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Introduction
Rajiv Menon is a 44 year old paedtrician who has been investing in different types of mutual funds since last few months on the basis of advice given by his friends. But Rajiv is not very sure of the difference in the types of funds that he has been investing in and is curious to know why so many different types of mutual funds exist???
These apprehensions about types of mutual funds are shared by lot of people who want to invest their surplus money to generate good returns to fulfill their financial goals. In this article we will explore how various schemes of mutual funds are different from each other and the returns given by them in the last 3 years.
Types of mutual funds
Based on the asset class that they invest in, mutual fund schemes are broadly classified into: equity, debt and balanced funds, which can be selected by investors based on their risk appetite.
a) Large Cap Funds: These funds invest in large companies that are well established with good proven track record. Large cap funds are considered to be more stable than other funds. These funds are also known as bluechip funds.
Returns given (performance) by some good large cap funds in the last 3 years.
| Name of mutual fund scheme | Assets Under Management (AUM) Crores | 6 months return | 1 year returns | 3 years returns |
| ICICI Prudential Focused Bluechip Equity Retail | 3805 | 11.55 | -4.73 | 27.41 |
| Franklin India Bluechip | 4516 | 11.08 | -3.56 | 26.16 |
| DSPBR Top 100 Equity Regular | 3248 | 12.54 | -2.98 | 22.70 |
Note: The returns and AUM numbers mentioned in the article are as on 09th April 2012.
b) Large and Mid Cap Funds: These funds invest in a mix of large and medium sized companies. These funds are little more volatile than large cap funds and less volatile than mid cap funds and small cap funds.
Returns given (performance) by some good large and mid cap funds in the last 3 years.
| Name of mutual fund scheme | Assets Under Management (AUM) Crores | 6 months return | 1 year returns | 3 years returns |
| UTI Opportunities | 2605 | 13.78 | 4.43 | 29.42 |
| HDFC Top 200 | 11381 | 12.38 | -6.39 | 28.10 |
| ICICI Prudential Dynamic | 4118 | 15.35 | -3.50 | 27.22 |
c) Mid and Small Cap Funds: These funds invest in a mix of mid sized companies and small companies. These funds are considered to be high risk - high return funds.
Returns given (performance) by some good mid and small cap funds in the last 3 years.
| Name of mutual fund scheme | Assets Under Management (AUM) Crores | 6 months return | 1 year returns | 3 years returns |
| ICICI Prudential Discovery | 1778 | 18.35 | 0.14 | 41.33 |
| HDFC Mid Cap Opportunities | 1860 | 12.22 | 8.06 | 39.69 |
| IDFC Premier Equity | 2560 | 6.37 | 4.38 | 35.07 |
d) Multi Cap Funds: These funds are different from market capitilisation funds that invest in either large, mid or small sized companies based on the scheme objectives. Multi cap funds can offer a diversified portfolio to investors as these funds can choose to invest in entire spectrum of equity stocks of large cap, mid cap and small cap companies wherever the fund manager perceives to earn good returns. These funds are considered to be little more volatile as their portfolio can be very diverse and their performance depends a lot on the decisions of the fund manager and the performance of companies that he chooses for investment.
Returns given (performance) by some good multi cap funds in the last 3 years.
| Name of mutual fund scheme | Assets Under Management (AUM) Crores | 6 months return | 1 year returns | 3 years returns |
| HDFC Equity | 9916 | 11.53 | -7.39 | 32.50 |
| HDFC Growth | 1261 | 11.23 | -3.97 | 28.89 |
| DSPBR Equity | 2551 | 9.74 | -4.30 | 26.92 |
e) Balanced Funds: These are also known as hybrid funds and their risk-return proposition is lower than equity funds but higher than debt funds. These funds invest in equities, debt and money market instruments to balance the risk return ratio of the portfolio. Based on where the major portion of funds is invested, a balanced fund can be classified as Equity Oriented Balanced Fund or Debt Oriented Balanced Fund.
Returns given (performance) by some good multi cap funds in the last 3 years.
| Name of mutual fund scheme | Assets Under Management (AUM) Crores | 6 months return | 1 year returns | 3 years returns |
| HDFC Prudence | 6248 | 9.73 | 0.40 | 31.81 |
| Birla Sun Life 95 | 525 | 6.24 | -3.32 | 24.06 |
| Reliance Regular Savings Balanced | 634 | 11.21 | -0.50 | 25.24 |
f) Index funds: The returns given by these funds are dependent on the performance of the specific benchmark index such as – Sensex or the Nifty that the fund tracks. The fund manager invests the fund corpus in the shares of the index constituents in the same proportion as of the composition of the index. Hence the fund portfolio is identical to the index it tracks. Index funds are also known as passive funds. The returns given by index funds are identical to the returns given by the index. The returns difference can be due to expense ratio and cash levels maintained by the fund.
