Which Mutual Fund suits me????
Mutual Funds are of various types. There classification can be done on the basis of where they invest. Generally, Mutual Funds invest in one of the following:
- Mix of both Equity and Debt – Hybrids
Let’s start by looking at what we all think we understand – Equity Funds!!
Types of Equity Funds –
Sector Funds – These carry the highest risk among mutual funds. They suffer from concentration risk, i.e. the entire exposure is given to a single sector. If that sector does poorly, then the scheme returns are seriously affected.
Thematic Funds – are a variation of sector funds. Here the investment is as per a theme, say infrastructure. Multiple sectors such as power, transportation, cement, steel, contracting and real estate are connected to infrastructure. Thus a thematic fund tends to have wider exposure than a sector fund, but a narrower exposure than a diversified fund.
Quick snapshot of Sectoral/Thematic Funds –
Diversified Equity Funds – They have exposure to multiple sectors and companies. Thus, even if few sectors or companies perform poorly, other better performers can make up. Diversified equity funds are therefore less risky than sector funds.
Robo Adviso recommends investing in Franklin India Prima Plus and Reliance Equity Opportunity fund.
Quick snapshot of diversified fund performance –
Large/Mid/Small Cap Funds – Large Cap funds primarily invest in frontline stocks and are less risky compared to Mid or Small Caps. Mid Cap funds, as name suggest invest in less researched stocks. Mid Cap or Small cap stocks are intrinsically not as strong as Large Caps.
Large Caps should form the part of your core portfolio. Since their presence imparts stability to the average portfolio return. Diversified and Mid Cap funds are more actively managed and will help boost overall returns in the booming cycle.
Quick snapshot of Large Cap funds
Quick snapshot of Mid Cap funds
Quick snapshot of Small Cap funds
Global Funds – These funds can be categorized as sectoral funds, as they invest in a particular theme across globe or in a particular geography.
For example – Mirae Asset China Advantage fund focuses on scouting funds which invest in China. Kotak World Gold fund which invest in gold mining stocks world wide through Falcon Gold Equity Funds.
Nature of such funds are predominantly Fund of Funds. Hence their taxation may differ from traditional Equity Funds available in the domestic market.
Let these funds be used as a diversification strategy in your portfolio but not as a core holding.
Robo Adviso recommends investing in Franklin India Feeder US Opps Fund.
Quick snapshot of Global Funds –
Equity Linked Savings Scheme (ELSS) – This is a tax saving investment. ELSS schemes invest in stocks. Fund Manager may choose a Large or Mid Cap bent. They have a lock in period of three years. Through investment in ELSS one can save tax under section 80C and the maximum limit is of Rs. 1.5 lacs. All ELSS funds are identical in terms of lock in period and tax benefit, but the difference lies in the portfolio composition which one must check before investing.
Robo Adviso recommends investing in Axis Long term Equity Fund.
Quick Snapshot of ELSS –
**all the above mutual fund performance as on 2nd March, 2016.
Next we will discuss the Hybrid funds. Stay in touch!