15 Top-Rated Mutual Funds for Equity Investors

September 28, 2024 Mutual Fund

Equity mutual funds are a go-to option for investors looking to grow their wealth over the long term. Many investors often search for “best” or “top-rated” mutual funds online, quickly finding lists of highly or top-rated funds from various agencies. However, are these ratings really as reliable as they appear? The truth is, most ratings are based on past performance, which doesn’t guarantee future success. Investors frequently make the mistake of trusting these ratings without realising they might overlook key factors that drive future performance.

It’s important to understand that star ratings, based on historical data, can be misleading. Funds may have high ratings now but could lose them if they start underperforming in the future. Since most rating agencies don’t consider qualitative factors like fund management processes or market dynamics, these ratings only give part of the picture. This means relying on them alone can lead to poor decisions.

At PersonalFN, we take a different approach. Our proprietary SMART Score methodology goes beyond just looking at past performance. We conduct a comprehensive analysis to give you a full view of a mutual fund’s potential. Here’s what the SMART Score evaluates:

• Systems & Processes: We assess the fund house’s investment process and discipline, including how many fund managers they have, how efficiently they manage your money, and the efficiency of their systems.
• Market Cycle Performance: We analyse how the fund performed in different market cycles, comparing it with its category peers and benchmark across both bull and bear phases.
• Asset Quality: We evaluate the quality of the fund’s portfolio, checking factors like portfolio concentration, turnover ratio, and valuation metrics (like P/E ratio) to understand the fund’s management style.
• Risk Reward Ratios: We focus on the fund’s risk-adjusted returns by using metrics like Standard Deviation, Sharpe Ratio, Alpha, and more. This helps us understand the balance between risk and reward.
• Track Record: While past performance is considered, it’s only one of the factors in our analysis. We examine how the fund has performed over different time frames, on a rolling return basis, to ensure consistency.

By using this forward-looking methodology, we aim to find funds that are well-positioned for future growth, rather than simply those that have performed well in the past. This comprehensive approach ensures that you are not just relying on ratings based on past performance, but also considering crucial qualitative factors that influence a fund’s future success.

Now, let’s take a look at some of the top-rated mutual fund schemes in key diversified equity categories.

Large Cap Funds

Large Cap Funds primarily invest in the top 100 companies with large market capitalisations. These companies are typically well-established and show a consistent record of stable earnings and strong financials. They are the leaders in their industries and have a significant market presence. Large-cap funds focus on steady growth and income, making them a popular choice for investors seeking lower risk and long-term capital appreciation. Additionally, these funds are usually less volatile than mid or small-cap funds, providing a more stable investment experience.

Top Large Cap Funds:

1. ICICI Prudential Bluechip Fund

ICICI Prudential Bluechip Fund is a standout performer in the large-cap fund category, earning a 5-Star Rating through PersonalFN’s SMART Score Process. This fund invests in high-quality large-cap companies known for their strong business models and competitive advantages. It maintains a well-diversified portfolio across various sectors and has delivered impressive returns over the years, with a strong emphasis on risk management and downside protection.

By focusing on blue-chip stocks, the fund offers both stability and growth potential, making it a solid choice for diversified equity exposure. Its major holdings include ICICI Bank, Reliance Industries, Larsen & Toubro, HDFC Bank, and Infosys, with significant exposure to sectors like Banks, Auto, Petroleum, Infotech, and Engineering.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

2. HDFC Top 100 Fund

HDFC Top 100 Fund is well-known for its disciplined stock selection process and carries a 4-Star rating from PersonalFN. The fund has outperformed its benchmark over longer periods. The fund manager prioritises quality, holding a portfolio of 40 to 45 high-conviction stocks. HDFC Top 100 Fund follows a buy-and-hold investment strategy, concentrating on high-conviction large-cap stocks while avoiding momentum-driven picks, even if this results in slower growth.

