Mutual fund advisors are recommending investing in large cap schemes in the coming year. The advisors believe that the large cap category may do well as the market is entering into the expensive territory. They say that the stock market is at an all-time high and the market is likely to become volatile. If you are a conservative investor and looking to invest in relatively safe equity mutual fund schemes to achieve your long-term goals, you should consider investing in large cap mutual funds. However, before that you should familiarise yourself with large cap mutual funds and the prevailing conditions in the stock market.
According to the Sebi mandate, large cap mutual funds are mandated to invest in top 100 companies by market capitalisation. Large companies fare better in a volatile market as these companies may be market leaders and resilient to downturns. That is why if you are looking for a relatively safer mutual fund category, you should consider investing in large cap funds.
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Volatile times ahead
Many equity investors are concerned about increasing volatility and uncertainties in the market. A rising market, higher interest rates and inflation are puzzling. The relative stability of the Indian economy and better fundamentals are supporting the market. However, one can't be completely safe from the global scenario. This is the reason why advisors are asking investors to proceed cautiously.
Many investors and mutual fund analysts believe that large cap schemes are losing their mojo lately. Ever since SEBI introduced total return index and stricter investment norms, these schemes have been struggling to beat their benchmarks. However, writing off large cap schemes completely could be a mistake. It is true that new benchmarks and stricter investment norms have made life difficult for these schemes. However, these schemes can still continue to offer inflation beating returns without too much volatility.
Investing in other mutual fund categories for higher returns without paying attention to the extra risk could be a costly mistake for the investors. If you are happy with 10-12% returns offered by large cap mutual funds over a long period, you should invest in them. If you want to match the market returns, you may educate yourself about index schemes and invest in a large cap index scheme.
If you are interested in investing in large cap mutual funds to take care of your long-term financial goals, here are our recommended large cap schemes for March 2024.
You may invest in these schemes with a minimum investment horizon of five to seven years. Look out for our monthly updates where we keep discussing the performance of these schemes. We typically come up with our updates in the first or second week of every month.
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Best large cap mutual funds to invest in March 2024:
- Axis Bluechip Fund
- Canara Robeco Bluechip Equity Fund
- Mirae Asset Large Cap Fund
- Baroda BNP Paribas Large Cap Fund
- Edelweiss Large Cap Fund
Here are the updates for this month. BNP Paribas Large Cap Fund has been in the first quartile in the last month. Axis Bluechip Fund has been in the fourth quartile for 12 months. Canara Robeco Bluechip Equity Fund has been in the third quartile in the last month. Mirae Asset Large Cap Fund has been in the fourth quartile for five months.
Many investors have been asking about the poor performance of Axis Bluechip Fund in the last 12 months, and whether they should continue to invest in the scheme. We believe equity mutual funds should be judged on their long-term performance. The scheme has outperformed its benchmark and category seven times in the last 10 years. That is a great record. Sure, the scheme has been underperforming its benchmark and category in the last three years. If you are worried, you may choose another large cap scheme. If you want to give it some more time, you can continue to invest in the scheme. Mutual fund analysts believe that schemes that have been pursuing the growth strategy have been faring poorly in the last few years as the value strategy has gained prominence in the market.
Here is our methodology:
ETMutualFunds 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.)
