Best Mutual Funds to Invest in for Long Term

[{"desc":"

Best Mutual Funds for Long Term Investment

Mutual Fund Investments have a high potential to generate good returns on investment over a long period of time. It is very crucial to stay invested in mutual funds for a long time to get the benefit of earning good returns especially in equity mutual funds which are highly volatile over a short period of time as compared to debt mutual funds. However, many categories in debt mutual funds are also volatile over the short horizons because of the associated high modified durations which is the sensitivity of the underlying bonds’ price relative to the interest rate movements in the economy. In layman’s terms, for a bond having a modified duration of 3 years, we can say a 1% change in interest rates will impact the price value of the bonds by 3% either negatively or positively depending upon the interest rate movements.

The understanding of the risks associated with the particular mutual fund categories as well as the funds is very essential for deciding the right exposures & asset allocations suitable to the investor’s risk profile before making any investments. Risk factors would majorly depend upon the asset class (equity or debt) and the underlying holdings in the portfolio.

Equity Mutual funds which have 10 categories of funds as per the SEBI Categorisation, invest predominantly in equity & equity related securities to generate returns for the investors. Every category of fund in the equity funds carry different risk-return characteristics along with the varied investment strategies deployed by the fund managers to earn returns. Their suitability for investors depends on the risk appetite & investment horizon coupled with some other important factors like financial goals that would affect the investor's investment-related decisions.

Another type of mutual fund is Debt Mutual Funds having a total of 16 categories as per the SEBI Categorization investing majorly in debt & debt-related securities like bonds, papers, commercial papers, certificates of deposit & other money market instruments. Debt Funds comparatively offer more stable returns as compared to equity funds but still, the investments in these funds carry high risks (in the ones carrying low-quality papers) which could lead to capital losses for the investors. Their suitability to investors would depend upon the investors’ needs related to horizon & preferences to the quality of the underlying papers.

Then there are Hybrid Mutual Funds having 6 categories of funds as per SEBI Categorization investing in a mix or combination of equity & debt securities with an aim to provide income through debt exposures & capital appreciation opportunity through the equity exposures to the investors as per the investment objective of the scheme. These funds are relatively more stable than the equity mutual funds, however, they carry higher risk than the debt mutual funds.

Best Approach to Mutual Fund Investments

The best approach to making mutual fund investments would include performing the following things:

1. Investing for a long horizon: Investments in mutual funds should be made for long investment horizons so as to get the benefit of high returns over a long period. Volatility in mutual funds can be very high in the short run & goes on diminishing if the units are held for a long period.

Moreover, long term investments are the best way to achieve long term financial goals through a disciplined investment approach i.e Systematic Investment Plans which would let the investor buy units across all market cycles. As said by Albert Einstein, compounding is the 8th wonder of the world. Compounding works best over long periods and can help generate extraordinary returns on investments by even earning returns on returns.

2. Investing as per risk-appetite: Investing as per Risk-tolerance is very crucial so as to avoid getting into the investments which might pose unnecessary risks or losses that are beyond the tolerance of the investors.

3. Building a Mutual Fund Portfolio: Mutual fund investments should be made by choosing the right mix of mutual fund schemes from different categories which are in line with the investor’s risk appetite & financial goals to be put together in the portfolio. This will help to achieve diversification in the portfolio by investing across asset classes & mutual fund categories that would further reduce the volatility in the portfolio.

For investments in debt funds, the investors are advised to invest only in funds with high credit quality papers which would ensure the safety of capital in the portfolio. As essentially the motive of the investors should be to bring stability in their portfolio by getting exposures in the debt funds rather than taking unnecessary risks for earning extra returns by investing in funds with low quality.

For investments in equity-oriented funds, the investors can look into allocating investments across categories that are suitable as per their risk profile, investment horizon & financial goals.

Also Read: Important Tips to Invest in Mutual Funds

Best Long term Mutual Fund Investments for different investors

There is no “one size-fit all” solution while building a portfolio for investors. Every investor has a different risk profile, financial goals, investment needs & horizon, so the portfolio allocation will vary among different investors. However, broadly investors can be classified into 3 types that are aggressive, moderate & conservative investors.

The best mutual funds mentioned in their respective categories have been selected after analyzing various qualitative parameters specific to the asset classes.

Best Equity funds were selected on analyzing parameters such as performance against the benchmark, consistency, volatility, valuations & many more. As for the best debt funds, these were selected on analyzing various relevant parameters, like credit quality of the underlying papers, yield to maturity, modified durations & others.

Note: Below mentioned returns from the MF schemes are as of the date 12 June 2020.

