Here is a comparison of Top 5 Large-cap Equity Mutual funds 2016:
Investing in equity has always been regarded by the wary investor as a risky and volatile bet. The ever-changing and turbulent stock markets may have turned some rags to riches while many others have burned their fingers in this game of investing. Apart from direct investing, there is an alternate & efficient way to create wealth through equities. They are mutual funds. Among equity mutual funds, the Large-cap equity mutual funds offer immense possibilities of capital appreciation.
A Large-cap equity mutual fund is a convenient and cost-effective way for those investors who are not well-versed with the stock markets. Of course, there are certain risks associated with large-cap funds as well that you need to know. Past performance can only serve as a guidance but not indicative of guaranteed returns. If the investment strategy of the fund manager goes haywire, then the expenses of professional management may reduce the fund returns substantially.
Fulfillment of personal financial goals comes with right investment decisions. Choosing the right kind of large-cap fund is easier said than done. The process involves consideration of qualitative and quantitative parameters. Quantitative parameters pertain to financial ratios and expense ratio. Qualitative parameters relate to asset allocation and fund history.
The following steps articulate the manner in which Large-cap equity mutual funds can be shortlisted using the qualitative and quantitative parameters:
– All the plans shortlisted are open-ended growth funds that invest only in equity with 70-80% exposure in large-caps while the balance in mid-caps and small caps.
– Fund history has been given significant importance. While shortlisting, funds having the performance history of at least five years were given preference. You may pick funds having longer fund history as well. It is assumed that funds having a longer history would have passed through bullish and bearish cycles and thus their returns would provide a better picture about their mettle.
– Fund returns have been yet another shortlisting criterion wherein fund providing superior returns over successive intervals of 3-year and 5-year against category and benchmark were preferred over poorly performed funds.
– The expense ratio is indicative of the percentage of fund’s assets that are used to pay off its operating expenses. The lower the expense ratio of a fund, the higher would be the net returns generated for the investor.
– Financial ratios have formed an integral part of the analysis to ensure objectivity and accuracy of results. Standard Deviation (SD) indicates volatility of the returns on its average. A lower SD implies lower volatility in fund returns in both positive and negative directions along with greater consistency and predictability. Sharpe and Sortino ratios show the ability of the fund to generate risk-adjusted returns. Fund having a higher Sharpe and Sortino is preferred over a fund that gives lower returns for every unit of risk assumed.
– R-squared implies the extent to which the movements of the fund can be explained by the benchmark. A higher R2 means the fund has a high probability of replicating benchmark returns. Beta indicates how much the fund returns would fluctuate as a result of the fluctuation in the baseline. Beta less than 1 shows that the fund would earn less than the benchmark during bull runs and would lose less than benchmark during bear runs. R2, when used in conjunction with the beta, helps in providing meaning to the beta values.
– Alpha is a measure of unsystematic risk i.e. losses or gains of the fund that is specific to the attributes of fund manager and not the economy as a whole. It shows how much value has the fund manager added in the performance of the fund. Alpha values are often used to justify the expense ratio. An ideal fund is one which has an alpha value greater than the expense ratio. Fund having the highest alpha ratio as compared to other funds would be a safe investment haven.
– Downward Capture Ratio (DCR) shows the ability of the fund to capture the losses made by the benchmark on its journey southwards. A fund having lower DCR indicates that the fund made lesser losses as compared to the benchmark during bearish conditions.
An in-depth scrutiny of all the funds using the criteria mentioned above provides following 5 Large-cap funds as given in the table below:
Based on the fund history, Franklin India Prima Plus Fund Growth & Birla SunLife Frontline Equity Fund Growth are the oldest large-cap funds in the selection while Mirae Asset India Oppor. Fund Regular Growth, Kotak Select Focus Growth & SBI Bluechip Fund Regular Growth are relatively younger funds. Franklin India Prima Plus Fund Growth has been a wealth creator in the real sense as it has not only outperformed the benchmarks during the bullish phases but also contained losses during the bearish phases. Birla SunLife Frontline Equity Fund Growth has also witnessed both kinds of business cycles and has been more adept at checking losses during market downfalls and gave reasonably good returns during the northward journey of the market. SBI Bluechip Fund Regular Growth has been a moderate performer since inception and is less adept at curbing losses during bearish conditions. Among the younger lot, both Kotak Select Focus Growth & Mirae Asset India Oppor. Fund Regular Growth have been star performers since their launch. Although having escaped bearish markets of 2008, the former had a better loss-control mechanism during 2011 as compared to the latter.
