What are Mutual Funds?
A mutual fund is a managed investment, by a professional. It pools money from investors to purchase the stocks. Mutual funds are one of the few early investment options advised to many working professionals. They come with numerous advantages and disadvantages. The biggest advantage of a mutual fund is the economies of scale. Further, there is the benefit of liquidity and the satisfaction level. The only downside is the miscellaneous expenses and fee that the investors pay.
Advantages to the Investor
- It is Low Cost: They have an affordable investment option.
- Increased diversification: The fund, in turn, diversifies the securities.
- Daily liquidity: Most of the shareholders are open-end funds. The investor’s can sell their holding at regular intervals and at the price, which equals the asset value of their holdings.
- Professional management: There are professional managers, who manage investment portfolios.
- Service and convenience: Most of the funds provide services like check writing.
- Government oversight: a governmental body regulates mutual funds.
- Transparency: It is mandated for the funds to reveal important information to investors that can make it easier to compare them with others.
It is important to keep track of the best performing mutual funds in the market. If you are an enthusiastic investor, here are a few mutual fund schemes that need to know, which have consistently performed very well in the last 5 years:
Franklin India Smaller Companies
It was launched on 13 January 2006. Since then, the fund has returned over 15.26%. The estimated AUM asset under management is over INR 4,550 crore as of January 2017. The fund is essentially a small-cap fund, with about 62% mid-cap companies, 17% of large companies and over 11% of the debt instrument. It has over 74 diversified stocks.
Birla Sun Fund
This equity fund has a diversified fund and aims at providing a long period of growth capital. It was launched in 1998. Its scheme has returned over 24.79% as of January 2017. It has even outperformed the benchmark S&P BSE 200. The fund consists of nearly 69 diversified stocks in the portfolio. The large-cap stocks are over 68.33%. The AUM for the Birla Sun fund is over INR 4,214 crores.
ICICI Prudential Mutual Fund
ICICI Prudential value discovery fund, an open-end fund adopts the bottom-up approach in identifying and choosing its investments. It was launched in 2004 and has returned 22.62% since then. It has exceptionally outperformed its benchmark S&P BSE 500. The funds boast of 41 stocks in the portfolio. Its AUM is at INR 16,434 crore.
It was launched in 2007, and HDFC mid-cap opportunities fund targets the long-term gain. It constitutes of the mid-cap and small-cap companies. The fund has generated 17.40% over the period for the investors. It has over 75 stocks in the portfolio. The total AUS is INR 14,755 crore.
UTI Mutual Fund
UTI is an open-end scheme that aims to achieve capital appreciation by investing in the mid-cap stocks. It was launched in 2004 and has returned over 19.51%. The funds hold over 88 stocks in the portfolio. The AUM is INR 3,646 for UTI mutual fund, as of February 2017.
Factors to consider for choosing a mutual fund:
To pick the right mutual fund, you must consider the following:
- The performance of the scheme
- The investment objective
- The expense ratio
- Tax implications
- Fund rating
Briefly, the mutual funds are a complicated subject matter, and expert advice is recommended prior to making an investment decision. In addition, most of them are volatile in nature and you must monitor these stocks closely.