Its top holdings include ICICI Bank, HDFC Bank, NTPC, L&T, Bharti Airtel, and Infosys, with major allocations to Banks, Infotech, Pharma, Consumption, and Auto. HDFC Top 100 Fund’s long-term success, combined with strategic sectoral choices and proactive management, makes it an excellent option for investors seeking a balance of stability and growth.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

3. Nippon India Large Cap Fund

Over the past few years, Nippon India Large Cap Fund has emerged as a strong contender in the large-cap fund category, showcasing a solid track record of long-term performance. The fund has consistently delivered impressive results, even during periods when many large-cap funds struggled to match their benchmark indices. This success is attributed to robust risk management and the ability to adapt to changing market conditions. Nippon India Large Cap Fund holds a 4-Star Rating from PersonalFN based on its SMART Score evaluation.

The fund manager focuses on diversification, maintaining a portfolio of about 55 to 65 stocks. The fund’s major portfolio holdings include HDFC Bank, Reliance Industries, ICICI Bank, ITC, and Infosys, with top sector allocations in Banks, Infotech, Consumption, and Petroleum.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

Mid Cap Funds

Mid Cap Funds invest in medium-sized companies that have the potential for significant growth. These companies are typically in their growth phase, meaning they are actively expanding their businesses and increasing revenues. Because mid-cap companies are often less researched than their larger counterparts, there are opportunities to capitalise on the differences between their market prices and their actual value (intrinsic value). Mid-cap funds provide a good balance between risk and return-they are generally more stable than small-cap funds but still have plenty of room for growth compared to large-cap funds. While mid-cap funds carry more risk than large-cap funds, they also offer the possibility of higher returns, making them attractive for investors looking to take advantage of emerging opportunities while diversifying their portfolios.

Top Mid Cap Funds:

1. HDFC Mid-Cap Opportunities Fund

HDFC Mid-Cap Opportunities Fund is well-regarded for its focus on companies with strong growth potential. The fund manager employs a bottom-up approach to identify mid-cap stocks with solid fundamentals. Even with a substantial corpus of over Rs 75,000 crore-one of the largest in the mid-cap segment-Chirag Setalvad has efficiently managed this fund. It has demonstrated resilience during market downturns and has consistently delivered superior long-term returns. PersonalFN has rated HDFC Mid-Cap Opportunities Fund as a 5-Star fund based on its SMART Score Process.

To manage downside risks, the fund diversifies its portfolio, concentrating on fundamentally sound, growth-oriented companies in the mid and higher mid-cap segments. Currently, it has around 73 stocks in its portfolio, including notable mid-cap companies like The Indian Hotels Company, Max Financial Services, The Federal Bank, Ipca Laboratories, and HPCL. The fund also has significant sector exposure to Auto Ancillaries, Pharma, Banking, Finance, and Infotech.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

2. Kotak Emerging Equity Fund

Kotak Emerging Equity Fund aims to identify the hidden growth potential in mid-sized companies. Its portfolio is heavily weighted toward mid-caps, but it also includes small-cap and some large-cap allocations. By using a bottom-up stock selection strategy, Kotak Emerging Equity Fund seeks high-quality mid-sized companies across various sectors, employing a buy-and-hold strategy to maximise long-term growth potential.

It maintains a well-diversified portfolio of approximately 65 to 70 stocks, currently featuring top holdings like Persistent Systems, Mphasia, Oracle Financial Services Software, and Supreme Industries. The fund’s investments are diversified across sectors such as Auto Ancillaries, Infotech, Chemical, Pharma, and Finance. Kotak Emerging Equity Fund has a strong record of delivering market-beating returns and consistently ranks in the top quartile of its category, earning a 4-Star rating from PersonalFN.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

3. Quant Mid Cap Fund

Quant Mid Cap Fund is an actively managed mid-cap fund that has excelled in recent years, often leading the returns charts in its category. It adopts an active investment approach, focusing on a “buy on dips” strategy to seize attractive opportunities consistently. The fund does not tie its stock and sector weightings to any benchmark index, allowing it more flexibility. By identifying promising stocks and sectors early and increasing exposure accordingly, the fund has achieved impressive growth. Its managers are quick to adjust allocations to capitalise on market changes.

