Top 10 Mutual Funds to invest in January 2020

Let us look at the top 10 mutual funds across 3 categories of investors viz. high risk, medium risk and low risk.

Jan 17, 2020 09:01 IST India Infoline News Service

Mutual Funds
With over 40 AMCs and over 1,000 schemes on offer, selecting a mutual fund scheme to invest in is clearly a problem of choice. Problems of plenty look like a good problem to have, but when it comes to mutual funds, it is a tough a choice. Of course, the primary criterion for you to select funds is the historic returns offered but there are also other factors to consider when you select the best mutual funds to invest, which we shall look at later. Let us look at the top 10 mutual funds across 3 categories of investors viz. high risk, medium risk and low risk. While multi-cap funds will represent high risk investors, balanced funds will represent medium risk investors and government bond funds represent low risk investors.

Top funds for high risk investors
These are the investors with a higher appetite of risk. Instead of just sticking to large cap funds, they can opt for multi-cap funds which can combine diversification and higher returns over a longer time frame. Multi-cap funds combine large caps as well as selected mid and small caps. We shall only consider Regular Plans of funds.

Fund Name 1-Year Returns (%) 3-Year Returns (%) 5-Year Returns (%)
Motilal Oswal Mullticap 35 (G) 10.37% 11.45% 11.69%
Parag Parikh Long Term Eq (G) 16.32% 14.15% 11.08%
SBI Magnum Multicap (G) 13.10% 12.39% 10.80%
Kotak Standard Multicap (G) 15.41% 13.89% 10.72%
Aditya Birla Sun Life Equity (G) 11.17% 10.78% 10.37%
Note: Reference NAV considered is as on 15th Jan 2020
Data Source: Morningstar

Multi-cap funds are for investors who are willing to take a higher degree of risk. Otherwise it is better to stick to diversified large cap or index funds. Since these are growth plans, DDT is not applicable. However, for post tax returns, the 10% tax on long term capital gains will have to be factored into calculations. Typically, multi-cap funds have given the best results when held for a period of 8 years and more.

Top funds for medium risk investors
We are talking about investors with medium appetite for risk. One way is to opt for balanced funds with different combinations of equity and debt. Equity offers a wealth play while bonds offer a rate play. Balanced funds are more stable and work best when the time frame is around 5 years or more. We again consider only growth schemes of Regular Plans.

Fund Name 1-Year Returns (%) 3-Year Returns (%) 5-Year Returns (%)
SBI Equity Hybrid Fund (G) 15.16% 12.86% 9.73%
DSP Equity & Bond Fund (G) 17.05% 10.72% 9.33%
Principal Hybrid Equity Fund (G) 3.58% 10.45% 9.23%
Canara Robeco Hybrid Fund (G) 13.43% 11.80% 9.02%
HDFC Hybrid Equity (G) 8.55% 9.55% 8.45%
Note: Reference NAV considered is as on 15th Jan 2020
Data Source: Morningstar

These are aggressive allocation hybrid funds and depending on risk appetite the investor can opt for moderate or conservative allocation of funds. Most funds have done well in the last one year but that is more due to the debt component gaining from the rate cuts of 135 bps by the RBI in 2019. These are pre-tax returns and one will have to factor the tax aspect on LTCG to get a picture of post tax returns.

Top funds for low risk investors
Conservative investors with low appetite for risk should ideally stick to bond funds without too much credit risk. One way is to opt for government bond funds with different mix of durations to keep the interest risk in control. While government bond funds work well over 3 years or more, they are very useful for short term profits when rates are heading lower.

Fund Name 1-Year Returns (%) 3-Year Returns (%) 5-Year Returns (%)
Nippon India Gilt Fund (G) 11.77% 7.29% 8.84%
SBI Magnum Gilt Fund (G) 13.12% 7.01% 8.64%
Aditya Birla G-Sec Fund (G) 10.99% 6.87% 8.57%
UTI Gilt Fund (G) 11.74% 6.73% 8.31%
DSP G-Sec Fund (G) 12.36% 6.38% 8.05%
Note: Reference NAV considered is as on 15th Jan 2020
Data Source: Morningstar

These are conservative plans with no default risk but a high degree of interest rate risk. However, this risk gets neutralized over a time frame of 5-6 years. This is good for more conservative investors who cannot take on default risk in their portfolio and are satisfied with relatively lower returns. The alpha in these funds comes from trading on rate expectations.

You need to look beyond returns
Irrespective of whether you are an aggressive or conservative investor, you need to look at some additional factors. Firstly, focus on the pedigree of the AMC. Secondly, ensure that the fund fits into your long term financial planning goals. Lastly, focus on consistency. It is when you add these factors to returns that you can zero in on best mutual funds to invest in 2020.

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