Today all millennials are worried about their future, everybody plans to make their exhaustive list to become financially independent. Financial independence is a goal-driven by each individual but do all have the same risk-taking capacity to earn a good amount of return on the invested money for a long period of time?
While this question arises all the different types of investing machines in the world. Individuals can earn a good chunk of money while investing in assets like gold, Real Estate, Government Bond, Corporate bonds, Equities( Stock Market), Commercial Papers and a lot to go, but a person can earn a good return only if they invest where they have an expertise while knowing why-how, So do we have deep knowledge in all the sectors, do we have a good chunk of capital to invest in all these assets and earn, can we diversify our portfolio, Can we track all the assets simultaneously and how will you allocate your portfolio, while 99% of the population has a negative answer for all the above questions and while here mutual funds comes into picture.
Mutual Fund is a pool of money collected from individuals, Corporates, High Network Individuals(HNI) and institutions etc, Mutual Funds help us to earn a good amount of money while making proper allocation of assets in the desired field and investing with thorough in-depth knowledge in a particular field which helps to grow our capital while taking small percentage of management fees.
Mutual Fund Industry is growing at very pace speed and as we can see an increase in financial literacy, certainly we can see a rapid increase in this Industry.
The AUM of the Indian MF industry has grown from Rs 8.09 trillion as on 30th April 2010 to Rs23.93 trillion as on 30th April 2020 about 3 fold increase in a span of 10 years.
The MF Industry’s AUM has grown from Rs 11.86 trillion as on 30th April 2015 to Rs 23.93 trillion as on 30th April 2020, more than 2 fold increase in a span of 5 years.
The Industry’s AUM had crossed the milestone of Rs10 Trillion (Rs 10 Lakh Crore) for the first time in May 2014 and in a short span of about three years, the AUM size had increased more than two folds and crossed Rs 20 trillion (Rs 20 Lakh Crore) for the first time in August 2017. The Industry AUM stood at Rs 23.93 Trillion (Rs 23.93 Lakh Crore) as on 30th April 2020.
Mutual funds Schemes are broadly divided into 2 Categories
Close Ended Schemes
We have ample of Schemes available in both the categories and we will explain each one of you so that you can make the best decision as per your investment parameter. We have divided the open-ended Scheme into 3 parts so that it remains simple to understand.
Growth/ Equity Oriented Schemes
Income/Debt oriented Schemes
In this, we will talk about Growth/Equity Oriented Scheme.
Growth/ Equity oriented schemes
Large Cap Fund-29
Large & Mid Cap Fund-27
Mid Cap Fund-26
Dividend Yield Fund-6
Value Fund/Contra Fund-17
However you will be aware of the names of the schemes but you will be in dilemma what is the numerical represent besides the name of the schemes. These numerical are the prevailing schemes available for that particular segment as per May 2020.
Example- There is a total of 34 multi-cap Schemes which are registered and regulated by SEBI. If you want to invest in Multi cap funds you have only 34 schemes from which you have to go through to take your investment decision.
Let us try to understand what are these different schemes and how it is regulated.
Large Cap Funds
Large Cap Mutual Funds are equity funds which invest a bigger proportion of their total assets in companies with a large market capitalisation. These companies are highly reputed have to an excellent track record of generating wealth for their investors over a long period of time. Example Reliance, Nestle, TCS, Infosys, HDFC Bank Etc.
Large Cap Funds are hence known to generate regular dividends and steady compounding of wealth as these companies are at their mature phase, generally, there is very less amount of growth available and they have a very huge cash flows accumulated. Also, these schemes carry a lower risk as compared to the small-cap or mid-cap schemes and are known to generate stable returns. These schemes are a good option for investors who possess relatively lower risk appetite and a long-term investment horizon. According to SEBI, large-cap companies fall in the top 100 of the list of companies according to market capitalisation. You can expect a minimum return of 10-12% p.a.
We prepared a fund performance list to evaluate how many funds have outperformed the benchmark and provide good results to the unitholders.
(Disclaimer- we have made the Comparison with regular funds and not with direct funds if you need the comparison please let us know in the comment section or else please feel free to contact for the same)
Scheme Performance - Benchmark
Mid-Cap Equity Funds invest in stocks of mid-size companies, which are in their growth phase. Mid-cap stocks tend to be riskier than large-cap stocks but less risky than small-cap securities. Mid-cap stocks, however, tend to offer more growth potential than large-cap stocks.
Midcap stocks are the growing companies like MRF, Abbott india, Cadila healthcare which can be grow tremendously, they are segregated by AMFI for the simplification purpose and they update this list as and when required. You can expect a minimum 12-15% return p.a.
(We will share the list for large-cap, smallcap, and Midcap for the understanding purpose at the end).
Funds Return - Benchmark
Small-Cap funds invest in very small companies which have a very huge potential of growth, but also facing heavy competition, working capital issues, Inventory management issues, corporate governance issues, Liquidity issues etc.
Historically, small-cap stocks have typically underperformed large-cap stocks during recessions but have outperformed large-cap stocks as the economy has emerged from recessions.
The smallest stocks of the small caps are called micro-cap stocks. While the opportunity for these companies to experience extreme growth is great, the risk to lose a large amount of money is also possible.
