Best Mutual Fund Schemes to invest in 2017

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Best Mutual Fund Schemes to invest in 2017 Best Funds for SIP & Lump Sum Investment 

We have more than 11,000 Mutual Fund Schemes that are currently available in the market (Equity & Debt Schemes as on Sep, 2016). It is a highly challenging task for any advisor / investor to select best mutual fund schemes out of these thousands of schemes.

There is no doubt that Mutual Funds are one of the best investment options for long term wealth creation. However, if you pick wrong MF schemes that do not match your investment objective(s) and time-frame then it could spell disaster for you.
Investing in right mutual fund schemes which have been performing consistently well and monitoring your MF portfolio performance is a very important task.
Equity Mutual Funds are risk oriented products. You can consider investing in the below top performing mutual funds through SIPs (or lump sum) only if your time horizon is at least 5 or more years.

  • Large-cap fund category
    • Birla Sunlife Frontline Equity Fund
    • ICICI Pru Focused Blue-chip Equity Fund
    • UTI Equity Fund
  • Diversified or Multi-cap category
    • Franklin India Prima plus 
    • ICICI Prudential Value Discovery Fund
    • Mirae Asset India Opportunities Fund
  • Small & Mid-cap fund category
    • UTI Midcap 
    • HDFC Midcap
    • Franklin India Smaller Companies Fund 
  • Hybrid – Equity oriented category
    • HDFC Balanced 
    • TATA Balanced Fund
    • ICICI Prudential Balanced Fund – Regular Plan
  • ELSS / Tax saving category
  • Franklin India Tax shield 
  • Axis Long Term Equity Fund
  • Birla Sunlife Tax plan
Below are some of the top performing best mutual fund schemes (Equity oriented) that you can consider for investing in 2017 and beyond. In this review, I have listed mid-cap and small-cap funds as separate categories.
  • Large Cap Funds 2017 : I have retained Birla Frontline Equity & ICICI Prudential Focused Bluechip funds but replaced UTI Equity fund with SBI Blue chip fund. If you have invested in UTI Equity fund, you may hold on to the existing units and consider investing future SIPs/additional investments in other suggested Large cap funds.
  • Multi cap Equity Funds 2017 : I have replaced Mirae Asset Opportunities Fund with L&T Value Fund and retained the other two diversified equity funds. If you have invested in Mirae fund you may continue with your existing and future investments.
  • Mid-Cap Funds 2017 : I have retained both the Mid-cap funds that were listed in my last review (HDFC Mid-cap & UTI Mid-cap). I have added one more fund to the mid-cap fund category list ie Franklin India Prima Fund.
  • Small Cap Funds 2017 : Besides Franklin Smaller Companies fund, I have added DSP Micro-cap fund and SBI Small & Mid-cap fund to the current list of best small cap funds.
  • ELSS Tax saving funds 2017 : I am considering the same list of ELSS funds this year too.
  • Equity oriented Balanced Funds 2017 : I have added SBI balanced fund to the list.

Best Large Cap Equity Mutual Funds

  • There are around 150 large-cap equity funds. The average return from this category is around 12% for the last 5 years.
  • Birla Frontline Equity fund has been one of the best and most consistent performer among the large cap funds. The Assets under Management (AUM) of this fund are around Rs 13,800 cr. The fund generally invests around 80 to 90% of its corpus in Large cap stocks and the remaining 10 to 20% in mid-cap stocks. It has managed to contain declines very well during bear phases (in 2008 & 2011).
  • SBI Bluechip fund has been performing really well for the last few years. It has a ‘low’ risk grade and ‘high’ return grade.
  • ICICI Focused bluechip fund has been a consistent performer for the last 5 to 6 years. The fund usually allocates 90 per cent plus to large-cap stocks and 5-10 per cent to mid caps.
  • Franklin Bluechip fund, Birla top 100 fund & Quantum Long-term equity fund are the other large cap funds to watch out for.

Best Diversified / Multi-cap / Flexi-cap Equity Funds

  • Multi-cap funds are also referred to as flexi-cap or Diversified Equity funds. Currently there are around 260 equity diversified equity schemes.
  • Some mutual fund research portals list Franklin Prima plus fund under large-cap fund due to the fact that around 70% of its corpus is invested in Large cap stocks and the remaining balance in mid/small cap stocks. So, if you would like to pick a diversified equity fund with high large-cap exposure then Franklin Prima plus fund can be your choice.
  • Currently, the portfolio allocation of ICICI Pru Value Discovery fund is also similar to Franklin Prima plus fund. Otherwise, this fund generally invests around 30 to 40% of its corpus in mid-cap stocks. It typically follows contrarian style of investing.
  • L&T Value fund, relatively a new fund under multi-cap category, has been performing well in the last few years. This fund has a very good allocation across large, mid & small cap stocks (40:35:25). So, if you would like to make an aggressive investment in a diversified fund, LT Value fund can be your best bet.
  • Franklin India High Growth Companies fund & Birla Equity fund are the other multi-cap funds to watch out for.