For Aggressive Investors- High-Risk Portfolio

Aggressive Investors are investors who are willing to take higher risks for earning higher returns. Such investors could make a portfolio by taking exposure in the equity mutual funds. Investments in equity funds involve higher risks & therefore carry a high potential of capital appreciation over a long period of time.

Investors can consider allocating their capital in the best underlying funds from the mentioned categories. The proportional allocation for the aggressive investors would look like this:

InvestmentsAllocation %
Large Cap Fund40%
Mid Cap Fund25-30%
Small-Cap Fund25-30%
US Bluechip/Index Fund0-10%

Best Large Cap Funds

Large-cap funds are those mutual funds that invest in assets predominantly in the stocks of companies with large market capitalizations i.e Top 100 in the market as per SEBI Categorization. The companies in which these funds invest are the top companies having a large market share, strong corporate governance practices & strong financials which makes these funds more stable as compared to other mutual fund categories.

Fund1-Year Returns3-Year Returns5-Year Returns
Axis Bluechip Fund-6.44%7.45%8.55%
Mirae Asset Large Cap Fund-14.58%1.65%7.64%

1. Axis Bluechip Fund: Axis Bluechip Fund is the top-performing fund in the large-cap category. The fund has delivered a return of 10.32% since its inception in 2009. The fund has consistently outperformed its benchmark as well as the category average returns by significant margins. The fund has been managed by Mr.Shreyash Devalkar since November 2016.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.50 lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.7.28 Lacs.

Analysis

  • Portfolio: The fund has a concentrated portfolio of a total of 33 stocks with a major exposure of 27.60% to the financial sector. All the equity investments are made in high-quality stocks with large market shares. The Fund’s Top 3 major shareholdings include exposures in HDFC Bank, Avenue Supermarts & Infosys. Along with the equity investments of the portfolio, the fund has approx.20% of its assets invested in debt securities.
  • Consistency: The fund manager has been able to generate alpha for the 4 years out of the last 5 years. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has a low standard deviation as compared to the benchmark & its peers. The standard deviation of a fund essentially denotes the volatility of the fund. A low standard deviation as compared to peers states the low volatility in the Fund’s portfolio.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.70 calculated for the last 3 years which is comparatively lower than the category beta of 0.93. This means that the fund is expected to exhibit lower volatility among its category.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio, P/E multiple which indicates the investment strategy followed by the fund are currently higher than the fund’s benchmark S&P BSE 100 Index. The higher valuations state that the fund has a growth strategy of investing & is invested in stocks with high earnings expectations from the market.

2. Mirae Asset Large Cap Fund: Mirae Asset Large Cap Fund is also one of the top performing funds in the large-cap category. The fund has delivered a return of 13.05% since its inception in 2008. The fund has been able to beat its benchmark & category average returns over the long investment horizons.

The Fund has been managed by Mr. Harshad Borawake since 01 May 2017 & Mr. Gaurav Mishra since 31 Jan 2019.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.44 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.6.66 Lacs.

Analysis

  • Portfolio: The fund has a diversified portfolio of a total of 55 stocks with a major exposure of 33.03% (higher than its category average exposure) to the financial sector. The major portion i.e 81% approx. of equity investments has been made in high-quality Large Cap Stocks and rest of the fund‘s assets has been invested in Mid & Small Cap Stocks. The Fund’s Top 3 major shareholdings include exposures in HDFC Bank, Reliance Industries & Infosys. Along with the equity investments of the portfolio, the fund has approximately 3% of its portfolio as Cash & Cash Equivalents.
  • Consistency: The fund managers have been able to generate alpha for the 4 years out of the last 5 years calculated for annual returns. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has a slightly lower standard deviation as compared to its benchmark i.e S&P BSE 100. But it is slightly higher than its category average.The standard deviation of a fund essentially denotes the volatility of the fund. A lower standard deviation than the benchmark would mean the fund is expected to be less volatile than its benchmark, whereas a higher SD than the category average is expected to result in a high volatility by the fund as compared to its category. However, With higher volatility there are possibilities of higher returns than the category average.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.98 calculated for the last 3 years which is comparatively higher than the Large cap category average beta of 0.95. This means that the fund is expected to exhibit higher volatility among its category.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio, P/E multiple which indicates the investment strategy followed by the fund are currently more or less similar as the fund’s benchmark S&P BSE 100 Index with PE ratio of the fund being slightly higher by 67 points. The higher valuations than the benchmark states that the fund follows a growth strategy of investing & has been invested in stocks with high earnings expectations from the market.

Best Mid Cap Funds

Mid-cap funds are those funds that predominantly invest in companies with medium market capitalization i.e 100th to 250th companies as per SEBI Categorization. These funds offer the investors higher growth potential than large-cap funds, but with less volatility and risk than small-cap funds.