Quant Mid Cap Fund uses a quantitative approach to select high-growth potential stocks based on various market factors. Currently, its portfolio includes prominent stocks like Aurobindo Pharma, Reliance Industries, Container Corporation of India, IRB Infrastructure Developers, and Steel Authority Of India with major sector allocations in Pharma, Metals, Petroleum, Logistics, and Engineering. PersonalFN has awarded Quant Mid Cap Fund a 4-Star rating.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

Small Cap Funds

Small Cap Funds invest in smaller companies that have the potential to grow into tomorrow’s mid-cap and large-cap firms. These companies are often in their early growth stages, which can present investors with substantial growth opportunities as they expand. However, small-cap funds generally come with higher volatility and risk compared to mid and large-cap funds. Smaller companies tend to be more sensitive to market fluctuations and economic changes. While the allure of high returns is enticing, investors should be prepared for significant ups and downs in performance. Small Cap Funds are typically ideal for those with a higher risk appetite and a long-term investment horizon, looking to invest in emerging businesses with promising growth prospects.

Top Small Cap Funds:

1. HDFC Small Cap Fund

HDFC Small Cap Fund is considered one of the stable options in the small-cap fund category. The fund manager focuses on identifying small-cap companies with strong growth potential and sound management practices. By carefully selecting businesses that are positioned for expansion, this fund has delivered consistent returns in both bullish and bearish market conditions, making it a favoured choice for aggressive investors seeking higher risk and reward.

The fund boasts a diversified portfolio of around 80 to 90 stocks, currently including top holdings in companies like Firstsource Solutions, Bank of Baroda, eClerx Services, Aster DM Healthcare, and Sonata Software. The sector exposure of HDFC Small Cap Fund is majorly in Infotech, Auto Ancillaries, and Pharma. PersonalFN has rated this fund a 4-Star for its decent performance and strategic approach.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

2. Nippon India Small Cap Fund

Nippon India Small Cap Fund is a well-known choice in the small-cap fund category, attracting investors with its growth potential. The fund’s assets under management (AUM) recently crossed Rs 60,000 crore, which is quite large for a small-cap fund and may impact its efficiency. Its size has led the fund manager to adopt a highly diversified strategy, investing in over 200 small-cap stocks across various sectors. While the fund aims to capture growth opportunities and mitigate risk through diversification, this has resulted in a portfolio with many smaller positions. Currently rated 4-Star by PersonalFN, Nippon India Small Cap Fund has delivered strong returns, making it popular among investors with a higher risk tolerance.

Its top holdings include HDFC Bank, Tube Investments of India, and MCX, with significant investments across sectors like Engineering, Infotech, Pharma, and Auto. It’s important for investors to note that around 180 stocks in this fund’s portfolio represent less than 1% of its total assets, meaning they contribute minimally to the fund’s overall performance.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

Flexi Cap Funds

Flexi Cap Funds offer investors the flexibility to invest across various market caps, including large, mid, and small-cap stocks. This adaptability allows fund managers to respond to changing market conditions by adjusting the portfolio allocation based on the sectors they believe will yield the best growth or value at any given time. For instance, they might focus on large-cap stocks for stability during volatile periods or shift towards mid and small-cap stocks that offer high growth potential. This dynamic approach helps optimise returns while managing risk, providing a diversified investment option that balances growth and stability without being limited to a specific market cap segment.

Top Flexi Cap Funds:

1. Parag Parikh Flexi Cap Fund

Parag Parikh Flexi Cap Fund is known for its ability to invest in large-cap, mid-cap, and small-cap stocks in various proportions. It adopts a value-oriented approach, focusing on high-quality stocks that are reasonably priced. A unique feature of this fund is its allocation to international equities, which has recently decreased from one-third to about 12% due to regulatory limits. The fund’s emphasis on value stocks helps control volatility while delivering strong returns. According to PersonalFN’s SMART Score Process, this fund has received a 5-Star rating.

