- by RingMoney
- 3 min read
Mutual Funds (MFs) industry has been growing at an unprecedented rate in recent times with AUMs (Asset Under Management) growing ~5 fold (to INR 38.4 lac crores by November 2021) over last 10 years. Nearly 2 Crore investors (out of 130 Crore population) are taking advantage of various MFs schemes; SIP (Systematic Investment Plan) contributions have increased at even higher rates. Although the awareness levels of Indian investor regarding financial instruments have increased considerably, the extent of actual investment in growth-oriented instruments line Equities and MFs is considerably lower even today with India’s AUM to GDP ratio of ~15% compared to World Average AUM to GDP ratio of 65%+ (most developed countries having this ratio north of 50%).
Mutual funds are not just a buzzword in the finance industry but are actually something that adds value to your investment portfolio. Mutual funds may seem complicated to someone who has not invested yet, but it is actually not that complicated. When someone thinks about investing in mutual funds, they are not exactly sure what they are, how do they work and how can they invest in them?
To answer these questions, let us first understand what mutual funds are. Mutual Funds is an investment product where the money is pooled in from various investors to invest in different types of products like shares, debentures, bonds, and money market instruments. When someone invests in mutual funds, they are owning a small stake in those investments which are included in the fund. Now, the money is pooled in by the Asset Management Company or AMC which is responsible for strategically managing the investment keeping in mind the investment objective and maximum return generation. Each AMC has various fund managers who are responsible for looking after the funds and ensuring that the objective is met as well as investors are getting good returns.
One must consider investing in different types of investment products in order to minimize the risk and maximize the returns and we have tried to describe mutual funds based on market capitalization of their equity investments in this note. At the same time, we have tried to identify the potential winners which can outperform their peers in 2022 from each category, considering multiple factors like fund manager performance, past performance of fund, fund house stability, risk ratings, etc. to name a few.
Mutual Funds are classified using various parameters including the sector/thematic funds, debt and equity funds, etc. and equity funds can be further classified based on the market capitalization of its investments primarily as:
This category primarily includes mutual funds that have investments in listed companies ranked between 100 to 250 in the Indian markets (by market capitalization). Mid-cap companies have higher growth rates than large-caps and few of these are on the verge of becoming large-cap companies in near future thereby providing the growth along with stability to investment portfolio. Potential winner here could be:
1-Invesco India Large cap Fund
2-ICICI Prudential Bluechip Fund
3-HDFC Top 100 Fund
This category primarily includes mutual funds that have investments in stocks of largest 100 listed companies in the Indian markets (highest market capitalization). Larger stocks are expected to be less risky and hence provide better stability to investment portfolio. RingMoney’s potential winner in 2022 from this space include:
1-PGIM India Midcap Fund
2-SBI Magnum Midcap Fund
3-Mirae Asset Midcap
These mutual funds have exposure to stocks excluding largest 250 stocks in India. Although larger stocks are expected to be less risky, smaller stocks may have higher potential to grow and thus provide the much-needed growth push to portfolio. Thus, it is considered prudent to include these mutual funds in small proportions at all times, although the proportion might vary based on stock market conditions. Here are the top picks for this category:
1-Kotak Small Cap Fund
2-Nippon India Small Cap Fund
3-Axis Small Cap Fund
Another category which provides long term growth potential for the investors is Tax Saving Funds (ELSS) which provide Tax saving benefits along with the growth offered by Mutual funds. You may consider below funds in addition to funds from above categories:
1-Aditya Birla Sun Life Tax Relief
2-Axis Long Term Equity Fund
3-SBI Long Term Equity Fund
In a nutshell, Mutual Funds provide an investment option serving multiple benefits of long-term investment growth, liquidity as well as diversification and have always been considered the evergreen and effective component in one’s Investment Portfolio.
Want to know more about Mutual funds or discuss your investment needs, RingMoney can help you identify the best opportunities to make your investments even better...