With the sharp rise in the stock market in recent months, investors, especially those who have put their money in mutual funds are seeing their portfolios soar. This is particularly common with all those mutual fund investors whose funds are highly exposed to equity. However, while this is one case, there is also another case wherein investors who have put their money into mutual funds are in a state of uncertainty. Whatever may be the case, mutual funds are the way to go, if not in all market conditions, at least in some of them.
The mutual fund industry has seen rapid growth from the year 2016 onwards, ever since the demonetization move. This move has caused banks to reduce their fixed deposit interest rates, which in turn has caused people to move towards other investment options such as mutual funds. And hence, this rapid growth with regards to mutual funds.
Mutual funds are relatively one of the most stable investment options that there is, considering the decent amount of returns they give. Direct stocks, on the other hand, are quite risky and don’t always give out good returns. As of now, long-term investment options are considered safer. So, investing in mutual funds on a long-term basis can help you get the most out of your investments. Of course, all this must be based on the amount of risk you as an investor can tolerate. So, select those types of funds which fall into your reward-risk investment category.
It’s not really that hard choosing a good mutual fund investment option for yourself. The trick here is to decide on how much you want to invest, how much risk you’re willing to take, what is the ultimate end goal of your investment, and then, of course, the final step, choosing a suitable investment option. You should always look at all those schemes that you feel may be good from four different perspectives. Namely, whether the funds are a balanced advantage, large-cap, multi-cap or value.
Also, it is advised that you keep your portfolio under proper asset allocation. Small-cap funds are the worst possible option as they pose high risks, considering that their P/E index is way above the norm.
Funds such as the HDFC Top 200 or DSP Black Rock would have fetched around six or seven times returns by now, had you invested in them 10 years ago. But these are not the only two funds that fall into this category. There are 60 such funds, other than those that have been analyzed to give over 20% returns a year over the last 10 years. So, investing in any one of them would have meant big money over the years.
However, it’s easier said than done though. Making an informed decision about your investment and the options you have is no child’s play. In fact, it’s all about selecting the right product, mutual funds, stocks or even commodities for that matter.
Now although the past performance of any of these investment options is an important deciding factor you should consider, it, however, is not the only one. And going only by that can prove to be all the dangerous for the investor. A good investor should always consider other factors that influence his decisions about his investments. For instance, the fund may have performed well in one year but may have failed to perform in another.
This is a cause of concern for most investors. It’s because they tend to ignore this value of an influencing factor of consistency of performance of the fund. And then there are also other factors that come into play such as the downside risks that are involved or even the charges. These factors are just as important and should not be overlooked.
Most investors today make another crucial mistake — one that could cost them dearly. Many investors today have the habit of sticking to putting their money into funds that give high amounts of return in a very short period. This may be their own doing or based on the advice of an unscrupulous financial advisor. So, make sure you don’t take that wrong turn.
So, with that said, it’s now time to look at ten mutual funds that are performing well and those which you can bet on for your long-term growth.
You can have yourself a mutual fund portfolio in no time. But the most important thing to consider before you go off investing is to make sure that you use a top-down approach. What this basically means is that you must first allocate your assets in an optimal way based on the amount of risk you’re willing to take. You must then select those funds which match this strategy of yours. So, here are some good funds you can start with.
Launched in April 2008 this one of the Best HDFC Mutual Funds and has given yearly returns of 21.53% ever since. Its one-year direct mutual fund return stands at about 24%. And its three-year return stands at about 22%. It has been around for 10 years now and hence, its performance can be judged without any hassles.
Launched on May 12, 2014, the L&T Emerging Business Fund has given whopping returns of 26.97% since its inception. But the question is, why should you be investing in this fund just because of that? Well, for starts, you can take note that this fund has been quite consistent in outperforming the benchmark S&P BSE Small Cap.
And two, the expense ratio of this fund, which is nothing but the fund expenses that cover the advertising, marketing, etc. stands at 1.46%, which is very good, because the lower the expense ratio, the better, right? However, the average expense ratio to manage any fund presently stands between 0.5% and 2%.
Launched in November 2008, this large and mid-cap-oriented fund has returned up to 23.78% each year, ever since its launch. A ten-year-old fund whose credibility and performance can be aptly judged, its expense ratio stands at 1.3% and has been quite consistent in outperforming the benchmark NIFTY large mid-cap 250 TRI. The minimum SIP for this fund is Rs. 500.
