Various types of mutual funds of equity, debt and hybrid categories are found to exist in India. Under the equity segments, there are large, mid-cap and small-cap mutual funds. The article lists the features of the best mutual funds and provides a brief explanation on Axis Long Term Equity Growth Fund.
Best Equity Mutual Funds
The best mutual funds are classified under 3 categories: equity, debt and hybrid. If a mutual fund’s exposure exceeds 65%, it is classified under equity. Otherwise, it is classified under debt. Hybrid Funds invest both in equity and debt.
Following are the things to consider while selecting the best mutual funds:
Track Record: The best performing mutual funds would have a good track record of 3 to 5 years or even more. Performance of funds over various business cycles is also important. A good mutual fund would be less affected by market downtrends. For example, a fund’s performance in the past downtrend in 2020 when Covid-19 hit the economy needs to be considered.
Alpha and Beta: The financial ratios like Alpha and Beta help to verify whether the fund is a top-performing fund in its category. Returns and risks go hand in hand in any financial investment, and the investor should access the risk-return potential with the help of financial ratios Alpha and Sharpe. Sharpe gives the excess return that the fund has delivered on the addition of every unit of risk taken. Funds with higher Sharpe ratios are considered better than those with lower Sharpe ratios. Alpha Ratio shows the extra returns generated by the fund compared to the benchmark index.
Expense Ratio: Fees charged by the Fund House to manage the investments in a fund is called the expense ratio. It is expressed as a percentage of a fund’s returns. Deduction of the expense ratio is made from the returns earned by an investor. The lower the expense ratio, the higher will be the returns for the investor.
However, Fund Houses cannot charge in excess of the limits set by the Securities and Exchange Board of India. Funds that frequently make changes in its portfolio will incur higher transaction costs and thus higher expense ratios. If two funds have a similar allocation of assets and similar returns, the fund with a lower expense ratio should be selected for investment.
Investment Objective: The investment objective of the investor should clearly match with that of the fund. For example, a mutual fund’s objective may be an investment for a long term, say ten years, but the investor may want his return in three years. So the investor should not invest in the scheme as it does not fulfil his objective.
Fund History: The longer the fund house has existed, the longer will be the performance history of the fund. A fund having a long investment history of 10 to 15 years would have gone through various bull and bear phases. The performance of a fund during a bad phase will give an idea of how well a fund has weathered the storm during the bad phase.
Performance of Fund Manager: The fund manager’s past performance is important as it gives confidence to the investors. However, the past is not always indicative of future performance, and all mutual fund investments are subject to market risks.
Axis Long-Term Equity Growth Fund
Axis Long Term Equity Growth Fund, started in December 2009, is a diversified equity-linked savings scheme with a portfolio consisting of large caps and select midcaps.
- It is a tax savings scheme so besides generating wealth, it helps to save tax.
- It helps to achieve long-term goals such as children’s education plan or retirement plan.
- The fund has given an annualized return of 17% – 14.70% in the last 5 years and 16.10% in the last 3 years.
- In the past 5 years, it has outperformed the benchmark index Nifty 500 TRI: Rs 10,000 invested at the time of inception is worth about Rs 68,500 today.
- As of 27th April 2021, its Net Asset Value (NAV) was Rs 67 and its assets under management was Rs 32,053 crore.
- The Fund Manager has a rich experience of 19 years.
- It is an excellent long-term investment for individuals seeking capital appreciation and income generation over the long term.
There is no doubt that a mutual fund is an excellent investment scheme that can give good capital appreciation in the long term. However, returns can be maximized only by investing in the best mutual funds, which should be selected after studying the past performance and management of the company. Axis Long Term Equity Growth can be chosen as a long-term investment plan in this regard.