Best Mid-cap Equity Fund Schemes

  • There are around 140 Small & Mid-cap equity fund schemes. The average returns from this category is around 25% over the last 5 year period.
  • HDFC Mid-cap fund currently invests around 56% of its corpus in mid-sized companies.  In 2008, 2011 and 2013, this mid-cap contained losses which are far lower than its benchmark (Nifty Free Float Midcap 100). If you are looking for a mid-cap fund which can withstand the choppy rides during bear phases then HDFC mid-cap fund can be your apt choice.
  • Franklin Prima Fund has invested around 68% of its corpus in Mid-cap stocks and around 5% in Small cap stocks. It is one of the oldest mid-cap funds. It has beaten its benchmark (Nifty 500) in the last six years by big margins.
  • UTI mid-cap is ranked consistently high for 5 year and 10 year period. Though the fund manager has been changed, its performance remained almost the same. The fund’s portfolio mix features a 55 to 60% mid-cap exposure and a 15 to 20% small-cap weight.
  • The other notable mid-cap funds are Mirae Asset Emerging blue-chip fund and Principal Emerging Bluechip fund.

Best Small cap Mutual Funds

  • Franklin Smaller Companies fund invests in stocks with a market cap below that of the 100th stock in the CNX 500 index. Last one-year returns haven’t been top of the charts, but the three and five year records more than make up for this. As the fund’s investment style is more conservative, it is a good choice for investors who wants to invest in small cap fund with a less bumpy ride. Currently, the fund has allocated 43% of its corpus to Small Cap stocks and 47% to mid-cap stocks.
  • DSP Micro cap fund has a very high allocation to small cap stocks which is currently around 65% of its corpus. The fund has been overweight on small cap stocks relative to its peers and underweight on both mid- and large-cap holdings. It follows buy & hold investment strategy. Hence, it has a very low Portfolio Turnover ratio which is at 13% (Turnover ratio is a measure of how a fund’s portfolio changes in a year.)
  • Around 76% of SBI Small & Mid-cap fund’s corpus has been invested in small cap stocks. It has ‘below average’ risk grade and ‘above average’ return grade. Kindly note that the fresh investments have been ‘ Suspended Temporarily’ by the fund.
  • Reliance Small cap fund is another good small-cap fund that is worth tracking, but its Standard deviation is very high.

Top performing Tax-saving Mutual Fund Schemes (ELSS)

  • There are more than 100 tax saving ELSS mutual fund schemes in the market. This category’s average returns are around 12% for the last 5 years.
  • Franklin Taxshield is an ELSS fund but you can consider this as a typical Large-cap fund, as around 80% of its corpus has been invested in large cap stocks. This fund generally doesn’t take cash calls and remains fully invested through market cycles. If you are a risk averse investor and wants to take tax benefit, this is a good bet.
  • Axis LTE fund can be treated as flexi-cap fund with tax benefits. Its risk grade is ‘low’ and return grade is ‘high’.
  • Birla Tax plan, Birla Tax relief 96 fund & DSP Tax Saver funds have also been consistently performing well.
My observations & general suggestions
For the last two years, I have been receiving thousands of comments/queries on mutual fund schemes. I get a chance to learn new things when answering these queries. Let me share my observations and suggestions with you all;
  • Identify your Goals : Majority of us identify the products first and then try to shortlist best investment avenues. An investor has to first identify his/her financial goals and then try to short-list best available options. This is applicable for mutual fund investments also.
  • Invest Goal-wise & not as per your age-wise: Even if you are a Senior citizen, you can invest in Equity funds if they are suitable to your investment objectives. Equity funds are for any type of investors.
  • Diversify across Fund categories & Fund houses : I often observe that investors invest in multiple funds of same Fund house. Suggest you to not only invest in funds offered by different fund houses but also try to pick funds from different fund categories. 
  • Ignore Short-term volatility : It is understandable that an investor (especially new investors) may panic if he/she sees negative returns on his MF portfolio. If you have invested in Equity oriented mutual funds for medium to long-term, kindly stick to your investment objectives. It is advisable to ignore short-term volatility (if any). But do track the performances of your funds & portfolio once in a year.
  • Consistency is the key parameter : A ‘good mutual fund scheme’ is the one that consistently manages to outperform its category returns and also it’s Benchmark’s. It is prudent to be with the consistent performers for long-term goals instead of churning your portfolio based on Star ratings or recent performances of the funds.
  • SIP & Additional investments : Is SIP a sure-fire way of creating long-term wealth? Systematic Investment Plan (SIP) inculcates financial discipline. However, it is not a fair comparison to equate SIPs with investing in a lump sum. Both have their own pros and cons. It is better to have SIPs in place and at the same time, you can make additional investments (lump sum) when you believe that markets are down.
  • Realistic Expectations : If you analyze the returns generated by the above list of funds for the last 10 years, the maximum is 16% and the minimum return is 10%. So, let’s have realistic expectations from equity funds. May be, a 12% rate of return sounds very good 
  • Regular & Direct plans : I do get lot of queries on what is the difference between ‘Regular plan’ and ‘Direct plan’. Kindly read this article for a detailed explanation on this topic : What are Direct Plans of Mutual Fund Schemes?.
Kindly note that the above list of best mutual fund schemes is not an exhaustive one. Mutual funds are not guaranteed, their values/returns change frequently and past performance may not be repeated.

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