What are the best equity mutual funds in India ? Investors always are on the lookout for the easy answer. They would prefer to listen to every so called expert than do their own homework. I know what you are thinking.
Why are you then writing an article on ‘Best equity mutual funds in India’ ? Well, we plan to provide you the top 5 mutual funds as a starting point based rationale , past fund returns, portfolio quality, fund manager capability etc., Do remember that below list of diversified equity mutual funds is for an aggressive investor.
Readers can then do their own investigation and choose the best fund suited to their purpose. In no particular order (fund performance data as on Apr 24)…
5 Best Equity Mutual Funds in India for 2015-2016
IDFC Premier Equity Fund is managed by Sunil Singhania. Its from IDFC Mutual Fund (no claps for guessing that:-)) . The fund was started in September 2005. The last 3 years annualized returns is approx. 12% p.a and last 5 years is 25% p.a. One of the best managed funds in the Small & Mid Cap category.
The fund portfolio includes Page Industries, Bata India, Blue Dart etc., The fund specialty is core consumer oriented businesses. A good fund to invest for the long term of 5 years or more.
Tata Ethical fund is a good Diversified Equity Fund containing heavyweights like TCS, Reliance, HCL Tech, Lupin in its core portfolio. With 22% annualized returns in the last 5 years , we believe this fund has a good mix of stocks to deliver good returns in the next 5 years. Its managed by Pradeep Gokhale with AUM of Rs.112 crores.
A good fund for investors with higher risk appetite in the Diversified Equity space. The AUM is on the lower side but the portfolio contains a good mix of large cap, mid-cap stocks.
Has high correlation with interest rate sensitive stocks and is expected to perform well as interest rates may go down towards end of 2014. Managed by Anil Shah and gave annualized return of 13% p.a in last 3 years and 21% in last 5 years..
One of the best performing funds with AUM of Rs.2800 crores from HDFC Mutual Fund. Has a good quality mix of mid-cap stocks. Suitable for medium to high risk investor over long term. Delivered an impressive 28% returns over 5 years. This return may not be indicative of future performance. But it is still expected to better the Nifty returns by many.
Many may not concur with this selection as its relatively new. The market knows PPFAS investment style (during their Portfolio Management Scheme) for quite some time. We think this fund can deliver good returns to investors who practice value investing.
The fund also invests in international stocks like IBM, Nestle,3M etc., There are not many fancy Indian stocks in the portfolio of this fund. It consists mostly of small-cap stocks. The fund prospectus itself says ‘Do not invest if you have less than 5 year horizon’.
Why to consider Diversified Mutual Funds
Diversified mutual funds invest primarily in equities with the goal of long term capital appreciation.These funds usually hold very little cash or debt and the sole purpose is equity investing.
These help you best to beat inflation and maintain your purchasing power in the future. Consider this , HDFC Top 200 Fund has multiplied the money by nearly more than 25 times in last 20 years.
Diversified equity funds also invest in lot of companies and provide diversification among equities as an asset class. You will hold a bunch of companies and your performance will depend based on the companies in the portfolio.
BSE Sensex has delivered an approximate 17% returns in last 15 years. This is significantly higher than the inflation rate in India. Please note past performance is no guarantee for future performance.
But still, even in future, diversified equity funds usually will do better than inflation in the long term is my opinion.
Classification of Diversified Equity Mutual Funds
There are various types or classification of Diversified Equity mutual funds. This is based on the type of companies they invest in even though there is no strict rule. Primarily they are classified into three categories
Large Cap Diversified Funds – Here the market cap of companies is usually greater than Rs 20,000 crores. These funds typically invest in the blue chip companies which are well known.
Because of this these large cap diversified funds usually have the Nifty as their Benchmark index. Since they invest in high quality companies , usually the chance of long term capital loss is limited or less-likely.
But relative fund performance may differ among large cap diversified funds. Some top large cap funds are
- HDFC Top 200 Fund
- ICICI Prudential Value Discovery Fund
- Franklin India Prima Plus Fund
Midcap diversified funds – The market capitalization of companies in midcap diversified equity funds is usually around 4000 – 20000 crores. The inherent risk associated with this is comparatively more than large cap diversified funds.
The potential for out performance is also higher at the same time. These funds can generate more absolute returns for you if chosen wisely. Some top midcap diversified equity funds are already listed above
- IDFC Premier Equity Fund A
- HDFC Midcap Opportunities fund
- PPFAS Long Term Value Fund
Small Cap Diversified Funds – These are highest risk and highest possible return funds. A good manager of a small cap diversified fund can do wonders for your portfolio.
This is more suitable for investors at young age ie., aged less than 35 years. My opinion is every young investor should have atleast one small cap fund. But remember, if not chosen properly they can lead to losses as well. Some top small cap equity funds are
- Franklin Smaller Companies Fund
- Can Robecco Emerging Companies
- DPRBR MicroCap Fund
How & When to use diversified equity Funds
There is no one size fits all approach here. The trick is to carefully analyze your risk appetite and goals before deciding which funds to invest in. Remember that you’re competing with your earlier financial position and not with others.
If you can maintain your asset allocation properly then you should use Diversified Equity mutual funds while having debt portfolio separate. If you cannot , then you must invest in balanced mutual funds to large extent.
How many equity funds should you have in the portfolio
In my opinion it is not wise to hold more than 3 equity mutual funds in your portfolio. This is because a typical mutual fund has more than 25 stocks in its holdings.
If you hold 3 funds then it means nearly 75 stocks in your portfolio. Most stocks will overlap and so you’ll end up with around 40-50 unique companies.
This in itself is enough diversification. So don’t invest in more than 3 funds. If one fund is not doing good for more than 2 years, then switch to a better fund.
How to choose the best equity funds
Well we have already provided you with the list. Each list has the top funds. Remember some funds may differ in returns in short or medium. As long as you’re exposed to a good fund, you’ll earn above average inflation beating returns.
This should be your ultimate aim when you invest in equity mutual funds. You cannot hold the best funds always and get the best returns. You can only optimize them . So don’t be greedy but be thoughtful and pragmatic.
Case 1: If you’re less than 35 years, choose one fund from each class – ie., one large cap fund, one midcap and one small cap equity fund.
Case 2 : If you’re between 35 – 50 years, choose two midcaps and one large cap equity fund.
Case 3: If your above 50 years, then stick to 3 large caps or one midcap+ two large cap equity funds.
Above is only a rule of thumb calculation based on ag vs risk profile. Each investor profile, investment goals, risk appetite is different and so you must choose carefully. Above scenarios work good in general for median investor population.
These are our list of the best equity mutual funds in India for 2015. We understand some readers may have a difference of opinion on which they think is best but they will definitely agree what we have recommended are high quality picks in the equity mutual funds category.
If you like this article, Share it ,tweet it, Like it. Help your friends.
Disclaimer: We do not receive any benefits/commissions for recommending these funds. We do it because we believe they can deliver good returns for our readers. Readers must do their own analysis before investing. No one can predict what will happen in future for these funds. We can just analyze, act and hope for the best.