Fund1-Year Returns3-Year Returns5-Year Returns
Axis Midcap Fund-4.38%0.07%9.13%
DSP Midcap Fund0.41%7.88%8.53%
  1. Axis Midcap Fund: Axis Midcap Fund is the top performer in the mid-cap category & has delivered a return of 15.02% since its inception in 2011. The fund has been able to manage its downside risks very well and has outperformed its peers & benchmark returns by significant margins.

The fund has been managed by Mr.Shreyash Devalkar since November 2016.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 7 Years would have been grown to Rs.2.97 Lacs.
  • SIP Investments of Rs.10,000 every month for 7 Years would have been grown to Rs.12.63 Lacs.

Analysis

  • Portfolio: The fund has a well diversified portfolio of a total of 55 stocks with a major exposure of 16.18% (which is promising given the high expectations from pharma sector) to the Healthcare sector. For the Equity Investments, the fund has been invested predominantly in Mid Cap stocks with a portfolio exposure of approximately 80% & rest of its assets are invested in Large & Small Caps.The Fund’s Top 3 major shareholdings include exposures in Avenue Supermarts, Ipca Laboratories & Bata India.
  • Consistency: The fund manager has been able to generate alpha for the 4 years out of the last 5 years calculated for annual returns. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has the lowest standard deviation measure among its category as well as the benchmark i.e S&P BSE Midcap 150 .The standard deviation of a fund essentially denotes the volatility of the fund. A lower standard deviation than the benchmark & category average would mean that the fund is expected to be less volatile as compared to others.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.73 (lowest in the Mid Cap Category)calculated for the last 3 years which is comparatively less than the Mid cap category average beta of 0.89. This means that the fund is expected to exhibit lower volatility among its category.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio(4.22), P/E multiple(27.26) which indicates the investment strategy followed by the fund are currently higher than the fund’s benchmark i.e S&P BSE Midcap 150 Index(P/B- 2.13 & P/E- 22.60). The higher valuation metrics than the benchmark states that the fund follows a growth strategy of investing & has been invested in stocks with high earnings expectations from the market.

2. DSP Midcap Fund: DSP Midcap Fund is also one of the top performers in the category by outperforming the returns of its benchmark as well as the category average returns by significant margins. The fund has been able to manage its downside risks very well & hence, performing better than most of its peers in the current circumstances.

The Fund has been managed by Mr. Vinit Sambre since July 2012 & Mr. Resham Jain since March 2018.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 7 Years would have been grown to Rs.3.06 Lacs.
  • SIP Investments of Rs.10,000 every month for 7 Years would have been grown to Rs.12.05 Lacs.

Analysis

  • Portfolio: The fund has a well diversified portfolio of a total of 47 stocks with a major exposure of 16.30% to the Financial sector. For the Equity Investments, the fund has been invested predominantly in Mid Cap stocks with a portfolio exposure of approximately 72% & rest of its assets are invested in Large & Small Caps.The Fund’s Top 3 major shareholdings include exposures in Ipca Laboratories,Divi’s Laboratories & Balkrishna Industries.
  • Consistency: The fund manager has been able to generate alpha for the 4 years out of the last 5 years calculated for annual returns. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has the lower standard deviation measure as compared to its category average and the benchmark i.e S&P BSE Midcap 150 calculated from the last 3 year returns.The standard deviation of a fund essentially denotes the volatility of the fund. A lower standard deviation than the benchmark & category average would mean that the fund is expected to be less volatile as compared to others.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.86 (lowest in the Mid Cap Category)calculated for the last 3 years which is slightly lower than the Mid cap category average beta of 0.89. This means that the fund is expected to exhibit lower volatility as compared to its category.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio(3.21) is higher than the benchmark’s P/B of 2.13, P/E multiple(19.18) which indicates the investment strategy followed by the fund is currently lower than the fund’s benchmark i.e S&P BSE Midcap 150 Index P/E Multiple of 22.60. Lower P/E multiple metric than the benchmark states that the fund’s underlying stocks have been undervalued as compared to the benchmark’s valuations for which the fund would have the potential to generate good returns over the long periods.

Best Small Cap Funds

Small-cap funds are the mutual funds that invest a major portion of their assets in companies that are below the top 250 stocks in the exchange as per their market capitalization. Since the underlying companies are small in size and seek to expand aggressively for gaining a large market share, these funds have a higher growth potential which can build wealth over a long investment horizon for investors.

Fund1-Year Returns3-Year Returns5-Year Returns
SBI Small Cap Fund-9.77%2.46%10.31%
Nippon India Small Cap Fund-18.41%-4.56%7.63%

1. SBI Small Cap Fund: SBI Small Cap Fund is the top performing fund in the small cap category by outperforming its peers & benchmark by significant margins since inception.