g) Sector funds: These funds invest their corpus in shares of companies that belong to certain sector such as pharma, IT, infrastructure, FMCG, power etc. This investment risk in a sector fund is higher compared to the investment risk in a diversified equity fund as the investment returns from a sector fund are dependent on the performance of the underlying sector that the fund invests in. These funds are more suitable for those investors who are highly optimistic about the future performance of a specific sector and thereby the future performance of companies belonging to that sector.
h) Equity Linked Saving Schemes (ELSS): These are tax saving funds, with a lock in period of 3 years. ELSS funds are similar to equity diversified funds but the exceptions being ELSS funds come with a lock-in period and provide income tax benefits under Section 80C of the Income Tax Act.
i) Debt funds: Debt funds invest their corpus in short, medium, long term debt instruments or a combination of these based on the objectives of the scheme. The debt instruments include bonds, certificate of deposits, commercial paper and other fixed income securities that are issued by the Government or private and public sector companies or banks and financial institutions etc. The investment risk in debts funds is lower compared to investment risk in equity funds. The long term average returns given by debt funds are lower than equity funds.
j) Gold ETFs: These funds primarily invest in gold. To know more about these funds refer the following article
Conclusion:
There are several mutual fund schemes launched by different fund houses from time to time. The Asset Management Company (AMC) releases the prospectus for each of these schemes which contains details w.r.t the investment objective of fund, the type of companies where the funds will be invested, about fund manager etc. Investors need to study the prospectus carefully and accordingly choose the suitable funds for investment based on their risk profile.
The Net Asset Value (NAV) is released everyday by the AMC. The investors do not have to track these funds on a daily basis, but instead evaluate the returns offered over a certain period, based on which they can take a decision to continue with the fund or exit it!!!!
Note: The returns and AUM numbers mentioned in the article above are as on 09th April 2012
Please let us know your views on the article by commenting in the comments section below or by writing to us at [email protected]
27 thoughts on “Investing in Mutual Funds”
Hi Gopal,
I had invested in Reliance Diversified Power Sector fund-GR and ICICI Pru Infrastructure fund-GR via SIP. Both funds have very bed return. Could you please advice, how much more time (appx.) funds will take to recover so that I will plan to withdraw my money from these funds
thanks in advance
Govind singhal
Hi Govind,
I wish I knew how much time it will take for the fund to recover and show good performance. If the fund is not doing well and if you are not happy with the performance, then I suggest you exit right away and invest the funds somewhere else that you will get better returns rather than waiting to recover your money.
I dont have anything against sectoral funds, but I normally avoid them and prefer diversified equity funds.
Thanks for Quick Reply Gopal
Actually my loss is huge(may be for me :)). I had invested in total 80000 i.e. 40000 each. Reliance div power sector fund has loss of appx 10000 and other one has appx 6000 so in total 16000 loss. I do not require this money as of now. atleast for 3 months. I am regularly checking the status of these funds. just waiting for the day when my loss become less . i will encash them and keep with me in my saving A/c only :). Please suggest is it a right way?
To recover your loss of Rs 10,000 in 3 months, the power sector fund NAV will have to go up by almost 33% to take the current fund value from Rs 30,000 to Rs 40,000. A 33% rise in NAV in 3 months looks difficult. Also for the other fund to recover your loss of Rs 6,000 in 3 months, the fund NAV will have to go up by almost 11% to take the current fund value from Rs 36,000 to 40,000. While this does not seem impossible, but at the same time looks difficult. I guess you may have to wait longer than 3 months to recover your investment.
Thanks Gopal
Agree with you
Is is worth to stay for more then 3 month or atleast 3 month so that loss become less or should i withdraw it right now. just in case these fund get more down in future? Please suggest
Hi,
I want to invest the amount 50k per annum in mutual funds and some other investment purpose .Please suggest me the best mutual fund and good returns of investment plans….I am married and my age is 27yrs and i started savings in PPF per month 3000
Hi Pooja,
I dont know the details of your specific financial goals and hence it will be difficult for me to talk about specific investment products
sir,please guide me about my investment in mfs.1,icici infrast mf sip1000.2,tatainfrastr mf sip 1000,3,hdfctop200 sip2000,4,reliance growthdivident mfsip5000,5.sunderamselect midcap sip1000,6.birlaslequitymfsip1000,7.iciipruinfrasip1000,8.reliancevisionsip10009.k50 sip1000..10dsptop100 sip1000,11.frenlintempltonhighgrowthmfsip1000,.12.reliancepowermfsip1000
Hello Mr. Avneesh,
HDFC Top 200 and DSPBR Top 100 are good diversified mutual funds. I don’t track the other funds that you have mentioned, so it will not be a good idea to comment on those funds. I see that you have some sectoral funds like infra funds and power funds. I will suggest you invest more in diversified equity funds. You can consider the following funds:
1) ICICI Prudential Focused Bluechip Equity Retail
2) Franklin India Bluechip
3) ICICI Prudential Dynamic
4) HDFC Mid Cap Opportunities
5) IDFC Premier Equity
6) HDFC Equity
7) DSPBR Equity
You can also consider some balanced funds like
1) HDFC Prudence
2) Birla Sun Life 95
The above are all good funds with good past track record.
