Contents
- Meaning of Diversified Equity Mutual Funds
- Classification of Diversified Equity Funds
- Benefits of Diversified Equity Mutual Funds
- Suitable for Diverse Market Caps and Sectors
- Professional Management
- Diversity in Prices of Shares
- Save on Additional Costs
- Avail Diverse Modes of Investments
- The following are 5 top-diversified funds of 2019 based on their long term performance:
- Reliance Focused Equity Fund
- Franklin India Focused Equity Fund
- SBI Focused Equity Fund
- Invesco India Multicap Fund
- Kotak Standard Multicap Fund
- Conclusion
A diversified fund invests in equities and equity-related instruments irrespective of their market capitalization or sectoral association. A diversified fund has the flexibility to increase or decrease its exposure to large caps, mid-cap and small-cap investments depending on the fund manager’s knowledge of the market conditions and future market expectations. In this article, we present to you the top-diversified funds of 2019.
Meaning of Diversified Equity Mutual Funds
- Diversified Equity Mutual Funds try at diversifying investments in companies over a wide range of sectors, irrespective of their size or whether they are large-caps, mid-caps or small-caps. These sectors usually are Pharmaceuticals, Banking, and Financial Services, IT, Engineering, FMCG, Oil & Gas, Power and Utilities, Automobiles, Real Estate, etc.
- Large-caps refer to large companies with large market capitalizations. Similarly, mid-caps refer to mid-sized companies that offer medium capitalizations and small-caps refer to smaller companies with small market capitalizations.
- The basic purpose of Diversified Equity Mutual Funds is to obtain long-term capital appreciation through diversified investments across the stock market. Moreover, investing in different sectors also minimize risks, proving to be a smart long-term investment choice that accrues great returns even during challenging economic situations. Diversified equity funds benefit investors to meet long-term financial goals like children’s education, marriage, retirement plans, etc.
Classification of Diversified Equity Funds
Diversified Equity Funds are categorized into the following basis the size of companies initiating the investments.
- Small-cap Diversified Funds: Small-cap Diversified Mutual Funds give high returns and are suited for young investors below 35 years of age and with a high-risk mutual fund appetite. It is necessary to handle these funds judiciously to lessen the risk of losses and assure good returns.
- Mid-cap Diversified Funds: Mid Cap Funds invest in companies with a market capitalization between Rs. 4000 Crores and Rs. 20,000 Crores. These funds are less risky in comparison to small-cap diversified mutual funds and usually offer high returns in the long term.
- Large-cap Diversified Funds: Large-cap Funds invest in companies with a market capitalization of at least Rs. 20,000 Crore. Investors invest in stocks or shares of notable blue-chip companies that examine Nifty as their benchmark index. Investments in influencing global companies ensure minimal risk, fetching good returns at the same time.
Benefits of Diversified Equity Mutual Funds
Suitable for Diverse Market Caps and Sectors
Diversified Equity Mutual Funds is suitable for sectors and market caps. While mid-caps and Large-caps invest in particular market capitalization, multi-cap funds invest across market caps. Investing in various market caps and companies across sectors benefits you avoid the unsystematic risk that may arise from investing in limited sector-specific funds or stocks. These funds are not simply risk-averse. However, if you understand the risks, you can take decisions subsequently.
Professional Management
Fund Managers are specialists in portfolio management because they have extensive experience and knowledge about financial research. If you are not an experienced investor, you can ask the help of a Fund Manager to guide you through changeable economic situations.
Other than the expertise to predict market movements, Fund managers are provided with a team of research analysts who keep a confined watch on changing market trends. They abide by an investment method and use risk management strategies that they have developed upon through the years. You can make the most of the years of experience of these professionals instead of a small charge, referred to as an Expense Ratio, which is deducted from the NAV or Net Asset Value (NAV) of your mutual fund.
The diversity applies to the price of shares as well, starting as low as Rs. 500 and moving into a few lakhs. This makes it a much-preferred choice for new and first-time investors looking for exposure in the investment market. It is also well suited for those with low-risk appetite.
Save on Additional Costs
Investments in diversified equity mutual funds save you from spending on monthly transaction cost that applies to non-equity fund investments. Regular portfolio management to overcome booking profits and stragglers, and opting for other stocks that show the promise of high capital gains lead to further transaction costs.
Avail Diverse Modes of Investments
Diversity in Diversified Equity Mutual Funds reaches to the available investing methods – Systematic Transfer Plans (STPs) and Systematic Investment Plans (SIPs).
You can opt for a monthly best SIP, where a pre-determined amount is deducted from the selected bank account, encouraging a healthy saving habit. STP allows you to start a monthly transfer from a debt mutual fund to an equity fund. There are also Systematic Withdrawal Plans (SWPs) that allow you to withdraw a pre-defined amount at regular intervals. You can also seamlessly enter and exit from these schemes as per your convenience.
