Article

5 Mutual funds to buy in 2018

Jitender Singh

03 Apr 2018

Investors witnessed spectacular returns in 2017. In 2017, BSE Sensex has given ~27% return YTD, whereas BSE Mid-cap has given ~46% return in 2017. Small-cap stocks outperformed the Blue chip and Mid-cap stocks, BSE Small-cap has given fabulous ~57% return in 2017.

As the nightmares of GST and demonetization have passed, we are expecting the market to be on the upward trajectory in 2018. Investors can make significant returns in 2018. Investors who do not have expertise and time to track the market can invest in equity market via mutual funds.

Returns as on December 21, 2017

One of the best ways to create wealth in the long term in the equity market is through equity mutual funds. Historically, it has been observed that equity mutual funds have outperformed inflation in long term despite short term volatilities. Moreover, Indian mutual fund industry is mature and well regulated.

Investors can invest in lump sum and/or via SIPs in mutual funds. SIP is a method in which a particular amount is invested in mutual funds regularly for a pre defined period. SIPs allow investors to reap the benefit of ‘Rupee Cost Averaging’.

We have selected the five best mutual funds to invest in 2018.

scheme AUM (Cr.) 1 Y (%) 3 Y (%) 5 Y (%)
Aditya Birla SL Top 100 Fund(G) Rs.3,703 31.9 12.1 18.0
Tata Equity P/E Fund(G) Rs.2,235 39.6 18.0 23.0
Franklin India Prima Fund(G) Rs.6,515 38.8 17.9 25.5
HDFC Mid-Cap Opportunities Fund(G) Rs.19,740 40.7 19.3 26.5
DSPBR Small & Mid Cap Fund-Reg(G) Rs.5,112 39.9 19.4 24.0

1 year returns are absolute; Returns greater than 1 year are CAGR
AUM as of November 2017; Returns as on December 21, 2017; Source: ACE MF

Aditya Birla SL Top 100 Fund

  • It is a large-cap equity fund, which primarily invests in top 100 stocks by market capitalization.
  • The fund follows growth cum value investment style to create wealth in long term. 
  • As of November 2017, the fund had invested ~82% of its AUM in large-cap stocks and ~11% in mid-cap stocks.
  • Investors who want to primarily invest in large-cap stocks can invest in the fund to create wealth in the long term.

Tata Equity P/E Fund

  • It is a value conscious equity fund, which aims to invest 70-100% of its AUM in stocks whose 12 months rolling PE ratio is lower than 12 month rolling PE ratio of BSE Sensex.
  • The remaining AUM is allocated in other equity and debt instruments.
  • As of November 2017, the fund had invested ~61% of its AUM in large-cap stocks and ~31% in mid-cap stocks to generate higher returns.
  • Investors who are value conscious and want to invest in large-cap and mid-cap stocks can invest in the fund.

Franklin India Prima Fund

  • It predominantly invests in small-cap and mid-cap stocks which tend to exhibit higher growth than large-cap stocks.
  • It aims to identify and invest in companies which are at an early stage of the business life cycle as they have an enormous potential to grow.
  • As of November 2017, ~66% of AUM was invested in mid-cap stocks, and ~23% in large-cap stocks to generate high returns for investors.
  • Investors who want to primarily invest in mid-cap stocks can invest in this fund to create wealth in long term.

HDFC Mid-Cap Opportunities Fund

  • It is a mid-cap equity fund which has allocated, as of November 2017, ~61% of its AUM to mid-cap stocks, ~25% to large-cap stocks, and ~11% in small-cap stocks to generate high returns for investors.
  • It has well diversified portfolio with no more than ~10% exposure to any particular sector.
  • It has also managed its concentration risk, top 10 stocks account for only ~25% of the AUM.
  • Investors who want to primarily invest in mid-cap stocks with some exposure to small-cap stocks can invest in this fund to create wealth in long term.

DSP BlackRock Small and Mid Cap Fund

  • It invests in stocks beyond top 100 companies, based on market capitalization.
  • The fund manager invests in small-cap and mid-cap stocks with consistent earnings and significant growth potential.
  • It follows bottom-up approach to select the stocks. 
  • As of November 2017, ~54% of its AUM was invested mid-cap stocks, ~24% was invested in large-cap stocks, and ~17% in small-cap stock to generate high returns for investors.
  • Investors who want to primarily invest in mid-cap and small-cap stocks can invest in this fund to create wealth in long term. 

