Here is an update on our recommended large cap mutual fund schemes for September. There are no change in the list, but we are putting HDFC Top 100 Fund in the watch list. The scheme has been in the fourth quartile for the last seven months. It was in the third quartile for five months before that. Nippon India Large Cap Fund also has been in the fourth quartile for the last four months. The scheme was in the third quartile before that. Please follow our monthly updates. We will update you about what to do with these schemes in the coming months.
However, before you proceed further, here are a few pointers you should keep in mind. Large cap mutual fund schemes are recommended typically to conservative equity investors looking to create wealth without taking too much risk and volatility. According to Sebi rules, large cap mutual fund schemes have the mandate to invest at least 80% of the corpus in top 100 companies by market capitalisation.
These large companies are mostly leaders in their respective fields. That means, they may be relatively stable than their smaller counterparts during volatile times in the market like the current one we are witnessing these days.
This is the reason why many mutual fund managers and advisors recommend large cap schemes during uncertain times. Large cap stocks mostly fare better than mid cap and small cap stocks in times of a market correction.
Note, since these schemes are relatively less risky and volatile, they also offer modest returns. So, it is important to have realistic return expectations while investing in large cap schemes.
Also, you should keep in mind that the ability of this category to generate considerable returns over their benchmarks is seriously contested after the re-categorisation exercise around two years ago. In fact, most actively-managed large cap schemes failed to beat their benchmark in the last two years. Passively-managed schemes – index schemes and ETFs – fared better than them in both 2018 and 2019.
However, mutual fund advisors believe that actively-managed large cap schemes may bounce back once the market rally becomes broad-based.
Here are our recommended large cap schemes. You may invest in these schemes with a minimum investment horizon of five to seven years to achieve your long-term financial goals. Look out for our monthly updates - so that you know whether your schemes are performing up to the mark. We usually come up with our updates in the first week of every month.
Best large cap mutual funds to invest in 2020
Here is our methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)