The category average returns of the small cap funds for the last 10 years is currently 8.78% & 2.34% index returns, whereas the SBI Small cap fund has given an extraordinary return of 16.24% for the same period.

The fund has been managed by Mr.R. Srinivasan since November 2013.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 7 Years would have been grown to Rs.3.93 Lacs.
  • SIP Investments of Rs.10,000 every month for 7 Years would have been grown to Rs.13.23 Lacs.

Analysis

  • Portfolio: The fund has a well diversified portfolio of a total of 52 stocks with a major exposure of 18.65% to the Engineering sector. For the Equity Investments, the fund has been invested predominantly in Small Cap stocks with a portfolio exposure of approximately 79%(higher than the category average) & rest of its assets are invested in Large & Mid Caps ensuring liquidity needs.The Fund’s Top 3 major shareholdings include exposures in Dixon Technologies, Hawkins Cookers & Elgi Equipments. Along with the equity investments, the fund has approximately 3.9% of its portfolio as Cash & Cash Equivalents.
  • Consistency: The fund manager has been able to generate alpha for the 4 years out of the last 5 years calculated for the annual returns. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has a lower standard deviation(24.94) as compared to its benchmark i.e S&P BSE 250 Smallcap (28.19) & category average(25.38) calculated for the last 3 years. The standard deviation of a fund essentially denotes the volatility of the fund.A lower standard deviation than the benchmark & category average would mean that the fund is expected to be less volatile as compared to others.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.84 calculated for the last 3 years which is slightly less than the Small cap category average beta of 0.89. This means that the fund is expected to exhibit lower volatility than its category average.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio(2.19) is higher than the benchmark’s P/B of 1.18, P/E multiple(12.38) which indicates the investment strategy followed by the fund is currently lower than the fund’s benchmark i.e S&P BSE 250 Smallcap Index P/E Multiple of 24.70. Lower P/E multiple metric than the benchmark states that the fund’s underlying stocks have been undervalued as compared to the benchmark’s valuations for which the fund would have the potential to generate good returns over the long periods.

2. Nippon India Small Cap Fund: Nippon India Small Cap Fund is a good choice for investment for long horizons of more than 7 years.The fund has been able to beat its benchmark & category average returns over the long horizons by significant margins.

The fund has been managed by Mr.Samir Rachh since January 2017.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 7 Years would have been grown to Rs.3.62 Lacs.
  • SIP Investments of Rs.10,000 every month for 7 Years would have been grown to Rs.11.53 Lacs.

Analysis

  • Portfolio: The fund has a diversified portfolio of a total of 114 stocks(highest in the category) with a major exposure of 18.45% to the Chemicals sector. However the large portfolio of stocks may not be a major problem because of the fund’s AUM of Rs.6,944 Crores which is the highest in the Small Cap space. For the Equity Investments, the fund has been invested predominantly in Small Cap stocks with a portfolio exposure of approximately 73% & rest of its assets are invested in Large & Mid Caps ensuring liquidity needs.The Fund’s Top 3 major shareholdings include exposures in Deepak Nitrite, Navin Fluorine International & Tata Consumer Products. Along with the equity investments, the fund has approximately 2.2% of its portfolio as Cash & Cash Equivalents.
  • Consistency: The fund manager has been able to generate alpha for the 5 years out of the last 5 years calculated for the annual returns. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has a lower standard deviation(26.59) as compared to its benchmark i.e S&P BSE 250 Smallcap (28.19). But it is slightly higher than its category average(25.38).The standard deviation of a fund essentially denotes the volatility of the fund. A lower standard deviation than the benchmark would mean the fund is expected to be less volatile than its benchmark, And a higher SD than the category average is expected to result in a high volatility by the fund as compared to its category. However, With higher volatility there are possibilities of higher returns than the category average returns & same otherwise.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.93 calculated for the last 3 years which is more than the Small cap category average beta of 0.87. This means that the fund is expected to exhibit higher volatility than its category average.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio(1.57) is higher than the benchmark’s P/B of 1.18, P/E multiple(11.65) which indicates the investment strategy followed by the fund is currently lower than the fund’s benchmark i.e S&P BSE 250 Smallcap Index P/E Multiple of 24.70. Lower P/E multiple metric than the benchmark states that the fund’s underlying stocks have been undervalued as compared to the benchmark’s valuations for which the fund would have the potential to generate good returns over the long periods.

