Mutual Funds

Best large cap mutual funds to invest in 2022

If you are thinking of starting investing in the new year, you are at the right place. Here we are discussing why new investors should consider investing in large cap mutual funds to build wealth to achieve their long-term goals. We will also discuss why these schemes are in the news in the last few years. Don’t worry if you are an existing investor. We will also discuss your investments in our recommended schemes.

First, let us find out why pundits recommend large cap mutual funds to new investors. As you may know, large cap mutual funds invest in very large companies. As per Sebi norms, these schemes are mandated to invest in top 100 companies by market capitalisation. These companies are leaders in their respective fields, and they are resilient to challenges in the economy. This makes these schemes less volatile. A case in point is their impressive performance in 2020 during the COVID scare. That is why investment experts recommend these schemes to new and conservative investors.

If that is the case, why are many investors not in favour of large cap schemes these days? Many investors and mutual fund analysts believe that large cap schemes are losing their mojo lately. Ever since SEBI introduced total variable benchmark indices and stricter investment norms, these schemes have been struggling to beat their benchmarks. Worse, large cap schemes have been lagging behind their passive counterparts – index schemes and ETFs- in the last two years.

However, writing off large cap schemes for this reason alone could be a mistake. It is true that new benchmarks and stricter investment norms have made life difficult for these schemes. However, you still can’t ignore large cap schemes. For example, successful flexi cap schemes, the current favourites, have invested heavily in large cap stocks. If you are not happy that you are missing out on one or two valuable returns over a long period, you can invest in large cap index schemes. But the trouble is many investors are not comfortable investing in index schemes.

However, investing in other mutual fund categories unmindful of your risk profile could be a costly mistake. If you are happy with 10-12% returns offered by large cap mutual funds over a long period, you should invest in them. However, 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. 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.

Here are a few things you should keep in mind. One, large cap mutual funds are recommended to conservative investors looking to create wealth over a long period without exposing themselves to a lot of risk and volatility. However, do not assume that these schemes do not have any risk or they will not face volatility.

Best large cap mutual funds to invest in 2022

Here is our methodology:

ETMutualFunds has employed the following parameters for shortlisting the equity mutual fund schemes.

Mean rolling returns: Rolled daily for the last three years.

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

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

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}

Asset size: For Equity funds, the threshold asset size is Rs 50 crore

(Disclaimer: past performance is no guarantee for future performance.)

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