Mutual Funds to Invest: Everyone seeks good investment options. They want to invest their money where it will not only remain safe but also grow rapidly. That’s why people invest in mutual funds instead of bank fixed deposits. Here, we’re highlighting the top 10 mutual funds you can invest in this month.
Mutual Funds to Invest: New and less experienced investors often search for top mutual funds. When they enter the world of investing or want to invest additional money, they ask friends, colleagues, or mutual fund forums about the “top” or “best” schemes. But the answers they receive online or from friends often leave them unsatisfied, for several reasons.
Do you search the internet?
Searching the internet will often lead you to websites with ready-made lists. Often, these schemes are shortlisted based on their short-term performance. Sometimes, the list is overflowing with schemes in a single category because that category is the “flavor of the season” at that time. As noted in an article, “NFO Watch: Consumption mutual funds post muted returns in 3 months despite GST push. Is this new offering a potential game changer?” (NFO Watch: Consumption mutual funds deliver lackluster returns in 3 months despite GST push. Could this new offering be a game changer?) Friends or colleagues may tell you the names of schemes they like or are investing in. But again, there’s no guarantee that those schemes will actually be suitable for you.
Top Funds
Some people never go beyond collecting the names of “top funds,” as there’s always a lingering uncertainty about the authenticity of these names, which deters them. It’s no wonder many investors continue to visit mutual fund forums for years to verify them—even after they’ve already started investing. That’s why our partner, ETMutualFunds, decided to release a list of the top 10 mutual fund schemes. We’ve selected two schemes each from five different equity mutual fund categories—aggressive hybrid, large-cap, mid-cap, small-cap, and flexi-cap schemes. We believe this should be sufficient for regular mutual fund investors. However, there are a few things to keep in mind to ensure you’re choosing the best scheme for you.
The list of the top 10 schemes is as follows:
Canara Robeco Large Cap Fund
Mirae Asset Large Cap Fund
Parag Parikh Flexi Cap Fund
HDFC Flexi Cap Fund
Axis Midcap Fund
Kotak Midcap Fund
Axis Small Cap Fund
SBI Small Cap Fund
SBI Equity Hybrid Fund
Mirae Asset Aggressive Hybrid Fund
A few things to keep in mind:
There are a few things you should keep in mind when investing in these schemes. First, learn about each category and see if it suits your investment objective and risk profile.
Aggressive Hybrid Funds
Aggressive hybrid schemes (or previously called balanced schemes or equity-oriented hybrid schemes) are ideal for those new to equity mutual funds. These schemes invest in a mix of equity (65-80%) and debt (20-35%). Due to their hybrid portfolio, they are considered relatively less volatile than pure equity schemes. Aggressive hybrid schemes are the best investment vehicle for very conservative equity investors who want to build wealth over the long term without much volatility.
Large Cap Funds
Some equity investors want to play it safe while investing in stocks. Large-cap schemes are for such individuals. These schemes invest in the top 100 stocks and are relatively safe compared to other pure equity mutual fund schemes. They are also relatively less volatile than mid-cap and small-cap schemes. In short, if you are looking for relative stability with modest returns, you should invest in large-cap schemes. As discussed in another article, “Investing from abroad? How to reach ₹2 crore with ₹10,000/month SIP in 15 years.”
Flexi Cap Funds
A regular equity investor (with a moderate risk appetite) looking to invest in the stock market need look no further than flexi cap mutual funds (or diversified equity schemes). These schemes invest across various market capitalizations and sectors, depending on the fund manager’s approach. A regular investor can invest in these schemes to capitalize on the upside in any sector or stock category.
Small Cap, Mid Cap Funds
What about aggressive investors looking to earn additional returns by taking on more risk? Well, they can consider mid-cap and small-cap schemes. Mid-cap schemes invest mostly in medium-sized companies, and small-cap funds invest in smaller companies in terms of market capitalization. These schemes can be volatile, but they also have the potential to deliver superior returns over the long term. If you have a long investment horizon and a high risk appetite, you can invest in these mutual fund categories.
Ultimately, any search that starts with words like “best” or “top” won’t give you the best solution. You should always choose a scheme that matches your investment objective, time horizon, and risk profile. If you don’t understand the basic concepts of mutual funds or are completely new to mutual funds and investing, you should always seek the help of a mutual fund advisor.
Methodology for hybrid funds
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: The Hurst Exponent, H, is used to calculate a fund’s consistency. The H exponent is a measure of the randomness of a fund’s NAV series. Funds with a higher H tend to experience less volatility than those with a lower H.
i) When H = 0.5, the return series is called a geometric Brownian time series. This type of time series is difficult to forecast.
ii) When H < 0.5, the series is called mean reverting. iii) When H > 0.5, the series is called persistent. The higher the value of H, the stronger the trend.
3. Downside risk: We have considered only negative returns generated by mutual fund schemes for this measure.
X = Return below zero
Y = Sum of all squares of X
Z = Y / Number of days taken to calculate the ratio
Downside risk = Square root of Z
4. Outperformance:
i) Equity portion: This is calculated using Jensen’s Alpha for the past three years. Jensen’s Alpha reflects the risk-adjusted return generated by a mutual fund scheme relative to the expected market return estimated by the Capital Asset Pricing Model (CAPM). A higher alpha indicates that the portfolio has performed better than the market’s expected returns.
Average return generated by an MF scheme = [Risk-Free Rate] + Beta of the MF scheme – {(Average return of the index) – Risk-Free Rate)}
ii) Debt portion: Fund return – Benchmark return. Daily rolling returns are used to calculate the returns of the fund and benchmark, followed by the active return of the fund.
5. Asset size: For hybrid funds, the threshold asset size is ₹50 crore.
Methodology for Equity Funds
ETMutualFunds has adopted the following criteria for shortlisting equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency over the last three years: The Hurst Exponent, H, is used to calculate a fund’s consistency. The H exponent is a measure of the randomness of a fund’s NAV series. Funds with a higher H tend to experience less volatility than those with a lower H.
i) When H = 0.5, the return series is called a geometric Brownian time series. This type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is called mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The higher the value of H, the stronger the trend of the series.
3. Downside risk: We have considered only negative returns generated by a mutual fund scheme for this measure.
X = Return below zero
Y = Sum of all squares of X
Z = Y / Number of days taken to calculate the ratio
Downside risk = Square root of Z
4. Outperformance: This is calculated using Jensen’s Alpha for the past three years. Jensen’s Alpha reflects the risk-adjusted return generated by a mutual fund scheme relative to the expected market return estimated by the Capital Asset Pricing Model (CAPM). A higher alpha indicates that the portfolio has performed better than the market’s predicted returns.
Average return generated by an MF scheme = [Risk-Free Rate] + Beta of the MF scheme – {(Average return of the index) – Risk-Free Rate)}
5. Asset size: For equity funds, the threshold asset size is ₹50 crore.
