As we approach 2025, investors face a changing landscape shaped by rapidly evolving global economic factors. The question on many minds is where to invest in 2025. 

In this blog, Dr. Vidhu Shekhar, an IIT-IIM graduate and Finance Professor at SP Jain in Mumbai, shares his knowledge on picking mutual funds, his mutual fund approach, market insights, and top sectors to look out for in 2025.

Let us start!

Before understanding how to select mutual funds for your portfolio, it is important to grasp the difference between active and passive funds and select the one that suits your investment goals. 

Active vs Passive Mutual Funds

Active funds are funds that are managed by professionals making investment decisions based on market analysis. They often target underpriced stocks with potential for growth. Historically, active funds performed well when valuations were low, and stock picking offered higher returns. 

In the current market, if you have time to monitor investments and do some research, active funds can provide returns beyond index funds, offering a potential 5-7% higher annual return.

However, if you are someone who prefers a more hands-off approach, index funds (passive funds) could be your go-to. These funds replicate the performance of market indices like Nifty or Sensex, which tend to offer solid returns. While they don’t provide the same potential for outsized returns as active funds, they offer stability and low fees.

Having explored the differences between active and passive funds, let’s now focus on how to pick the right active fund for your portfolio. A well-structured approach can make all the difference—let’s dive into the framework for choosing mutual funds.

Framework for Choosing Mutual Funds

To choose a mutual fund scheme, a good approach is to follow these 4 points:

1. Performance History: While long-term returns (5 years) used to be the gold standard for evaluating funds, today it is better to focus on more recent performance (1-3 years) due to the fast-changing economic environment. Pay attention to a fund’s ability to adapt to shifting market conditions.
2. Fund Manager Quality: The quality of the fund manager is important for the performance of the fund. Examine how they have navigated past market volatility and the strategies they employed during difficult periods. 
3. Diversification: It is advisable to diversify across fund houses to spread out risk. For example, you could invest in large-cap funds from one AMC and mid-cap funds from another. 
4. Sectoral Exposure: For a more focused investment, consider sector or theme-based funds in areas you think will do well soon. However, be careful – if you are positive about a sector’s outlook, large-cap companies in that sector could provide more stability, while mid-caps and small-caps may have higher growth potential there but also more risk.

Talking about large, mid and small-caps, there is one fund that invests across all market caps – flexi-cap fund. The question is how to select a flexi cap fund.

Choosing Active Flexi-Cap Funds 

When selecting a flexi-cap mutual fund, focus on the quality of the fund manager. A good fund manager will demonstrate an ability to adapt to fast-changing market conditions. Look for funds with strong short-term (1-3 years) performance over long-term returns (5 years) due to the current volatile market environment. add this point in this section. make a good bridge: 

Once you have a clear framework for evaluating mutual funds, the next step is to explore sectors that align with your investment goals and have the potential to offer attractive opportunities in the current market scenario. 

Top 4 Sectors for Investment Opportunities

According to current trends and analyst predictions, these 4 are some of the thriving sectors in 2025:

Military: Considering the rising geopolitical issues, defence and military would gain more traction as governments in various nations increase their spending on defence. A separate sector of this kind will continue to demand military supplies due to governments being on both sides, producers as well as consumers.

Infrastructure: The Indian infrastructure sector is all set for strong growth in step with the Indian development agenda. A more developed roads, ports, and airport system would definitely attract much investment from investors.

Banking: The banking sector is a direct reflection of the economy’s health. With India poised for economic growth, the banking sector is likely to benefit. If you’re bullish on the Indian economy, investing in the banking sector is a smart way to leverage that optimism.

Consumer Sector: A large, growing middle class presents a huge potential investment ground in the consumer sector, as the higher income movement of people is going to increase consumption and provide upward growth for the companies here.

The IT sector has remained one of the favourite outsourcing services, but the faster advancements in AI and automation can make a difference, at least in the future. In the short run, insourcing more in-house services by companies from outsourcing firms like IT due to cost savings and technology changes might reduce the overall demand for outsourcing IT services.

With a clear understanding of the top sectors poised for growth, it is equally important to consider how you diversify your investments within these sectors. This brings us to the question of how many equity mutual funds one should hold to balance risk and returns effectively.

How Many Equity Mutual Funds Should You Hold?

While there is no one-size-fits-all answer, holding between 10-12 equity mutual funds across 4-5 different fund houses is generally a good strategy. This offers ample diversification, helping mitigate risks. Keep in mind that having too many funds can dilute your investments, potentially limiting your overall gains.

While equities are the preferred choice for long-term wealth creation, debt funds can play a role in your portfolio for stability. 

On Debt Mutual Funds

Debt funds, particularly in the medium-term, are a good way to balance risk. When selecting debt funds, look at the fund’s portfolio and ensure it holds reputed companies with strong credit ratings.

We’ve explored the basics of investing, but an equally important pillar of personal finance is safeguarding your financial well-being by ensuring your risks are adequately covered.

Insights on Insurance, Loans, and Credit Cards

According to Dr. Vidhu, it is also important to keep in mind that insurance should not be used as an investment; rather, it should be utilized to serve its purpose which is to provide protection. 

Merging insurance with any kind of investment plan- such as ULIPs-can end up with poor returns. For instance, consider purchasing term insurance and utilizing the saved premium to invest in PPF or mutual funds, which will result in better returns.

Apart from insurance, we also need to carefully utilise home loans and credit cards. While home loans are extremely common, interest rates or the credibility of the bank should be evaluated. Public sector banks, in comparison with aggressive private banks, might display more transparency and better offers. 

Talking about credit cards, they should never be used carelessly; pay off balances regularly to avoid high-interest charges.

Key Takeaway 

Right from the debate between active and passive mutual funds to the right selection of fund managers and sectors, the most important thing is to ensure alignment of investments with market trends and diversification across fund houses.

Promising sectors like military, infrastructure, banking, and consumer industries present unique growth opportunities, while flexi-cap funds with strong short-term performance are highlighted for their adaptability in volatile markets.

But beyond those, striking a balance in one’s debt funds, avoiding the trap of ULIPs as insurance investments, and being responsible and prudent in handling loans and credit cards are advisable. With these actionable strategies, investors can navigate the complexities of a rapidly evolving financial landscape and position their portfolios for sustainable growth.

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FAQs 

1. Where should I invest in 2025?

According to experts, in 2025, investors can invest in sectors like Military, infrastructure, banking, and consumer sector. The geopolitical issues around the world will make the military sector more appealing to investors. Further, the Indian infrastructure sector is all set for strong growth in step with the Indian development agenda. Also, with India poised for economic growth, the banking sector and consumer sector is likely to benefit. 

2. How to pick the right mutual fund?

To pick the right mutual fund scheme, a good approach is to first check the performance history of the mutual fund scheme, then check the quality of the fund manager, then it is advisable to diversify across fund houses to spread out risk. 

Finally, for more focused investment, you can consider sector or theme-based funds in areas you think will do well soon. 

3. How many equity mutual funds should I invest in?

A good strategy is to hold between 10 and 12 equity mutual funds from 4 to 5 different fund companies. This level of diversification helps reduce risk while avoiding over-diversification that could limit gains by spreading investments too thin.