Usually best equity mutual funds invest more than 65% of their portfolio in stocks. Such funds could be actively/passively managed (Index funds). Best equity mutual funds tend to give high returns over a medium to long term horizon.
Since they are heavily invested in stocks, they are considered risky. The fund value may experience frequent fluctuations. Because of this, best equity mutual funds may be preferred by aggressive investors.
As equity funds are risky bets, you need analyse various parameters before choosing the fund.
You need to consider your risk appetite and investment horizon while investing in equity funds. These funds are suitable for an investor having an investment horizon of say 5 years or more. But a short-term investor may not be in such an opportune position because of stock market fluctuations.
If saving taxes is on your mind, then ELSS is regarded as the best equity mutual fund under Section 80C of the Income Tax Act. ELSS has the shortest lock-in period of 3 years. Moreover it gives higher returns than other investments eligible under Section 80C.
A budding investor may choose to go for large-cap equity funds as these funds invest in equity shares of well-established companies which are known to give stable returns in the long run. Conversely, an experienced investor may choose to invest in diversified equity funds to get the best combination of risk and return.
Equity funds are basically suitable for individuals who have a long-term investment horizon. Usually, the fund experiences a lot of fluctuations during the short-run. This fluctuation averages out in the long-run of say more than 7 years.
The fund is, thus, able to give returns in the range of 10%-12%. Those who choose best equity mutual funds need to be prepared to stick around at least for the said period to enable the fund to realize its full potential.
Fund performance in terms of the returns on investment is considered the most important parameter for ranking or selection of funds. Investors may look for returns for a period of at least 5-10 years.
One may, in fact, select funds which have consistently beaten their benchmark indices (index to which a fund’s returns are compared). They should also fare reasonably well when compared with their peer set over the longer time frames.
With significant risks involved, the risk return ratio becomes an important factor for consideration. In order to judge this, Sharpe Ratio is an important metric associated with equity fund’s performance.
Sharpe Ratio is an indicator of risk-adjusted return. It represents the excess return given by the fund for a given level of risk. Simply put, the higher the Sharpe ratio, the better is the risk adjusted return for that fund.
While selecting a fund, you need to analyse the fund from different angles. There are various quantitative and qualitative parameters which can be used to arrive at the best equity funds as per your requirements. Additionally, you need to keep your financial goals, risk appetite and investment horizon in mind.
The following table represents the top 10 large-cap funds in India based on the past 5 year returns. Investors may choose the funds based on a different investment horizon like 10 years returns. You may include other criteria like financial ratios as well.
|Equity Fund Name||3 year||5 year|
|L&T India Value Growth||10.44%||21.65%|
|Mirae Asset India Equity Fund Regular Growth||13.96%||18.65%|
|Aditya Birla Sun Life Frontline Equity Fund Growth||10.24%||14.44%|
|SBI Magnum Multi Cap Fund Regular Growth||11.02%||18.22%|
|SBI Bluechip Fund Regular Growth||8.76%||15.52%|
|ICICI Prudential Bluechip Fund Growth||11.44%||14.24%|