thanks,a lot sir for your kind advise..
hi Gopal, I want to invest 5000 per month in short term like 3 to 5 years & long term like 20 to 30 years. my age is 30. pls suggest me the best mutual funds.
Hello Simhadri,
The list of mutual funds mentioned in this article are good for investments (time horizon from 5 years to 20 years). You can spread your investment among 5 different MF schemes among 5 different category of funds (1 from each category) something like
1) 1 Large cap fund - eg ICICI Prudential Focused Bluechip Equity Retail
2) 1 Large and Mid Cap Fund - eg HDFC Top 200
3) 1 Mid and Small Cap Fund - eg IDFC Premier Equity
4) 1 Multi Cap Fund - eg DSPBR Equity
5) 1 Balanced Fund - eg HDFC Prudence
This will give you good diversification among different fund houses and different category of funds
I attended yesterday a small financial meeting conducted by brokerage company.
I have a small doubt. can we invest directly in mf’s or we should go with mediator & how much they will charge.
Hello Simhadri,
You can invest directly in mutual funds. In that case there are no entry charges to be paid.
If you go through a mediator then you will have to pay a fee. The fee amount varies from one financial advisor to another.
HI Gopal,
What are your views on Canara Robeco Equity Diversified,Balanced and ELSS Funds. I am having SIP of 2k in each.
Hello Mohammad,
I don’t track any of the 3 funds mentioned by you. So I will not be in a position to comment on them.
I want to ask on MF investments suppose I have to invest Rs 50000 but I select two good performing funds which have NAV’s 25 & 250 respectively but both are of no. 1 crisil ranking so in which fund I should invest.
My confusion is that as both are no. 1 ranking fund & having good previous 3 years track record but first fund going 25 to 50 NAV in next 5 years seems possible but fund with 250 going to 500 NAV seems difficult if both gives 100% returns after 5 years will it be reflect in each fund nav also means nav of fund with 250 will go upto 500 which seems difficult please advise
regards
Praveen
Hello Praveen,
The NAV of the mutual fund scheme depends on the share prices of the companies it has invested in. The share price in turn depends on the financial performance of the company. So irrespective of the NAV being 25 or 250, if the financial performance of the underlying companies (in which the mutual fund scheme money has been invested) is good then the NAV will go up.
So now coming to the scheme with a NAV of Rs. 250, if the share prices of the companies that the scheme has invested in, doubles in 5 years, then the overall asset base (value) of the scheme has doubled in 5 years and hence the NAV will also double. (Please note: I have not considered the scheme expenses and dividends declared by the scheme. I have also not considered new investors coming in and contributing to increasing the amount of money held by the MF scheme).
Also if the value of the assets (shares of companies) held by the mutual fund scheme has more than doubled, then the NAV can go even above Rs 500. So it is the value of the assets held by the MF scheme that drives the NAV and this can go either side; up or down.
hello gopal
the information that you are providing is very much useful. i like it
hello Gopal
can you tell me the government banks which are having good track record in SIP.
Hi Gopal,
Myself Manoj, my age is 33 yrs.
I am doing SIP in following funds:-
a) HDFC TOP 200: 3500 pm since 2009
b) DSPBR top 100: 1000 pm since 2009
c) Reliance regular saving fund: 500 pm since 2009
d) HDFC Midcap opp fund: 1000 pm since 2012
e) IDFC Premier Equity fund: 2500 pm since Jan 2013
I am having long term vision(15-20) to continue saving and increase SIP amount yearly. Kindly review my portfolio and suggest me about choosen funds and its performence. Do I need to change any above fund.
Also please suggest me one good medical health insurance plan which cover me+Spouse+1child upto 70-75 yrs.
Please reply me on my email also.
Thanks and Regards
Manoj Singh
Hi, Can u suggest me out of HDFC Equity or HDFC Growth which is best to invest. I m confused which one I should choose.
Thank You for the detailed article.
Hello there,
I am completely new in stock market ,I want to know do SIPs give more return than FDs ? If yes what is best SIP scheme currently. How to start investing into it?