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 

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5 Mutual funds to buy in 2018

Jitender Singh

03 Apr 2018

Investors witnessed spectacular returns in 2017. In 2017, BSE Sensex has given ~27% return YTD, whereas BSE Mid-cap has given ~46% return in 2017. Small-cap stocks outperformed the Blue chip and Mid-cap stocks, BSE Small-cap has given fabulous ~57% return in 2017.

As the nightmares of GST and demonetization have passed, we are expecting the market to be on the upward trajectory in 2018. Investors can make significant returns in 2018. Investors who do not have expertise and time to track the market can invest in equity market via mutual funds.

Returns as on December 21, 2017

One of the best ways to create wealth in the long term in the equity market is through equity mutual funds. Historically, it has been observed that equity mutual funds have outperformed inflation in long term despite short term volatilities. Moreover, Indian mutual fund industry is mature and well regulated.

Investors can invest in lump sum and/or via SIPs in mutual funds. SIP is a method in which a particular amount is invested in mutual funds regularly for a pre defined period. SIPs allow investors to reap the benefit of ‘Rupee Cost Averaging’.

We have selected the five best mutual funds to invest in 2018.

scheme AUM (Cr.) 1 Y (%) 3 Y (%) 5 Y (%)
Aditya Birla SL Top 100 Fund(G) Rs.3,703 31.9 12.1 18.0
Tata Equity P/E Fund(G) Rs.2,235 39.6 18.0 23.0
Franklin India Prima Fund(G) Rs.6,515 38.8 17.9 25.5
HDFC Mid-Cap Opportunities Fund(G) Rs.19,740 40.7 19.3 26.5
DSPBR Small & Mid Cap Fund-Reg(G) Rs.5,112 39.9 19.4 24.0

1 year returns are absolute; Returns greater than 1 year are CAGR
AUM as of November 2017; Returns as on December 21, 2017; Source: ACE MF

Aditya Birla SL Top 100 Fund

  • It is a large-cap equity fund, which primarily invests in top 100 stocks by market capitalization.
  • The fund follows growth cum value investment style to create wealth in long term. 
  • As of November 2017, the fund had invested ~82% of its AUM in large-cap stocks and ~11% in mid-cap stocks.
  • Investors who want to primarily invest in large-cap stocks can invest in the fund to create wealth in the long term.

Tata Equity P/E Fund

  • It is a value conscious equity fund, which aims to invest 70-100% of its AUM in stocks whose 12 months rolling PE ratio is lower than 12 month rolling PE ratio of BSE Sensex.
  • The remaining AUM is allocated in other equity and debt instruments.
  • As of November 2017, the fund had invested ~61% of its AUM in large-cap stocks and ~31% in mid-cap stocks to generate higher returns.
  • Investors who are value conscious and want to invest in large-cap and mid-cap stocks can invest in the fund.

Franklin India Prima Fund

  • It predominantly invests in small-cap and mid-cap stocks which tend to exhibit higher growth than large-cap stocks.
  • It aims to identify and invest in companies which are at an early stage of the business life cycle as they have an enormous potential to grow.
  • As of November 2017, ~66% of AUM was invested in mid-cap stocks, and ~23% in large-cap stocks to generate high returns for investors.
  • Investors who want to primarily invest in mid-cap stocks can invest in this fund to create wealth in long term.

HDFC Mid-Cap Opportunities Fund

  • It is a mid-cap equity fund which has allocated, as of November 2017, ~61% of its AUM to mid-cap stocks, ~25% to large-cap stocks, and ~11% in small-cap stocks to generate high returns for investors.
  • It has well diversified portfolio with no more than ~10% exposure to any particular sector.
  • It has also managed its concentration risk, top 10 stocks account for only ~25% of the AUM.
  • Investors who want to primarily invest in mid-cap stocks with some exposure to small-cap stocks can invest in this fund to create wealth in long term.

DSP BlackRock Small and Mid Cap Fund

  • It invests in stocks beyond top 100 companies, based on market capitalization.
  • The fund manager invests in small-cap and mid-cap stocks with consistent earnings and significant growth potential.
  • It follows bottom-up approach to select the stocks. 
  • As of November 2017, ~54% of its AUM was invested mid-cap stocks, ~24% was invested in large-cap stocks, and ~17% in small-cap stock to generate high returns for investors.
  • Investors who want to primarily invest in mid-cap and small-cap stocks can invest in this fund to create wealth in long term. 

Research Disclaimer