Besides these funds, investors who are willing to take more risks can look into putting a small portion of their portfolio in Offshore or International funds. US markets have been performing outstanding over the last years & given that the world’s largest companies growing at rapid pace are listed on US Exchanges, it would be a good opportunity to invest for the potential of capital appreciation on long term investments. However, an allocation to these types of funds should be limited to 10% given the very risk nature of these funds.

Best US Funds include

Fund 1-Year Returns3-Year Returns5-Year Returns
ICICI Prudential US Bluechip Equity Fund23.64%16.67%13.00%
Motilal Oswal NASDAQ 100 Exchange Traded Fund39.51%24.85%19.92%

For Moderate Investors- Moderate-Risk Portfolio

Moderate Investors are those investors having a moderate risk profile and are willing to take some risks by investing a moderate portion of the portfolio in equity securities.These investors would be willing to accept the turbulent times in the markets for the probabilities of earning good returns over the long horizon. Along with that, their portfolio allocation in debt securities or mutual funds would ensure a low volatility in the portfolio.

These investors come somewhere between the aggressive & conservative investors in terms of risk-return expectations. In other words, moderate investors are willing to take higher risks than conservative investors but lower than the aggressive investors.

A Moderate risk mutual fund portfolio would look like this

FundsAllocation %
Equity Mutual Funds50%
Debt Mutual Funds50%

Moderate Investors would have two options for their portfolio selection.

Also Read: ICICI Prudential Freedom SIP Plan

Option 1

The first option available to the investors would be to invest in balanced advantage funds in the hybrid category. Also known as dynamic asset allocation funds, these funds invest their assets in pure Equity, Equity arbitrage opportunities and Debt securities. These funds have the advantage of dynamically allocating their investments among equity & debt securities as per the market conditions. These funds have the flexibility to switch between the securities as per the vaulations & market expectations. For example- In case of unfavourable market outlook in equity funds, these funds would go on allocating a high portfolio of their portfolio in debt funds aiming to ensure more stability & safety of capital and same otherwise.

Investments in Balanced Advantage Fund can be a single fund portfolio investment due to the advantage of fulfilling both the needs of a moderate investor i.e capital growth along with stability.

Best Balanced Advantage Funds

Fund1-Year Returns3-Year Returns5-Year Returns
ICICI Prudential Balanced Advantage Fund-4.46% 3.48%6.56%
Edelweiss Balanced Advantage Fund2.09%5.16%5.75%

1. ICICI Prudential Balanced Advantage Fund: With the largest AUM of 24,582 Cr., ICICI balanced advantage fund is the top performing fund in the category by delivering greater returns than its benchmark & category average returns over the long investment horizons.

The fund has been managed by multiple managers including Mr.Manish Banthia since November 2009, Mr. Rajat Chandak since September 2015, Mr.Sankaran Naren since July 2017 & Mr. Ihab Dalwai since 2018.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.38 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.6.79 Lacs.

Analysis

  • Portfolio: Being a dynamic asset allocation fund, the fund has a diversified portfolio of equity & debt investments. The fund has made investments of approximately 71% of the portfolio in large cap equity stocks & approx. 26% of its assets has been invested in debt securities. For the equity investments,the fund has a diversified portfolio of a total of 105 stocks(highest in the category) with a major exposure to the Financial sector.The Fund’s Top 3 major shareholdings include exposures in Reliance Industries,HDFC Bank & ICICI Bank. For the debt investments, 81% of its assets are invested in AA credit quality papers,13% in AAA papers & rest in A rated papers.

Along with the equity & debt investments, the fund has approximately 1.8% of its portfolio as Cash & Cash Equivalents.

  • Volatility: The fund has a higher standard deviation(12.89) as compared to the category average of 11.64.The standard deviation of a fund essentially denotes the volatility of the fund. A higher SD metric than the category average is expected to result in a high volatility by the fund as compared to its category. However, With higher volatility there are possibilities of higher returns than the category average returns & same otherwise.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.71 calculated for the last 3 years which is more than the dynamic asset allocation category average beta of 0.64. This means that the fund is expected to exhibit higher volatility than its category average.

2. Edelweiss Balanced Advantage Fund: Edelweiss Balanced Advantage Fund can be an excellent choice for investment given the fund’s consistent performance from the inception.Even in the current circumstances, the fund has managed to perform better than the others in the same category & against the benchmark.

The fund has been managed by multiple managers including Mr.Bhavesh Jain since April 2015, Mr. Bharat Lahoti since September 2017 & Mr.Gautam Kaul since December 2017.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.31 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.7 Lacs.

