Here is a list of top 5 large-cap mutual funds that you can look at investing in 2018-19
Equity Mutual Funds are generally classified as Large Cap Funds, Mid Cap Funds and Large Cap Funds based on market capitalization of the equities they invest in.
According to SEBI rules, Large cap mutual funds should invest at least 80% in stocks of companies, which constitute the top 100 in terms of market capitalization.
Your selection criteria should not be concerned just about the returns or the AUM size of a fund but also about the stability of a fund house, qualitative factors like asset allocation and quantitative factors like expense ratio, standard deviation, beta, Sharpe ratio, Sortino Ratio, Alpha etc.
Standard Deviation indicates how volatile the returns of a fund is.Beta is a measure of how volatile a fund is as compared to the market. Higher the beta, higher is the risk of the fund.
Sharpe Ratio indicates how much returns can a fund generate for every additional unit of risk taken.Sortino Ratio is a measure of risk-adjusted returns of a scheme.Alpha shows how much excess returns a fund has been able to generate for every unit of risk taken.
Applying the above criteria, we have arrived at the top 5 performing ELSS funds for 2018 as shown in the table.
The top 5 shortlisted funds are not listed in the hierarchical order. You have to choose the best-suited fund for you depending on your risk profile and your corresponding asset allocation.
Let us analyze these funds from various points of view.
SBI Bluechip Fund and Invesco India Growth Fund are the oldest funds, existing for more than 10 years. The 10-year return is adequate at 11.88% and 12.39% respectively, which is above the benchmark return of 10.2% for that period. They have weathered the worst bear market in 2008 and in 2014.
The Kotak Select Focus Fund and Mirae Asset India Equity Fund are the best performers over a 5-year period. Both have partially-weathered the bear market in 2008 and rose up to give good returns.
Yes, higher expenses indicate lesser returns as compared to similar funds with lesser expenses. If you want a fund with lower expense ratio, go for Kotak Select Focus Fund and SBI Bluechip Fund.
The risk of a fund is measured by various financial ratios like beta, standard deviation, Sortino Ratio and Sharpe Ratio. Let us analyze each fund from financial ratio perspective.
SD (Standard Deviation):
Out of the 5 funds listed, Mirae Asset India Equity Fund has the highest volatility at 14.16%. It indicates that the fund can generate +14.16% or -14.16% return as compared to its historical average return. SBI Bluechip Fund has the lowest SD indicating that the returns generated are not highly volatile.
Mirae Asset India Equity Fund has a beta of 1.01 which indicates that it has a slightly higher risk as compared to the market. Invesco India Growth Fund has a beta of 1 which indicates that its risk is equal to that of the market. You can choose these funds if you don’t mind taking higher risk for better returns.
SBI Bluechip Fund has a beta of 0.81 and has the lowest risk.
Kotak Select Focus Fund and Mirae Asset India Equity Fund have higher Sharpe Ratio among the chosen 5 at 0.67 and 0.63 respectively, which means that for every unit of risk taken you get 0.67 times or 0.63 times excess returns.
A higher Sortino Ratio of Kotak Select Focus Fund at 1.09 indicates that it can give 1.09 times risk-adjusted returns as compared to others. Invesco India Growth Fund has the lowest Sortino ratio at 0.77 which indicates that the scheme takes lesser risks, and the risk-adjusted returns are also less.
Kotak Select Focus Fund has high alpha among the top 5 at 4.26 Mirae Asset India Equity Fund also has a fairly good alpha of 3.71.
What has changed from our top Large Cap funds of 2017?
Of the top 5 Large-Cap funds in 2017, only SBI Bluechip Fund has retained its position. Let us understand why the other funds missed the top spots this year.
Franklin India Flexi Cap Fund: Though this fund is listed under the large-cap category, the fund objective does not completely adhere to the definition of a large-cap fund, as given by SEBI. It aims to invest in 75-100% in large-cap stocks or 20-100% in midcap stocks. Since we have considered only those funds which have adhered to the SEBI guidelines for a large-cap fund, this fund is removed.
Birla Sun Life Top 100 Fund: The returns of this from the last 3 years is less as compared to its peers. Also, the returns in the last one year is below the benchmark returns. It has a beta of 0.93 which is almost close to that of the market and the alpha of 1.25 generated is not comparable to its peers.
Birla Sun Life Frontline Equity Fund: Though the fund has posted a good return over a 10-year period, the returns have declined from past 3 years, even though its peers have done very well. Also, the Sharpe Ratio is low at 0.47.
Reliance Top 200 Fund: long-term alpha generated is low at 0.81 which is again lesser than its peers.
If you want a fund which gives better returns over the long term and also has less risk, chooses SBI Bluechip Fund. Mirae Asset India Equity Fund and Kotak Select Focus FundYou can choose Invesco India Growth Fund or ICICI Prudential Focused Bluechip Equity Fund if you are looking for funds which have moderate risk and volatility and
Note: This article is for educational purpose only, Mutual Funds are subject to market risk. Please consult your investment advisor before investing in any of the above mentioned schemes.