Mutual funds are one of the most popular and smart ways for investors to build wealth over the long term. If planned properly, one can also double the money in the long term. One, however, has to keep in mind the asset allocation which is of utmost importance. In fact, investors are feeling the heat these days as the market is pretty volatile and those who have not made their portfolio keeping asset allocation in mind are in trouble.
Mutual funds are managed by professional fund managers who try to beat the benchmark & inflation and create an alpha for the investors. These funds should be chosen according to the risk appetite of the investor. It is strongly advised to do a risk profiling in order to arrive at a personal financial risk tolerance level. It will also give an idea as to how your risk tolerance fits your asset structure. Moreover, it will also help in defining investing goals and objectives.
There are different types of mutual funds — some are equity-oriented which invest in stocks, while some invest in debt/bonds, and some are balanced funds which invest in both equity and debt. If you don’t want to use the funds for a long time, then investment in equity-oriented funds should be considered as they will generate better returns. If you need money in the next few years, then your focus should be on a debt-oriented or a balanced kind of fund. The best part of owning a mutual fund is that it is highly liquid and you don’t have to buy individual stocks. The investor can get the return of the entire segment of the market.
Following are some mutual funds which can create a good amount of money in the long term. In fact, they can even double your money in a few years’ time. These funds comprise of large cap, mid cap, small cap, sectoral and balanced categories. These funds have given good returns in the past and have a strong management with expert fund managers.
1) ICICI Prudential Multicap Fund
ICICI Prudential Multicap Fund invests in a mix of large cap, mid cap & small cap stocks. The investor gets the best returns across market capitalisation and sectors. The fund manager aims to invest around 40%-60% in well-established large cap stocks and the remaining in aggressive mid & small cap stocks. The equity investment strategy currently is in stocks & sectors that could benefit from economic recovery, selected through a combination of top down & bottom up approach.
2) L&T India Value Fund
This fund invests predominantly in undervalued stocks. It follows the strategy of investing in valuation anomalies, typically caused when companies experience temporary setbacks that tend to push their stock price down. These could occur due to short-term adverse movements in some areas of the business. So, these ignored stocks are picked that are believed to be trading at less than their assessed values and when they bounce back to their real worth, investors stand to gain.
3) Edelweiss Balanced Advantage Fund
This fund takes the approach of dynamic asset allocation wherein it reduces the probability of negative return in the short term and provides better investment experience than pure static asset allocation. It uses Edelweiss Equity Health Index (EEHI) which is a proprietary model that incorporates market directions, volatility & fundamentals. This fund increases exposure on the winning side & reduces exposure on the losing side. This is better than value only based approach as the fund avoids timing of market reversal and captures bigger trends & limits drawdown.
4) Aditya Birla Sunlife Front Line Equity Fund
The portfolio consists of 90% equity and 10% in debt and money market securities. It is a large cap-oriented fund which means that investments are done in stocks having a large market capitalisation. In the current market scenario it makes sense to invest in this large cap fund as these type of funds are less volatile. It will give a good support to overall portfolio.
5) DSP Midcap Fund
A midcap-oriented fund which has proved time and again that midcap is a good bet when it comes to creating wealth. It has given a great performance over a longer period of time. The top sectors where the money is invested are financial services, chemicals, healthcare, engineering etc. Some of the stocks are Exide Industries, RBL Bank, and Solar Industries. The fund manager of this fund has created a good fortune for the investors. Currently the fund isn’t taking lumpsum investments. Investments can be made through the SIP or STP route.
6) Principal Hybrid Fund
The fund provides wealth creation opportunity along with low volatility, hence lesser risk as compared to equity funds. An ideal investment option for first-time investors. The equity portfolio is large cap-oriented with tactical allocation to mid and small cap funds. The fixed income portion has high quality fixed income instrument with active duration management and some tactical trading positions to optimise returns.
7) TATA Equity PE Fund
An actively-managed diversified equity fund, which primarily invests in companies which have a lower rolling twelve-month P/E ratio as compared to that of BSE Sensex. Top holdings consist of Power Grid Corp of India, HDFC Bank, Reliance Industries, ITC. Better risk-adjusted investment performance.
8) Principal Dividend Yield Fund
The fund predominantly invests in companies with relatively regular and high dividend yield with aim to provide investors long term wealth creation opportunity. The fund is managed with the flexibility of investing in stocks across market capitalization. The fund has almost 14 years track record across multiple market cycles. Investors taking moderate risk can invest in this fund.
9) Reliance Small Cap
The fund attempts to generate relatively better risk adjusted returns by focusing on the smaller capitalization companies. Small cap stocks, for the purpose of the fund, are defined as stocks whose market capitalization is below top 250 companies in terms of full market capitalization. Small cap companies are potential mid-caps of tomorrow and offer twin advantage of high growth prospects & relatively lower valuation. This is one of the best small cap funds in this category.
10) Mahindra Unnati Emerging Business Yojana
This is a promising new midcap fund which invests minimum 65% in midcap companies. The fund follows a bottom-up stock selection where the focus is on market leaders in smaller markets. Exposure is in consumer goods, industrial manufacturing, financial services. This particular fund was able to minimise losses even as the indices went down 30%. The fund was down by -5%. Investors can park the money in this fund provided the time horizon is long.
The aforementioned mutual funds have a great future, but investors should park their money in them only after assessing their own risk appetite. These are actively-managed mutual funds and returns can be good if investments are held for a good amount of time. The money can definitely be doubled in the coming years. Retirement planning can also be done by investing in these aggressive funds.
(By Amit Kachroo, Managing Director, Aaneev Wealth)
(Disclaimer: These funds have been selected by Aaneev Wealth. Investors are advised to consult their financial advisor before investing in any of these funds.)