The fund managers use a detailed research process to select stocks, aiming to buy them at prices below their true worth. Key holdings include HDFC Bank, Power Grid Corporation, Bajaj Holdings, ITC, Coal India, and ICICI Bank. The fund also invests internationally in stocks like Meta, Alphabet (Google), Microsoft, and Amazon, with a diverse portfolio spread across sectors such as Banking, Infotech, Finance, and Power.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

2. HDFC Flexi Cap Fund

HDFC Flexi Cap Fund is one of the oldest funds in this category, offering the flexibility to invest across different market capitalisations without restrictions. It has a diversified portfolio, with over 70% of its holdings in large-cap stocks. The fund aims to create a balanced portfolio across various sectors and market caps, focusing on both growth and value strategies. While it prefers large-cap stocks, it selectively includes promising mid-cap and small-cap stocks.

The fund managers prioritise high-quality, long-term investments rather than chasing short-term trends. The fund’s portfolio consists of around 45 strong conviction stocks, including ICICI Bank, HDFC Bank, Axis Bank, Cipla, and HCL Technologies, with significant exposure to sectors like Banking, Pharma, Infotech, and Auto.

HDFC Flexi Cap Fund consistently delivers solid returns for its investors and has received a 5-Star rating from PersonalFN, reflecting its strong performance and investment strategy.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

Multi Cap Funds

Multi Cap Funds are characterised by their defined market cap allocation mandate, investing across large, mid, and small-cap stocks. They are required to maintain a balanced exposure to each category, ensuring that at least 25% of their assets are allocated to each market cap segment. By investing across a wide range of companies, Multi Cap Funds provide a combination of stability from large-cap stocks, growth potential from mid-caps, and higher risk-reward opportunities from small caps. This diversification helps investors spread risk while capturing opportunities from different market cap segments, making it an appealing choice for those seeking a balanced approach to long-term wealth creation.

Top Multi Cap Funds:

1. Nippon India Multi Cap Fund

Nippon India Multi Cap Fund maintains a well-diversified allocation across large-cap, mid-cap, and small-cap stocks, adhering to the 25% minimum investment in each segment. The fund focuses on growth stocks that can benefit from economic expansion, preferring companies with high Return on Equity (ROE) while also including value stocks for further diversification.

Using a combination of top-down and bottom-up approaches for stock selection, the fund actively identifies opportunities, even if it means short-term underperformance. The portfolio consists of about 110 stocks, featuring well-known companies like HDFC Bank, ICICI Bank, Infosys, and Reliance Industries. Its investments spans across sectors such as Banking, Finance, Engineering, Auto, and Pharma, allowing it to deliver strong returns. PersonalFN has rated Nippon India Multi Cap Fund 4-Stars through its SMART Score methodology.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

Value Funds

Value Funds invest in stocks that are considered undervalued based on thorough fundamental analysis. Their main goal is to find companies whose market prices are lower than their intrinsic values, presenting significant opportunities for price growth over time. By focusing on these undervalued stocks, Value Funds seek to take advantage of market inefficiencies, offering long-term growth prospects for investors.

In addition to targeting undervalued stocks, Value Funds often use a contrarian investment strategy. This means they look for stocks and sectors that are currently out of favour in the market. By doing so, fund managers can spot opportunities that others might overlook, positioning the fund to profit when the market eventually recognises the true value of these investments. Overall, Value Funds provide a mix of cautious investing with the potential for high returns as the market corrects its mispricing.

Top Value Funds:

1. ICICI Prudential Value Discovery Fund

ICICI Prudential Value Discovery Fund is a well-established fund that focuses on finding stocks that are significantly undervalued. It employs a diversified strategy, targeting value opportunities across various market caps and sectors to manage risk. Using fundamental analysis, the fund assesses a stock’s intrinsic value and follows a bottom-up approach to select investments. The fund’s “Discovery” process identifies stocks that appear to be bargains based on metrics like earnings, book value, and dividends.

