Salil Dhawan reveals the MFs that have not only performed well in the past but have a promising outlook for the future too.
Illustration: Uttam Ghosh/Rediff.com
Mutual funds have given excellent returns over the past year much to the delight of the investors. Notably among them are some of the small and mid-cap schemes which have generated phenomenal returns.
Lately, investors investing through Systematic Investment Plan (SIP) have been able to benefit from events such as demonetisation when markets tanked considerably thus averaging out the costs.
Irrespective of the sharp run-up, it is always prudent for an investor to maintain correct asset allocation.
One should not get carried away with the returns over a 1-2 year period.
Investing in mutual funds should be as per your goals, your risk profile.
If your goal can be achieved taking relatively less risk since you started investing early for your goal, you need not invest in relatively riskier financial instruments.
It is always recommended to maintain a good balance of large-cap, balanced-, small- and mid-cap funds in the portfolio to ride the volatility in the equity markets over the long term.
Investors should not blindly copy the top performers in terms of returns but must understand the risks associated with the fund before investing.
Top performers can change every year, but you can't junk your funds every year.
So make sure you invest in consistent performers and not necessarily top funds in terms of returns.
Some of the small- and mid-cap funds' fund managers have stopped subscription to their funds or have initiated capping on new SIPs citing huge inflows and not many opportunities in the market to invest in small- and mid-cap space at such valuations.
So investors must keep a balanced portfolio and keep investing via SIP mode in accordance with their goals.
Before you decide which funds to invest, always align your investment objective with some specific goal.
It will help you to track the progress of your investments against the target corpus you are looking to achieve.
Let's look at some of good consistent performing mutual funds which you can consider for the year 2018 and beyond:
1. Birla Sun life Tax Relief 96
It is an open-ended ELSS scheme with a lock-in of three years from the date of allotment.
The Birla Sun life Tax Relief 96 fund will help you to save tax under Section 80 C and at the same time looks to generate capital appreciation by investing in equity investments.
This fund has a long track record since it came into inception in 1996.
Its current fund manager is managing the fund since 2006 and has done a commendable job.
Since inception, the fund has generated SIP returns of 17.37 per cent which is highly commendable.
2. Reliance Tax Saver Fund
Reliance Tax Saver Fund is an open ended ELSS. The fund seeks to maintain balance between large-cap and mid-cap companies.
This fund looks to invest in companies with high growth potential over the next 2 to 3 years. There's also an allocation to the MNCs and high conviction mid-cap companies.
Since inception this fund has generated SIP returns of 18.23 per cent which is no mean feat.
3. Mirae Asset India Opportunities Fund
Mirae India Opportunities Fund is an open ended equity scheme. This fund came into inception in the year 2008 and is managed by Neelesh Surana and Harshad Borawake.
As on November 2017, the scheme had a large allocation to banks.
One hallmark of the fund is its ability to contain the loss during market correction and beating the benchmark.
Since inception, the Mirae Asset India Opportunities Fund has generated SIP returns of 20.06 per cent which is exceptional.
4. Mirae Asset Emerging Bluechip Fund
The Mirae Asset Emerging Bluechip Fund has been a star performer lately delivering phenomenal returns. It is an open ended equity scheme.
This fund came into inception in 2010 and is managed by Neelesh Surana.
Just like the Mirae Asset India Opportunities Fund, this fund's hallmark too is its ability to contain the loss during market correction and beating the benchmark.
Since inception, this fund has generated SIP returns of 29.10 per cent which is exceptional.
5. MOSt focused multicap 35 fund
The investment objective of the scheme is to achieve long-term capital appreciation by primarily investing in maximum of 35 equity and equity related instruments across sectors and market capitalisation levels.
The fund is benchmarked to Nifty500 Index. It's date of allotment was April 28, 2014.
As on November 30, 2017, this fund has delivered returns (CAGR) per cent of 23.59. As the name of the fund suggests, it takes a focused approach with 35 stocks in the portfolio at any given point of time.
So this fund can drastically under-perform or out-perform depending on how its focussed bets turn out to be.
This fund has some good quality businesses as part of portfolio allocation which inspires confidence in the fund manager capabilities.
6. HDFC Mid-Cap Opportunities Fund
A silent consistent performer over the years, HDFC Mid-Cap Opportunities Fund has made its name among consistent performers in the mutual fund arena.
This fund is an open ended scheme managed by star fund manager Chirag Setalvad since inception.
The fund aims to generate long-term capital appreciation from a portfolio that is substantially made up of equity and equity related securities of small- and mid-cap companies.
Since inception, this fund has delivered SIP performance of 22.94 per cent which is quite commendable.