Analysis

  • Portfolio: Being a dynamic asset allocation fund, the fund has a diversified portfolio of equity & debt investments. The fund has made investments of approximately 50% of the portfolio in large cap equity stocks & approx. 32% of its assets has been invested in debt securities. For the equity investments,the fund has a diversified portfolio of a total of 61 stocks with a major exposure to the Financial sector.The Fund’s Top 3 major shareholdings include exposures in Reliance Industries,Hindustan Unilever & ITC. For the debt investments, 100% of its assets are invested in AAA credit quality papers ensuring a low risk fixed income portfolio.

Along with the equity & debt investments, the fund has approximately 1.8% of its portfolio as Cash & Cash Equivalents.

  • Volatility: The fund has a lower standard deviation(11.19) as compared to the category average of 11.64.The standard deviation of a fund essentially denotes the volatility of the fund. A lower SD metric than the category average is expected to result in a low volatility by the fund as compared to its category.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.63 calculated for the last 3 years which is slightly lower than the dynamic asset allocation category average beta of 0.64. This means that the fund is expected to exhibit lower volatility than its category average.

Option-2

The second option would be to invest in a portfolio mix of equity & debt mutual funds. The investors can look into allocating 50% of their assets equivalently in one of the top large-cap & multi-cap funds.

And rest 50% of the assets could be allocated in the top-quality funds in the categories like Corporate Bond funds and Banking & PSU Funds.

The portfolio would look like this:

FundsAllocation %
Large Cap Mutual Fund25%
Multi-Cap Mutual Fund25%
Corporate Bond Fund25%
Banking & PSU Fund25%

Best Multi-Cap Funds

Multi-cap funds are the equity mutual funds that invest iits assets in the stocks of companies across market capitalization i.e in large-cap,mid-cap & small-cap.

In the long run, multi-cap funds can provide better and stable returns than other categories as they have the flexibility of investing across different capitalizations as per the opportunities arising in the markets.

Fund1-Year Returns3-Year Returns5-Year Returns
Kotak Standard Multi Cap Fund-14.400.697.42
ABSL MNC Fund-7.301.764.71

1. Kotak Standard Multi Cap Fund: Kotak Standard Multi Cap Fund is the top performing fund in the multi cap category for investments of longer horizons. The fund has been able to beat the returns of its benchmark & category average returns over the long horizons of 5-10 years with good margins.

The fund has been managed by Mr.Harsha Upadhyaya since August 2012.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.42 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.6.55 Lacs.

Analysis

  • Portfolio: The fund has a diversified portfolio of a total of 55 stocks with a major exposure of approximately 26% to the Financial sector. With an AUM of Rs.25,984 Crores, the Kotak standard multicap fund has the highest AUM in the multi cap category. For the Equity Investments, the fund has invested approx. 74% of its assets in large cap stocks, 24% in mid cap stocks & rest of its assets in Small Caps.The Fund’s Top 3 major shareholdings include exposures in Reliance Industries, ICICI Bank & HDFC Bank. Along with the equity investments, the fund has approximately 7.1% of its portfolio as Cash & Cash Equivalents & 0.9% in debt securities.
  • Consistency: The fund manager has been able to generate alpha for the 4 years out of the last 5 years calculated for the annual returns. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has a low standard deviation(20.29) as compared to the benchmark i.e S&P BSE 500 (21.09) & its category average(20.77). The standard deviation of a fund essentially denotes the volatility of the fund.A lower standard deviation than the benchmark & category average would mean that the fund is expected to be less volatile as compared to others.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.95 calculated for the last 3 years which is the same as the Multi cap category average beta of 0.95. This means that the fund is expected to exhibit similar volatility as its category average.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio(2.60), P/E multiple(22.46) which indicates the investment strategy followed by the fund are currently higher than the fund’s benchmark S&P BSE 500 Index (P/B- 2.15, P/E- 20.99). The higher valuations state that the fund has a growth strategy of investing & has been invested in stocks with high earnings expectations from the market.

2. ABSL MNC Fund: Though not in the multi cap category, ABSL MNC Fund exhibits the features of a multi cap fund by having an investment strategy of investing in MNC companies across market capitalizations.The fund has given excellent returns of around 14% over the time frame of last 10 years.

The fund has been managed by Mr.Ajay Garg since June 2009.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.24 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.6.37 Lacs.

Analysis

  • Portfolio: The fund has a diversified portfolio of a total of 41 stocks with a major exposure of approximately 30% to the Healthcare sector. For the Equity Investments, the fund has invested approx. 18.5% of its assets in large cap stocks, 69% in mid cap stocks & rest of its assets in Small Caps.The Fund’s Top 3 major shareholdings include exposures in Bayer CropScience, Pfizer & Honeywell Automation. Along with the equity investments, the fund has approximately 2.8% of its portfolio as Cash & Cash Equivalents.
  • Consistency: The fund manager has been able to generate alpha for the 3 years out of the last 5 years calculated for the annual returns. Alpha is the excess returns generated by the fund over the benchmark returns.
  • Volatility: The fund has a lower standard deviation(18.15) as compared to its benchmark i.e S&P BSE 500 (21.09). But it is slightly higher than its category average(17.23).The standard deviation of a fund essentially denotes the volatility of the fund. A lower standard deviation than the benchmark would mean the fund is expected to be less volatile than its benchmark, And a higher SD than the category average is expected to result in a high volatility by the fund as compared to its category. However, With higher volatility there are possibilities of higher returns than the category average returns & same otherwise.