The following are 5 top-diversified funds of 2019 based on their long term performance:
Reliance Focused Equity Fund
| Instrument | 1Y Return | 3Y Return | 5Y Return |
|---|---|---|---|
| Reliance Focused Equity Fund | -18.79% | 14.13% | 26.31% |
| Benchmark (S&P BSE SmallCap – TRI) | -25.00% | 9.46% | 18.36% |
- Reliance Focused Equity Fund was launched in December 2006 and has given superior returns than its benchmark during the 3 year and 5 year return periods.
- In fact, during the 3-year return period, it outperformed its benchmark by generating an impressive return of 14.13% (as of January 2019).
- It has performed even more impressively over the 5-year period posting returns of 26.31% which are nearly 8% more than its benchmark.
- As of January 2019, Reliance Focused Equity Fund had allocated around 65% of its assets to large caps, 26% to mid-caps and the remaining 9% to small-cap stocks.
Franklin India Focused Equity Fund
| Instrument | 1Y Return | 3Y Return | 5Y Return |
|---|---|---|---|
| Franklin India Focused Equity Fund | -9.09% | 12.81% | 20.27% |
| Benchmark (NIFTY 500 -TRI) | -5.95% | 13.80% | 15.15% |
- Franklin India Focused Equity Fund launched in June 2007, is a category veteran with a stellar track record spanning nearly 12 years.
- During the past 3 year period, the scheme generated a return of 12.81% which although attractive, is much lower than its benchmark returns.
- However, the scheme has succeeded in outperforming its benchmark during the longer 5 year period.
- As one of the best-diversified funds to invest in, the 5-year return of 20.27% posted by Franklin India Focused Equity Fund is over 5% more than its benchmark return over the same period.
- The scheme has invested around 69% of its assets in large-cap companies, 14% in mid-caps and 17% in small caps.
SBI Focused Equity Fund
| Instrument | 1Y Return | 3Y Return | 5Y Return |
|---|---|---|---|
| SBI Focused Equity Fund | -6.36% | 13.46% | 18.72% |
| Benchmark (S&P BSE 500 – TRI) | -5.71% | 13.97% | 15.22% |
- SBI Focused Equity Fund is an established diversified fund that has been in the space since September 2004.
- The scheme provided an impressive return of 13.46% over the previous 3 year period, nearly mirroring its benchmark return of 13.97%.
- However, during the last 5-year period, the scheme has given returns better than its benchmark. Against a 5-year return of 15.22% generated by its benchmark over the last 5 year period, the scheme yielded a 5-year return of 18.72%.
- The scheme’s performance track record demonstrates its high long-term performance potential.
- The key reason for its strong performance and inclusion in the list of 5 best-diversified funds for 2019 is the solid portfolio of the SBI Focused Equity Fund.
- What’s notable is that this is a highly aggressive diversified fund that has given just a 50% share of its portfolio to large-cap equities.
- The scheme’s mid-cap and small-cap holdings stand at 13% and 22% respectively as of January 2019.
Invesco India Multicap Fund
| Instrument | 1Y Return | 3Y Return | 5Y Return |
|---|---|---|---|
| Invesco India Multicap Fund | -13.09% | 9.63% | 19.27% |
| Benchmark (S&P BSE AllCap – TRI) | -6.94% | 13.62% | 15.16% |
- Invesco India Multicap Fund made its debut nearly a decade ago in March 2008.
- The scheme has provided a decent return of 9.63% over the previous 3 year period.
- The scheme has caught the attention of investors with its long-term performance wherein it has outperformed its benchmark over the short, medium as well as long term.
- It has given a 5-year return of 19.27% outperforming its benchmark’s performance by over 4% for the same period.
- The scheme follows an aggressive approach in the allocation of its assets across market capitalizations.
- It has invested only around 45% of its assets in large caps, considered by many as the safest equity avenue. The scheme has allocated significant portions of its assets to mid and small-cap companies.
- It has around 35% of its assets invested in mid-caps and the remaining 20% in small caps.
Kotak Standard Multicap Fund
| Instrument | 1Y Return | 3Y Return | 5Y Return |
|---|---|---|---|
| Kotak Standard Multicap Fund | -3.56% | 14.99% | 19.37% |
| Benchmark (NIFTY 200 – TRI) | -3.95% | 14.06% | 14.81% |
- Kotak Standard Multicap Fund is an established diversified fund that has been in the space for the last 10 years after being launched in September 2009.
- The scheme has outperformed its benchmark during both the 3 year and 5 year periods.
- Against a 3-year benchmark return of 14.06%, the scheme has generated a 3-year return of 14.09%.
- During the last 5 year period, the scheme has yielded a return of 19.37%, nearly 5% more than its benchmark.
- It is a relatively conservative diversified fund which has allocated around 79% of its assets in large caps.
- The scheme has invested another 20% of its assets in mid-caps and just 1% in small caps.
Conclusion
The key benefit of a diversified fund is its potential to contain volatility as a result of its diversified investment portfolio which helps distribute the equity investment risk across multiple investments. Additionally, as these schemes invest primarily in equities, they have the potential of delivering high returns, especially in the long term. But equity investments being inherently risky in nature, you should consider investing in diversified funds if you have moderate to high-risk tolerance.
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