With the 2018 year coming to an end, it is time to add new funds to enhance your portfolio and weed out the under performers. Investing in mutual funds is a risky affair, however the risk can be minimised by following Systematic Investment Plan (SIP) method. The SIP method is the best way to invest in mutual funds although timing the market is not always possible.
Most investors look at return percentage while selecting mutual funds but there are some other factors to be considered while choosing the best mutual fund scheme.
Choosing the Best Mutual Fund Scheme:
Some of the factors to be considered while selection of mutual funds are:
- Returns – It is important to understand that the number of times the mutual fund returns exceeds returns from the index, is very crucial in choosing the right mutual fund scheme.
- Risk Measurement – Risk measurement tools such as Standard Deviation, Sharpe Ratio, Alpha, Beta, R-Squared and Sortino Ratio help in better understanding of the return and risk associated with the fund.
- Expense Ratio – Investor’s expense burden also determines the fund. Fund schemes with lower expense ratio will generate higher returns.
- Fund Houses – By selecting from the 15 recognised fund houses, an investor can play safe as they are considered the best.
- Fund Manager – Fund managers associated with funds for a longer tenure are preferred over others.
- Net Assets (AUM) – A higher net asset under the fund exhibits the investor’s confidence in the fund.
The best Equity Funds for SIP in 2023 has been classified as follows:
Large Cap Funds:
Large Cap Funds are those funds that require investment of more than 75% of their fund on large market capitalisation stocks. These type of funds offer stability and sustainable returns over a duration of holding the funds. Two of the best mutual funds to invest in this category in this year are:
- ICICI Pru Focussed Blue Chip Fund:
ICICI Pru Focussed Blue Chip Fund is a large cap fund that invests in 20 large cap companies from the top 200 stocks on the NSE, based on market capitalisation.
Performance - The fund’s strategy is clear and it performs consistently in the long run. ICICI Pru Focussed Blue Chip Fund has generated 11% annualised returns over the last five years, outperforming all its peers.
- UTI Equity Fund:
This large cap fund’s objective is to invest a minimum of 80% in equity and equity related instruments that carry medium to high risk and 20% in debt instruments that come with low or medium risk.
Performance – The fund has outperformed its peers and generated an annualised return of 12% in the last five years. The UTI Equity Fund is one of the oldest fund with 22 years of history, performing well in bear markets as well.
Mid-cap or Small-cap:
Mid- or small-cap funds are aimed at stocks with medium or small market capitalisation. These funds possess a higher risk than large cap funds and thereby offer higher returns. Two of the best mutual funds to invest in this category in this year are:
- Franklin India Smaller Companies Fund:
This fund aims at attaining long-term capital appreciation from a mid- or small-cap portfolio companies. It involves an investment of up to 75% in smaller companies.
Performance – With an annualised return of 19% in the last five years, the fund has crossed its record. This happens to be one of the highest return mutual fund with a 30% annualised return in the last three years.
- UTI Mid Cap Fund:
UTI Mid Cap Fund invests majorly in mid cap stocks and provide capital appreciation. If you invest in the right mid-cap stocks, you can earn better returns than most other funds in a shorter time.
Performance – In the last five years, UTI Mid Cap Fund has recorded annualised returns of 17.8%. If you are looking to invest for a long-term of 8-10 years, this is an ideal mid-cap fund to invest in. The fund has generated up to 19% annualised returns in the last two years.
Diversified Funds:
Diversified funds comprise a variety of securities in order to bring down the risks in the fund. It is always advisable to invest across sectors to earn the highest return. Two of the best mutual funds to invest in this category in this year are:
- Franklin (I) High Growth Companies Fund:
Franklin (I) High Growth Companies Fund invests in companies or sectors in India that exhibit a high growth potential. The objective is to focus on companies that offer the best trade-off between valuation, risk and growth.
Performance – With annualised returns of 15.4% in the last five years, the fund has crossed its record. It is an ideal choice for a long-term investment. In the last three years, the Franklin (I) High Growth Companies Fund has yielded 30% returns.
- ICICI Pru Value Discovery Fund:
ICICI Pru Value Discovery Fund invests mostly in value stocks of diversified nature with attractive valuations in terms of earnings or future dividends. This is also a long-term fund in India.
Performance – 17% annualised returns have been achieved in the last five years by ICICI Pru Value Discovery Fund. In case you are looking at funds that are safe and will give you minimum loses in cases of downturns, this mutual fund scheme is a good choice.
Hybrid or Balanced Fund:
Balanced funds invests 65% to 80% in equity securities and the remaining 35% and 20% respectively in debt securities. Therefore, in times of market boom, the fund reaps maximum benefits. Two of the best mutual funds to invest in this category in this year are:
- HDFC Balanced Fund:
HDFC Balanced Fund combines portfolios of debt instruments and equity and generates capital appreciation. In this scheme, there is 60% investment in equity and the rest in debt related instruments.
Performance – In the last five years, the fund has achieved annualised returns of 14.1% crossing its benchmark. This fund maintains its balance with an aggressive equity part. This balanced fund can serve as one of the best SIP plans for the future of your children or for your marriage.
- ICICI Balanced Fund:
ICICI Balanced Fund invests in equities and related securities, apart from money market securities and fixed income securities. A minimum of 60% is invested in equity and the remaining is invested in debt related instruments.
Performance – The fund has shown a good performance in the last ten years with 14.5% annualised return in comparison to 6.3% balanced fund category. The risk here is reduced by investing a part in debt instruments.
An investment portfolio differs from person to person and is based on the investment style and risk appetite of the investor. It also depends on the choices of the fund manager, if hired by an investor and his understanding of the market. If you are a high risk investor, you can opt to add more funds in the mid-cap category and if you are a moderate risk investor, you can opt for balanced mutual funds.
When you start investing, you should keep in mind to be patient for a minimum of three years to reap satisfactory returns. However, despite choosing funds through research, the market is subject to risks and could yield negative return at times. Hiring a financial planner or advisor is a good idea if you are short of time yet want to explore the market.
GST rate of 18% applicable for all financial services effective July 1, 2017.