On the returns front, Kotak Select Focus Growth has been consistent top performer across several investment horizons. It can be evidenced as it gave the highest 3-year return and second highest 5-year return. SBI Bluechip Fund Regular Growth gave the highest 5-year returns but stood fourth as far as 3-year returns are concerned. Birla SunLife Frontline Equity Fund Growth remained at the bottom of the list as a low performer during both the periods under study. As a prudent investor, pick a fund that is a superior performer in a consistent manner.
As per Expense ratio, SBI Bluechip Fund Regular Growth has been the least efficient mutual fund with the highest expense ratio of 2.39. Birla SunLife Frontline Equity Fund Growth has been the most efficient mutual fund with the lowest expense ratio of 2.27. With an investment point of view, you may consider Franklin India Prima Plus Fund Growth as an ideal fund that has maintained its returns at a high level and kept its operating costs within reasonable limits. Instead of considering expense ratio as a standalone criterion, it should be viewed in conjunction with other risk-return measures to develop a pragmatic perspective.
Regarding absolute volatility, Birla SunLife Frontline Equity Fund Growth is the most volatile fund with the highest SD of 15.77. It means that tendency of fund returns to fluctuate during particular investment tenure is the highest among all the other funds. Kotak Select Focus Growth and Mirae Asset India Oppor. Fund Regular Growth have the next highest SD values of 15.75 and 15.73 respectively. It can be noticed that Franklin India Prima Plus Fund Growth has maintained its fund volatility at optimum levels, neither too high to convey inconsistency nor too weak to convey inertia. In contrast, SBI Bluechip Fund Regular Growth is the least volatile fund having the lowest SD of 14.25 and implies a relative consistency in fund returns.
As regards risk-adjusted performance, SBI Bluechip Fund Regular Growth has the highest Sharpe ratio of 1 showing that every unit of risk assumed, it gives equivalent returns. Then, Kotak Select Focus Growth and Franklin India Prima Plus Fund Growth stand at the same level in providing risk-adjusted returns as both of them have the second highest Sharpe ratio of 0.92. Mirae Asset India Oppor. Fund Regular Growth stands somewhere in the middle with Sharpe ratio of 0.9. On this criteria as well, Birla SunLife Frontline Equity Fund Growth has fared badly as it has the lowest Sharpe ratio at 0.83. It means that for every unit of risk assumed, it would yield lower returns.
Regarding R-squared, Birla SunLife Frontline Equity Fund Growth has the highest value of 97.8 which means that 97.8% of its movements can be explained by the S&P BSE 200 index. In contrast to this, Franklin India Prima Plus Fund Growth has the lowest value of 90.77. It means that the fund is not closely replicating the movements of the index. It can be a positive aspect of a fund because such a fund in times of downfall would still be generating positive returns by not emulating the benchmark movements.
As regards relative volatility, Birla SunLife Frontline Equity Fund Growth has the highest beta value of 0.95 making it the riskiest and most volatile investments among all the other funds. It means that if the market falls by 100%, then the fund returns would fall by 95% and vice-versa. On the other hand, SBI Bluechip Fund Regular Growth has the lowest beta value of 0.84 making it the least risky investment. You need to match the beta values with your risk appetite to arrive at the fund that is ideal for investment.
Based on Alpha, you may go for SBI Bluechip Fund Regular Growth which has the highest alpha at 7.61. After that, the next best fund on this criterion would be Kotak Select Focus Growth having an alpha value of 7.18. Birla Sun Life Frontline Equity Fund Growth has the lowest alpha value of 5.52 as compared to all the above funds. It shows a relatively lower value addition by the fund manager towards fund returns.
On the DCR front, you need to select a fund that has the lowest DCR value which implies that the fund will capture lesser losses as compared to the loss suffered by the benchmark. SBI Bluechip Fund Regular Growth has the lowest value whereas Birla SunLife Frontline Equity Fund Growth has the highest value. It means that Birla Sun Life Frontline Equity Fund Growth would capture 79.55% of losses of the benchmark in times of downturn.
Relatively high-risk seekers may go for, Kotak Select Focus Growth & Mirae Asset India Oppor. Fund Regular Growth. Moderate risk seekers may choose Birla Sun Life Frontline Equity Fund Growth. Low-risk seekers may invest in Franklin India Prima Plus Fund Growth and SBI Bluechip Fund Regular Growth.
Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.