Another risk measure Beta which denotes the sensitivity of the scheme’s returns against the market ups and downs is 0.78 calculated for the last 3 years which is more than the dynamic asset allocation category average beta of 0.73. This means that the fund is expected to exhibit higher volatility than its category average.

  • Valuations: On the valuations front, the important valuation metrics like P/B ratio(3.66), P/E multiple(45.18) which indicates the investment strategy followed by the fund are currently higher than the fund’s benchmark S&P BSE 500 Index (P/B- 2.15, P/E- 20.99). The higher valuations state that the fund has a growth strategy of investing & has been invested in stocks with high earnings expectations from the market.

Best Banking & PSU Funds

Banking & PSU Funds are the debt mutual funds that invest at least 65% of their assets in the securities & bonds issued by Banks, Public sector companies & financial institutions.

Fund3-Year Returns5-Year ReturnsYTM
Aditya Birla Sun Life Banking & PSU Debt Fund8.09%8.96%5.97
Franklin India Banking & PSU8.44%8.60%6

ABSL Banking & PSU Debt is an excellent choice for investment in the Banking & PSU Debt Fund category. The fund is having an exposure of 100% of its assets in AAA rated debt securities.The fund has been managed by Mr.Kaustubh Gupta since September 2009 & Mr. Maneesh Dangi since April 2017.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.54 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.7.52 Lacs.

Analysis

Modified Duration: Modified duration is the metric for measuring the sensitivity of the fund’s underlying bonds prices to the fluctuations or movements in interest rates in the economy. A fund with a higher modified duration would be more volatile as compared to its peers & same otherwise. MD of ABSL Banking & PSU is 3.37 which is higher than the category average modified duration of 2.96. This means for a 1% change in interest rates in the economy, the fund is expected to fluctuate by 3.37%.

Average Maturity: The fund’s average maturity is the weighted average time to maturity of the underlying bonds. The bonds with higher average maturity are more sensitive to the interest rate changes & therefore, they have higher volatility of returns. ABSL Banking & PSU has an average maturity of 4.57 years which is higher than the category average of 3.79 years. This implies the fund is expected to exhibit higher volatility in the portfolio returns than the others.

2. Franklin India Banking & PSU is also a good option in the Banking & PSU category. The fund has an exposure of near about 97% of its assets in AAA rate high quality papers.The fund has been managed by Mr.Sachin Padwal-Desai since April 2014 & Mr. Umesh Sharma since April 2014.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.51 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.7.53 Lacs.

Analysis

Modified Duration: Modified duration is the metric for measuring the sensitivity of the fund’s underlying bonds prices to the fluctuations or movements in interest rates in the economy. A fund with a higher modified duration would be more volatile as compared to its peers & same otherwise. MD of Franklin India Banking & PSU is 2.05 which is lower than the category average modified duration of 2.96. This means for a 1% change in interest rates in the economy, the fund is expected to fluctuate by 2.05%.

Average Maturity: The fund’s average maturity is the weighted average time to maturity of the underlying bonds. The bonds with higher average maturity are more sensitive to the interest rate changes & therefore, they have higher volatility of returns. Franklin India Banking & PSU has an average maturity of 2.60 years which is lower than the category average of 3.79 years. This implies the fund is expected to exhibit lower volatility in the portfolio returns than the others.

Best Corporate Bond Funds

Corporate Bond Funds are the debt mutual funds that invest at least 65% of their assets in the AA+ & above or highest rated debt securities like bonds, papers, debentures issued by the Corporates(Public or Private).

Fund3-Year Returns5-Year ReturnsYTM
HDFC Corporate Bond Fund8.46%8.86%6.23
ICICI Pru Corporate Bond Fund8.36%8.44%6.35

1. HDFC Corporate Bond Fund is one of the top funds in the corporate bond fund category. The fund has an exposure of 100% of its assets in AAA rated securities. The fund has been managed by Mr.Anupam Joshi since October 2015.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.53 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.7.56 Lacs.