Though the fund AUM (assets under management) has swelled considerably in this rally it remains true to its mandate and investment philosophy.
7. Reliance Small-Cap Fund
Reliance small-cap is one of the shining stars of this rally in terms of performance.
Though small-cap valuations have hit the roof, the fund remains a compelling case for investment via SIP mode only, with a whopping SIP return of 31.52 per cent CAGR since inception.
The fund attempts to generate superior risk adjusted returns by focussing on the smaller capitalisation companies.
The fund focuses on identifying good growth businesses with reasonable size, quality management and rational valuation.
Investors must invest in SIP mode only and avoid any lump-sum investments into the fund.
8. ICICI Prudential Value Discovery Fund
The fund is an open ended diversified equity scheme which aims to generate returns through a combination of dividend income and capital appreciation by investing primarily in a well-diversified portfolio of value stocks.
Value stocks are those, which have attractive valuations in relation to earnings or book value or current and/or future dividends.
The fund remains a long term performer with CAGR returns of 22.11 per cent since inception as on November 30, 2017.
This fund is managed by experienced fund manager Mrinal Singh who has been managing the fund since February 2011.
In spite of some bouts of under-performance, this fund following a value investing philosophy should remain a core portfolio holding in an investor's portfolio.
Investors who have exemplary patience and willing to invest for the long-term can invest in this fund.
9. SBI Bluechip Fund
The fund's objective is to provide investors with opportunities for long-term growth in capital through an active management of investments in a diversified basket of equity stocks of companies whose market capitalisation is at least equal to or more than the least market capitalised stock of S&P BSE 100 Index.
As on December 2017, this fund has 71.97 per cent allocated to large-caps, 18.50 per cent to mid-caps and remaining to cash and other current assets.
The SBI Bluechip Fund has an inclination towards financial services sector with 32.32 per cent allocation. The sector remains a core portfolio holding fund in the portfolio.
10. HDFC Balanced Fund
This fund remains a long-term performer in the category.
This fund is managed by Chirag Setalvad and is in inception since September 11, 2000.
With long-term track record of 17.87 per cent returns since inception and a balanced exposure to equity and debt, the HDFC Balanced Fund remains a good consistent performer in the category, especially for the first time investors.
Investors must look at consistent performers in the category rather than short term performance.
Retail investors must take the SIP mode for wealth creation and take benefit of power of compounding.
Investors must map their investment strategy to specific life goals to have clarity about the investment objective.
Some significant pointers about SIP which we as investors we should keep in mind:
- Increase your SIP amount as your salary increases. Ideally, opt for top-up SIP instead of plain vanilla SIP.
- Look at top-up SIPs wherein you can increase SIP amount by specific percentage after a specific duration.
- The power of compounding is phenomenal. Have a half-yearly or yearly review of funds.
- Don't look at NAV daily. Don't get perturbed by market fluctuations.
- Keep investing during the market downturn.
- Always opt for perpetual SIP and top-up SIP to make sure SIP is not stopped anytime in between and you have significantly bigger corpus amount respectively.
- The power of compounding is phenomenal.
- Invest in ELSS funds in case you need to save tax under Section 80C.
- Read a lot of good investment related books.
- Exemplary discipline and patience are virtues of a great and successful investor.
- Don't change your funds every year based a star rating.
- Look for consistent performers. Remember volatility is an investor's best friend. In case, at some time you have lump-sum amount to invest, use Systematic Transfer Plan rather than investing in lump-sum.
- Always invest through SIP with additions to existing funds during the market downturn but don't make a lump-sum investment in mutual funds as your principal investment strategy.
- Don't be emotionally attached to any mutual fund. If there's a hint of fund consistently lagging in comparison to benchmark and peers, switch to another fund.
- Make sure you have contact and nominee details updated in all your active SIPs.
- Do remember if you put the additional amount into your SIP related funds whenever possible, it can make big difference to the actual corpus in the long run.
- Taxation on equity mutual funds depends on the period of holding from the date of purchase. There are two types of taxation categories in equity mutual funds: Short-term capital gains and long-term capital gains.
- Make sure you don't have more than 5 to 7 funds in your portfolio.
- Don't invest money which you need in short-term in equity mutual funds.
- As your goal approaches near, start Systematic Withdrawal Plan (SWP) from existing equity mutual fund schemes.
- In case fund manager of a fund you are investing in changes, keep the fund on the watch list but don't press the panic button. Evaluate fund performance over the coming year and decide accordingly.
- Keep your investment strategy simple and carved out with the complete thought process.
- The earlier you start investing, better it will be for you to generate bigger corpus.
- Don't shy away from taking help of financial planners to plan your investments.