In recent months, the bell weather Sensex has reached unmatched highs and is currently continuing to maintain levels exceeding the 30,000 mark. That’s probably the reason why investors trying to time the market are finding themselves in a difficult situation with respect to investment selection. According to experts, the key reason for this sustained bull run in markets are enhanced levels of liquidity. This seems to be driven by an increased interest in mutual funds and stock market investments at a time when fixed interest rate investment options such as PPF, EPF and FDs are offering historically low ROI. That said, for many investors, the current market scenario does present a challenge due to the possibility of a bubble in stock markets. In the following sections, we will discuss 8 leading equity mutual fund options conveniently segregated into four segments namely large cap, multi-cap, mid/small cap and ELSS.
ELSS is short for Equity Linked Savings Scheme, which refers to a unique class of equity mutual funds capable of providing tax saving benefits under Section 80C of the Income Tax Act 1961. Additionally, the lock-in period of this tax saving investment is only 3 years, which is far less than that of other tax saving plans currently available to an individual investor. The third reason for the popularity of these mutual funds in recent years is the fact that these investments are in the EEE category i.e. the principal investment, the capital gains earned as well as the maturity amount are all tax-free.
- Axis Long Term Equity Fund
Axis Long Term Equity Fund has maintained an overwhelming lead in the ELSS funds class since its inception way back in December 2009. The fund currently features a focused approach of purchasing quality stocks of reasonable valuation that are expected to witness significant growth in the recent future. A majority of the assets of this mutual fund (up to 70%) are invested in large cap equities, whereas, the remainder are invested in mid and small cap companies with a bias towards midcap investments. The 1 year returns of the fund were estimated at over 17%, while the 5 year annualised returns currently stand at over 24% is well above the performance of its benchmark. Overall, this fund is renowned as a safe bet for making tax saving mutual fund investments.
- DSP BlackRock Tax Saver Fund
Traditionally, the DSP BlackRock Tax Saver Fund has been considered a conservative fund that focuses on generating medium to long-term appreciation of investments through a diversified portfolio of equities as well as equity-based schemes of leading companies. However, this conservative approach seems to have worked quite well as since inception, the DSP BR Tax Saver has beaten its benchmark’s performance almost every year. Though originally touted as a multicap ELSS investment option, the fund currently features a large cap bias with such investments constituting almost 75% of total holdings while mid cap investments form a majority of the remainder. This ELSS tax saver mutual fund provided 1 year returns in excess of 31%, while 5 year returns were recorded at over 23%.
[Also Read: Here’s Why You Should Start Investing in ELSS Now]
Large Cap Mutual Funds
Large cap mutual funds typically focus their investments on market equities of companies that feature the highest levels of market capitalization. Since these funds favour investments in larger companies, they are considered to be a good choice for long-term capital appreciation with minimal risk to the principal amount invested.
- ICICI Prudential Focused Bluechip Equity Fund
The ICICI Prudential Focused Bluechip Equity Fund targets its investments in the equities of 20 leading companies selected from the top 200 organisations based on their market capitalisation. However, currently, the fund’s portfolio has expanded to include companies beyond this initial list as its AUM has grown beyond the 1 crore level. In the past, this large cap equity fund has significantly outperformed its benchmark and last year it recorded annualised growth exceeding 23%.
- Franklin India Prima Plus Fund
The Franklin India Prima Plus Fund has been around for over two decades and it has continued to outshine its benchmark as well as its peers in the recent past as well. Classified as a large cap equity fund with currently over 75% of its portfolio invested in such companies, the remaining investments comprises mid cap funds that provide growth impetus to this mutual fund. The 1 year trailing returns of Franklin India Prima Plus stood at over 18%, while the annualised 5 year returns recorded in excess of 21%, was significantly higher than its benchmark.
Multicap Mutual Funds
Multi-cap mutual funds are so called as a result of their market capitalization agnostic style of stock selection and portfolio diversification. These funds are free to invest in companies of various market caps, which ensure an overall balance between capital appreciation and risk for the investors.
- ICICI Value Discovery Fund
Considered by many experts to be a fund which bucks the trend with an investment style that runs contrary to popular market sentiment, the ICICI Value Discovery Fund is often tops the list among diversified fund options. This mutual fund has been a popular choice among investors who are seeking long term capital appreciation through a portfolio that is tilted towards large cap investments. At present, almost 80% of the fund’s portfolio comprises large-cap equities, while the rest includes various mid and small cap equity investments. With an AUM of over Rs. 17000 crores as of April 2017, the fund has registered a 1 year annualised growth rate of over 18%, while the 5 year annualised ROI is even higher at over 23%.
- DSP BlackRock Opportunities Fund
This mutual fund distinguished itself by making significant investments in equity-based securities even though old school equity investments still form the backbone of the DSP BlackRock Opportunities Fund portfolio. Additionally, even though the primary goal of this mutual fund is to provide capital appreciation to investors in the long term, a secondary goal of this mutual fund is to distribute dividends and generate income through its various investments. The 1 year ROI of the DSP BR Opportunities Fund was recorded at over 33%, which was significantly higher that its benchmark as well as its peers. Additionally, the 5 year annualised return in excess of 22% is also much higher than the benchmark.
Mid/Small Cap Mutual Funds
As the name suggests, these mutual funds primarily invest in potentially high growth equities of companies featuring small or mid-level market capitalization. The high growth potential offered by these funds however does lead to a perceived increase in risk to the principal amount invested.
- Reliance Small Cap Fund
The Reliance Small Cap fund is designed to provide capital appreciation in the long term through investments made primarily in equities and equity-linked schemes of small cap companies determined to have a high growth potential. The fund has witnessed rapid growth over the years and currently features an AUM of around Rs. 3718 crores. The Reliance Small Cap fund features a 5 year annualised ROI exceeding 33%, while the fund’s 1 yr ROI is even higher at over 42% – both of these are significantly higher than the performance of the benchmark.
- Franklin India Smaller Companies
Franklin India Mutual Fund AMC’s premium small cap fund offering, the Franklin India Smaller Companies fund, is a popular choice among investors seeking an equity fund with high potential for growth. The fund’s strategy features a focus on investing up to 75% of its available capital in various mid and small cap companies in a sector agnostic fashion in order to maximise the ROI for the investors. With 1 year returns in excess of 30% and 5 year annualised returns of 32.68%, the Franklin India Smaller Companies fund is definitely one of the highest ranked funds in the category.
[Also Read: 5 Points MF Investors Need to keep in Mind]
Table1. The 1 year, 3 year and 5 year annualised returns data for the regular plans of the equity mutual funds mentioned above*.
|Fund Name||1 Yr Returns||3 Yr Annualised Returns||5 Yr Annualised Returns||Approximate value of Rs. 10,000 lumpsum invested 1 year back|
Axis Long Term Equity
|DSP BlackRock Tax Saver||31.23%||19.77%||23.05%||Rs. 13508|
|ICICI Prudential Focused Bluechip Equity||23.95%||14.00%||18.69%||Rs. 12619|
Franklin India Prima Plus
|ICICI Value Discovery||18.75%||17.30%||23.27%||Rs. 12011|
|DSP BlackRock Opportunities||33.05%||20.06%||22.64%||Rs. 13738|
Reliance Small Cap
Franklin India Smaller Companies
*The figures in the table are for illustrative purposes only.