Analysis

Modified Duration: Modified duration is the metric for measuring the sensitivity of the fund’s underlying bonds prices to the fluctuations or movements in interest rates in the economy. A fund with a higher modified duration would be more volatile as compared to its peers & same otherwise. MD of HDFC Corporate Bond Fund is 2.88 which is higher than the category average modified duration of 2.61. This means for a 1% change in interest rates in the economy, the fund is expected to fluctuate by 2.88%.

Average Maturity: The fund’s average maturity is the weighted average time to maturity of the underlying bonds. The bonds with higher average maturity are more sensitive to the interest rate changes & therefore, they have higher volatility of returns.HDFC Corporate Bond Fund has an average maturity of 3.78 years which is higher than the category average of 3.30 years. This implies the fund is expected to exhibit higher volatility in the portfolio returns than the others.

2. ICICI Prudential Corporate Bond fund is also a good option for investment in this category.This fund also has an exposure of 100% of its assets in AAA rated securities.The fund has been managed by multiple managers including Ms.Chandni Gupta since August 2016,Mr. Rahul Goswami since October 2017 & Mr.Anuj Tagra since March 2020.

Worth of Investments

  • A Lump Sum Investment of Rs.1 Lacs for 5 Years would have been grown to Rs.1.50 Lacs.
  • SIP Investments of Rs.10,000 every month for 5 Years would have been grown to Rs.7.46 Lacs.

Analysis

Modified Duration: Modified duration is the metric for measuring the sensitivity of the fund’s underlying bonds prices to the fluctuations or movements in interest rates in the economy. A fund with a higher modified duration would be more volatile as compared to its peers & same otherwise. MD of ICICI Prudential Corporate Bond Fund is 2.56 which is lower than the category average modified duration of 2.61. This means for a 1% change in interest rates in the economy, the fund is expected to fluctuate by 2.56%.

Average Maturity: The fund’s average maturity is the weighted average time to maturity of the underlying bonds. The bonds with higher average maturity are more sensitive to the interest rate changes & therefore, they have higher volatility of returns.ICICI Prudential Corporate Bond Fund has an average maturity of 3.52 years which is higher than the category average of 3.30 years. This implies the fund is expected to exhibit higher volatility in the portfolio returns than the others.

Investors with a very long horizon of more than 10 years can also consider investing in top long term debt funds like L&T triple ace bond fund or ABSL Income fund given their 100% exposures in high quality papers of AAA ratings.However, the high modified duration of these funds(usually around 6)could be leading to highly volatility of returns over the short period of time.

For Conservative Investors- Low-Risk Portfolio

Investors having a low-risk appetite would be the investors who would be better off by allocating a major portion of their portfolio in debt mutual funds, thereby emphasizing more on the stability of returns on the portfolio. Talking about a long horizon for investments, it's always good to have a small allocation to equity mutual funds as the volatility of these funds reduces over a long period of time. Conservative investors can look into allocating a quarter portion of their portfolio in one of the top equity mutual fund schemes which would also bring the potential of capital growth in the portfolio.

A Low-Risk Mutual Fund Portfolio would look like this:

Type of Mutual FundAllocation %
Debt Mutual Funds75%
Equity Mutual Funds- Multi Cap 25%

Conservative investors could make a portfolio comprising investments in Debt & Equity MF schemes where a very large portion of 75% would be invested in quality debt funds & rest i.e 25% in equity funds.

For the debt portion, the investors can consider investing in the Top funds mentioned earlier under the categories Corporate Bond Funds and Banking & PSU Funds.

For the equity portion, the investors could consider investing in one of the top funds mentioned in the MultiCap Fund Category.

Final Note for Investors

The portfolio allocation may vary among investors from the mentioned broad categories as each individual has its own needs & financial requirements, therefore investments should be planned accordingly. Also, the portfolio needs rebalancing or requires reconstitution sometimes, it would be better to connect with your financial advisor to cater your portfolio review & rebalancing needs after a periodic interval.

Investors should also note that the above mentioned top mutual funds do not guarantee any successful returns on Investments as markets are highly uncertain.

More Information:

Bharat Bond ETF - Meaning, Benefits, Price, Interest Rate, Review

Shariah Compliant Mutual Funds - Types, Who can Invest, Minimum Investment

Equity Balanced Funds - Benefits, Taxation, How to Choose

How to Invest in Mutual Funds?

Index Funds - Meaning, Purpose, How to Work, Risk, Returns

Section 80D - Deductions, Tax Benefits, Claim Amount, Example

Deduction under Section 80TTA

PM Vaya Vandana Yojana (PMVVY): Scheme Eligibility, Interest Rate, Process to Apply

Kisan Vikas Patra (KVP) Scheme: Benefits, Types, Interest Rates, Eligibility, Calculation

","widgetId":""}]

Comments

Send Icon