In its monthly industry report, the Association of Mutual Funds in India (AMFI) stated that systematic investment plan (SIP) accounts reached an all-time high of 5.54 crore as of June 30, 2022. AMFI data shows that SIP assets under management (AUM) totalled Rs 5.51 lakh crore at June 2022, while 17.92 lakh SIPs were registered during that month.
The systematic investment plan (SIP) enables an investor to invest in mutual funds on a regular basis. This is a boon for investors who do not have lump-sum or are hesitant to make a lump-sum investment. In addition, SIPs are one of the most efficient and cost-effective ways to invest in mutual funds. The following tips should help you make the right choice when investing in these schemes. Get to know each category and determine whether it suits your investment objective and risk tolerance.
Even when investing in stocks, some equity investors prefer to play it safe. These individuals should consider large cap schemes. Compared with other pure equity mutual fund schemes, these funds invest in the top 100 stocks. Also, they have a relatively lower volatility than mid-caps and small-caps. To make a long story short, if you are interested in modest returns with relative stability, you should consider large cap schemes.
Among Large cap funds, HDFC Top 100 has a higher beta compared to the category. The fund has 97% equity allocation in large cap stocks, which is one of the largest in the category. The fund has delivered 15.8%, 11.23% and 13.86% return in 3 years, 5 years and 10 years, respectively.
One can also consider investing in Large and Midcap fund. In this category, ICICI Prudential Large & Midcap Fund can be considered. The continued interest in banking stocks with increasing allocation in auto sectors did well for the fund. Both the indexes have been outperforming recently. Performance wise, the fund has delivered 22.48%, 12.97% and 15.06% return in 3 years, 5 years and 10 years, respectively.
How about aggressive investors looking to earn extra returns by taking on more risk? A midcap or smallcap scheme is a good bet. Midcap funds invest mostly in medium-sized companies, while small cap funds invest mostly in smaller companies. The returns on these schemes can be volatile, but they can also be superior over the long term. Investing in these mutual fund categories is suitable for those with a long-term investment horizon and an appetite for high risk.
SBI Magnum Midcap Fund and Canara Robeco Small Cap Fund can be considered. SBI Magnum Midcap Fund is a consistent strong performer. The fund follows bottom-up approach with focus on growth as well as value style of investing. The fund has delivered 30.72%, 14.08% and 20.77% in 3 years, 5 years and 10 years, respectively. Canara Robeco Small Cap Fund is rather new and was launched nearly 3.5 years back in 2019. The fund focus is on quality companies that have visible earnings drive, strong balance sheet and can benefit from emerging trends. Returns-wise, the fund has delivered 21.65%, 49.34% and 39.62% in 1 year, 2 year and 3-year period, respectively.
Quant strategies are still viewed as unsafe and liable to higher losses during market crashes; there is so much misunderstanding about them. There is no truth to this. Quant-driven portfolios include risk management as part of their design. Quant Active Fund, a multicap fund, can be considered for investment. The fund has a unique investing style. The fund managers use analytical tools to determine bouts of greed and fear, euphoria and capitulation to consider entry and exit in stocks. The fund works on VLRT (Valuation, Liquidity, Risk and Timing) and believes in taking opportunistic bets. Quant Active Fund has delivered 35.42%, 21.58% and 21.21% in 1 year, 2 year and 3-year period, respectively.
The best solution is unlikely to be found by searching with the word ‘best’ at the beginning. Make sure your investment objective, horizon, and risk profile are aligned with the scheme you choose. You should always seek advice from a mutual fund advisor if you do not understand the basic concepts of mutual funds or are totally new to investing and mutual funds.
(By Abhinav Angirish, Founder, Investonline.in)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.