You can expect 15-20% p.a. capital appreciation if the market in the good shape.
Funds Return- Benchmark
Multi-Cap Equity Funds or Diversified Equity Funds invests in stocks of companies across the stock market regardless of size and sector. These funds provide the benefit of diversification by investing in companies spread across sectors and market capitalisation. They are generally meant for investors who seek exposure across the market and do not want to be restricted to any particular sector. They invest in companies across different market caps and hence reduce the amount of risk in the fund. Diversification helps prevent events that could affect a single sector for affecting the fund and hence reduce risk.
In this scheme, your risk is diversified into large-cap, Midcap and small-cap. These risks are well managed and help to protect your capital at a great extent with good capital returns of an average of 12-18% return p.a
Fund Returns - benchmark
Large and Midcap Funds
As the name suggests these funds make an investment in the large-cap and midcap stocks which provides slightly better protection of capital compared to Multicap funds as the risk of the small cap has been eliminated and risk of Midcap has been diversified. Mutual Fund managers have the freedom of weightage allocation for large-cap and midcap stocks in these schemes, so the risk reward ratio depends upon the schemes. In this type of fund, you can expect 10-15% return p.a.
Fund Returns - Benchmark
Dividend Yield Funds
Dividend yield funds invest in those type of securities which pays high dividend for the Investors, Stocks like REC, PFC, Coal India are some examples which provide high dividend income. If you are an Investor which needs a stable income via investing in equity these funds perfectly suits you.
These funds are suitable for people with high savings and risk-averse investor, so their cash flows are been somehow assured. You can expect minimum 7-10% return p.a
Fund Returns - Benchmark
Value Funds/ Contra Funds
In the stock market, there are two types of investors
Value investors are those investors which seek securities which is undervalued comparing with it's intrinsic value and they proportionately invest in these stocks. These value stocks are very difficult to find as you have to get a deep understanding of sector, business and require a high level of patience for this investments.
While mutual funds provide the same value fund strategy where they invest in small, Mid and large-cap where they make their own due diligence and invest as per their knowledge. In this funds, scheme selection is truly important.
Fund Return - Benchmark
A focused fund is a mutual fund that holds relatively small variety of stocks that are similar along some dimension.
By definition, a focused mutual fund focuses on a limited number of stocks in a limited number of sectors, rather than holding a broad or diversified mix of positions. Focused funds tend to hold positions in roughly 20-30 companies or less, unlike many funds which hold positions in well more than 100 companies.
Key points while Considering focused Funds
-A focused fund is a category of mutual fund that invests in a small number of securities that are each related in some way.
-A sector fund, for instance, will hold only stocks that are in a particular industry segment and have been carefully researched for inclusion.
-Focused funds give pinpointed market exposure, rather than a broadly diversified portfolio.
Funds Return- Benchmark
Sectorial/ Thematic Funds
These funds invest in securities of specific sectors such as Information Technology, Banking, Service and pharma sector etc., which is specified in their scheme information documents. So, the performance of these schemes depends on the performance of the respective sector. These funds may give higher returns, but they also come with sectorial risks.
If you want to invest in a specific sector like pharma, steel, auto, IT etc these funds help you to invest in your choice specific Sector while the only risk is a sectoral risk, If the sector did not perform well your fund will not perform well so you need to do extensive research well before while investing in this type of funds.
Fund return - Benchmark
Equity-Linked Savings Scheme (ELSS) is an equity mutual fund investment that invests at least 80 per cent of its assets in equity and equity-related instruments.
ELSS can be open-ended or close-ended. Investments in an ELSS qualify for tax deductions under Section 80C of the Income Tax Act within the overall limit of Rs 1.5 lakh. The amount you invest in ELSS is deducted from your taxable income, which helps you lower the amount of income tax you are liable to pay.
Investments in ELSS are subject to a three-year lock-in period and the returns from the scheme, i.e. dividends and capital gains, are tax-free
Fund Return - Benchmark
So these are the growth/ Equity oriented Schemes where you can see that majority of the active funds have outperformed the benchmark and many funds have poorly performed since inception or in the period of 10 years.
while the above calculation of mutual funds schemes with benchmark doesn't show any appreciation or depreciation of capital. It only shows how many funds outperformed and underperform compare to benchmark
Example - If any fund has performed -10% and while benchmark performed -15% so there will be +5% outperformed by the fund but it clearly seems the capital has been deprecated, so it is highly recommended to consult a financial advisor before opting in any schemes so that you can earn a better return and make a good chunk of money for the future.
Many funds continue to outperformed like Axis Midcap and Axis small cap while some funds never performed well from the inception. So it is very essential to know who is the fund manager, AUM managed by the fund manager, schemes managed till date, Experience and education of the fund manager etc. to get a proper allocation of capital and adequate return of the investments.
These are only Equity related funds, we will cover debt related in part II and Other in part III. So please subscribe your mail id so that you don't miss out any part.
( Disclaimer- Returns declared above are average performance return of the schemes and considering a optimistic scenario. Please do your own due diligence before investing into any schemes)
(If you want to know any specific fund related benchmark return and fund return sheet, please contact we will mail as soon as possible).
Thanks For Reading,
Credits & Sources- AMFI and other google sources