- Motilal Oswal ELSS Tax Saver Fund gave the highest 3 year SIP XIRR returns of 23.68%.With a highly competitive expense rate of 0.63%.
- Axis ELSS Tax Saver is the popular fund in this category with the highest AUM of 35,312 as on 31/07/25 but its 3 year SIP XIRR returns is 14.62% which is below its category average of 15.98%.
2. Large Cap Funds for Stability
The base of your portfolio should be made up of large cap funds, which usually take up 50% of your equity investment. These funds put money in the top companies in India and provide stability and steady returns with reduced volatility.
- Nippon India Large Cap Fund gave the highest 3 year SIP XIRR returns of 18.27%.With a highly competitive expense rate of 0.65%.
- ICICI Pru Large Cap Fund has the largest AUM of ₹71,787 Cr. in the category and its 3 year SIP XIRR returns stood at 16.83%.
Also read: Can SIP in Nifty 50 ETF Generate Strong Long-Term Returns?
3. Mid and Small Cap Funds for Growth
To create aggressive wealth, invest 25-40% of your portfolio in mid and small-cap funds. These funds have a higher return potential but are more volatile.
- Invesco India MidCap gave the highest 3 year SIP XIRR returns of 30%.With a highly competitive expense rate of 0.55%.
- HDFC Mid Cap Fund has the largest AUM of ₹83,847 Cr in the Mid Cap Mutual Funds Category and its 3 year SIP XIRR returns stood at 23.12%.
- Bandhan Small Cap Fund gave the highest 3 year SIP XIRR returns of 30.19%. With a highly competitive expense rate of 0.4%.
- Nippon India Small Cap has the largest AUM of ₹65,922 Cr in the Small Cap Mutual Funds Category and its 3 year SIP XIRR returns stood at 19.59%
4. Hybrid funds
Hybrid funds would provide a great balance between young professionals that want to grow with fewer fluctuations. They also invest in equity and debt funds and automatically re-balance themselves, and provide professional management of the assets distribution based on market conditions.
- Quant Multi Asset Allocation comes under hybrid:Multi Asset Allocation category which charges an expense rate of 0.64%. It has the highest return in the 3 Year SIP XIRR of 20.22%
- ICICI Pru Equity & Debt comes under hybrid:Aggressive category. It has the highest return in the 3 Year SIP XIRR of 18.45%.
Also read: 5 Worst Performing Flexi Cap Mutual Funds of 2025 – Is Your Money at Risk?
Aggressive Young Investor (Age 20-25)
- 40%Large Cap Funds: For Stable Foundation.
- 35% Mid/Small Cap Funds: Offers High growth potential.
- 15% ELSS Funds: Equity based tax savings.
- 10% Hybrid Funds: Stability of the portfolio.
Moderate Young Professional (Age 26-29)
- 50% Large-Cap Funds: Increased stability as responsibilities grow
- 25% Mid/Small-Cap Funds: Balanced growth exposure
- 15% ELSS Funds: Continued tax benefits
- 10% Hybrid Funds: Risk Management
SIP Strategy
- Determining Your SIP Amount: The majority of financial analysts suggest investing between 10-20 percent of your monthly income in mutual funds.
- Step Up SIP Strategy: Consider increasing 10-15% of SIP with an increase in salary. This is a great wealth creation strategy because as you are in your prime earning years, you make substantially greater contributions.
Final Thoughts
Starting to invest in mutual funds during your 20s, an individual can take full advantage of the effects of compounding and can enjoy the benefit of increased risk-taking. Young investors can find the right mix of stability, growth, and tax savings by diversifying with ELSS, large-cap, mid/small-cap, and hybrid funds. The secret to successful investing is not timing the market, but time in the market. Even small sums of money invested regularly will eventually become great wealth, positioning you toward financial freedom and capable of accomplishing your financial objectives.
Written by Prajwal Hegde