Also, it has outperformed the benchmark, the Nifty free float small cap 100. The expense ratio stands at 0.49%, and you can start your investment with a sum as small as Rs. 500.
It is a large and mid-cap-oriented fund that was launched in July 2010 and has returned 27.36% since its inception. The one-year returns for this fund currently stand at 13.9%. The three-year return for this fund presently stands at 21%. And the five-year return stands at 36.4%.
The fund has outperformed the benchmark, the Nifty Free Float Midcap 100 ever since its launch. Also, it’s a seven-year-old fund, and hence, its performance can be judged aptly. The expense ratio of this fund stands at 1.73% and the minimum SIP you must invest is Rs. 1000.
The Aditya Birla Sun Life Small Cap Fund was launched in May 2007 and is a small cap equity fund giving returns of up to 21.85%. It has a one-year, direct mutual funds return of 6.4%, a three-year return of 18.5% and a five-year return of 29.9%. What’s more? It’s an 11-year-old fund and hence, its performance can be judged easily. Also, it is known to have consistently outperformed the benchmark Nifty Free Float Mid Cap 100 ever since its launch. It has an expense ratio of about 1.27% and a minimum SIP of Rs. 1000 for starts.
The Kotak Standard Multicap Fund evidently stands out as a smart fund in the large-cap sector. It has got concrete governance, not to mention, a meaningful competitive advantage, along with an interesting business model that can be scaled up or down, according to the requirements. It is certainly a growth-starter for your portfolio when compared to some of its mid-cap and small-cap counterparts.
Although the ICICI Prudential Value Discovery Fund’s overall performance was affected due to the large influx, what is interesting about this fund is that it scrapes for growth stocks at bargained rates. Now although the fund places heavy premiums on certain metrics such as the P/B ratios, it is safe to assume that it will maintain its agility since it is a multi-cap fund, though it has got a heavy AUM or Asset Under Management on its side.
The Birla Sunlife Frontline Equity gives an overall portfolio turnover of about 73%. And the quality of stock-churns is well maintained. The fund has and will continue to outperform the benchmark and not to mention, its peers who are residing in the same category if the risks and returns involved continue to be reasonable even when the markets tend to be sharply volatile.
This fund falls into the open-ended equity fund category and poses moderately high risks. Following a value strategy, this fund tended to start off in a year where the markets were performing rather poorly. However, it has been known to show consistent performance throughout each of its cycles.
At present, this scheme is distributed at a rate of 40% in mid-sized companies, and the rest is spread across large-size companies. The performance of this fund has been good in the last three to five years since it has given returns of 16.4% and 26% as compared to the returns of its category counterparts, which stood at 12% and 19% respectively.
However, if you’re a short-term investor, then think twice before you go off investing in this fund. This is because this fund is exposed to Midcap at moderately high levels and tends to pose risks for short-term investments. So, it is risky for all those short-term and conservative investors.
This multicast fund has the flexibility to invest in Large, Mid, as well as Small Cap stocks and has a portfolio concentration of 35 stocks, which suggest that it’s highly convicted in the stocks that it holds. The fund’s exposure to the small cap market is minimal, and hence, this fund tends to pose low risks.
The concentration risk is by far the only risk that has been seen in this Motilal Oswal Mutual Fund and can be considerably reduced, if not eliminated, by choosing stocks that are of high quality. This is done because the over-diversification tends to dilute the returns of the portfolio.
How much risk are you willing to take?
Now, you have seen and probably understood the risks these funds pose. However, exactly how much are you willing to risk as an investor is a major concern here. It’s quite simple. If you’re an investor who is looking to invest in a long-term, make a long-term investment that is, then you can take higher risks. However, you shouldn’t ignore the risk potential the fund has, and see to that it matches your own.
So, now you know the various factors that you must consider before you make an investment. However, what most people tend to forget or ignore is the method of investment they need to make for a fund. If you want to invest for a longer term, then it’s best that you go for the Systematic Investment Plan or SIP.
By doing this, not only will you be investing regularly, but will also have some financial discipline. With that said one other important point to note here is that you must always review your fund from time to time, such as, once in a few weeks. But don’t review it quite too often.
Investing in mutual funds can go a long way in building up wealth for yourself over time. However, you must be careful, to choose a well-known fund house and not to mention, an experienced fund manager as well.
Peter is the is an entrepreneur disguised as a certified financial planner, author and blogger. His mission is help future generations achieve financial freedom by developing strong money habits and unleashing their entrepreneurial spirit.