ICICI Prudential Value Discovery Fund has rewarded investors with strong long-term returns, providing a margin of safety during market downturns while performing well during bullish phases. Key holdings include HDFC Bank, Infosys, ICICI Bank, Sun Pharma, and Reliance Industries, with exposure to sectors such as Banking, Pharma, Infotech, Petroleum, and Consumption. PersonalFN has rated this fund a 5-Star based on its strong performance and solid fundamentals.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

2. Tata Equity P/E Fund

Tata Equity P/E Fund is another top performer in the Value Fund category, focusing on high-quality stocks that are undervalued based on their Price to Earnings (P/E) ratio. The fund assesses stocks using various criteria to determine their investment potential. It primarily targets undervalued companies that are likely to improve in profitability.

At least 70% of the fund’s assets are allocated to stocks with a P/E ratio lower than the BSE Sensex’s trailing P/E, regardless of index inclusion. The fund also evaluates factors like management quality and business competitiveness, allowing the manager to adjust the portfolio based on stock potential.

Its current top holdings include HDFC Bank, BPCL, Coal India, Kotak Mahindra Bank, and NTPC. PersonalFN has also awarded Tata Equity P/E Fund a 5-Star rating for its strong performance and prudent risk management.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

3. Quantum Long Term Equity Value Fund

Quantum Long Term Equity Value Fund aims for long-term capital appreciation by investing in shares within the BSE 200 Index that are attractively priced. It focuses on stocks that trade below their intrinsic value, seeking undervalued investments for exceptional long-term returns.

Quantum Long Term Equity Value Fund uses a disciplined research process to select value stocks based on their attractive valuations relative to earnings or book value. It emphasises the quality of management and ethical standards in its stock selection, following a buy-and-hold strategy to maximise potential. To protect the portfolio, the managers monitor market valuations and may increase cash allocation when valuations are high. This allows the fund to capitalize on buying opportunities during market corrections.

The fund’s top holdings include HDFC Bank, ICICI Bank, Infosys, and Bharti Airtel. While it may not always be a top performer, it is safely managed, focusing on quality stocks. PersonalFN has rated this fund 5-Stars.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

4. SBI Contra Fund

As the oldest scheme in the Contra Fund category, SBI Contra Fund aims to create a diversified portfolio across various market capitalisations and sectors. It uses a combination of top-down and bottom-up approaches to find contrarian investments, focusing on companies and sectors that are currently overlooked but have growth potential.

By identifying temporarily neglected stocks with strong fundamentals, SBI Contra Fund seeks to benefit from the recovery of undervalued sectors. It typically maintains significant exposure across large, mid, and small-cap stocks. The fund has performed well, outperforming its benchmark and category peers, earning a 5-Star rating from PersonalFN.

Its top holdings include HDFC Bank, GAIL, Tech Mahindra, Kotak Mahindra Bank, and Indus Towers with significant exposure in sectors like Banking, Infotech, Pharma, and Auto.

Portfolio Holdings as of August 31, 2024; Source: ACE MF 

Conclusion

These are some of the top-rated equity funds as per PersonalFN, which uses a comprehensive SMART Score process to evaluate each fund based on various quantitative and qualitative factors.

While star ratings can provide a quick view of a fund’s past performance, they shouldn’t be the only factor in your decision-making. A fund that performed well in the past may not continue to do so in the future. It’s essential to take a broader approach by considering the fund house’s systems, performance across market cycles, asset quality, risk-reward ratios, and overall track record.

PersonalFN’s SMART Score methodology offers a holistic view, helping you identify funds that are fundamentally strong and likely to perform well in the future. Please note that the funds mentioned are for informational purposes and should not be considered recommendations for investment.

It’s crucial to align your mutual fund investments with your risk tolerance and financial goals. Rather than chasing after 5-Star and 4-Star rated funds, you should focus on building a diversified portfolio of high quality and fundamentally sound funds that could be suitable to your investment needs and strategy.

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Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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This article first appeared on PersonalFN here