Best Mutual Funds to Invest Now

November 5, 2024 Mutual Fund

The Indian equity market has witnessed high volatility in recent months amid an uncertain global environment and relentless selling by FIIs. Several key equity indices are down sharply from their peaks, as of November 04, 2024, the BSE Sensex and the BSE Midcap indices are down by around 8% each from their respective peaks, while the BSE Smallcap is down by about 5% from its peak. This has impacted the returns of equity mutual funds as well.

Mentioned below are some of the key factors keeping a check on the bull run in the Indian equity market:

• Global markets are anxious about the outcome of the US presidential election and the subsequent impact on key economic decisions. Additionally, the markets are also keenly awaiting decision of the US Federal Reserve to be held between November 6-7, which is expected to offer more insights on the path of interest rates that RBI may follow.
• FIIs offloaded record-high equities worth Rs 94,000 crore in October as they appear to be booking profit amid expensive valuations and as other emerging markets such as China and Japan seem better placed in terms of valuations. Notably, Chinese lawmakers are expected to announce one of the largest fiscal packages since the pandemic to boost sentiment in the economy that has been struggling to generate stable growth.
• Slowdown in corporate earnings growth is also a cause of worry. According to a Business Standard report, early bird results for companies shows that corporate revenue and earnings growth stayed sluggish in the second quarter of 2024-25, reflecting a challenging demand environment.

Volatility in the Indian equity market has intensified

Base taken as 10,000
Past performance is not an indicator of future returns.
Data as of November 04, 2024(Source: ACE MF, data collated by PersonalFN Research) 

While strong buying trends by domestic institutional investors such as mutual funds and EPFO cushioned the fall in the market, given the current market scenario it is important for investors to be cautious while investing in mutual funds.

Investors who are not comfortable with assuming high risk can consider trimming their allocation in the Mid Cap Funds and Small Cap Funds. Instead, they may prefer funds that are relatively less risky and are better placed to handle market volatility and uncertainties.

In this article find out which are the best equity mutual funds to invest in now!

Best mutual fund to invest now #1: Large Cap Funds

Large Cap Mutual Funds invest predominantly in the top 100 companies in terms of market capitalisation. Being market leaders, large-cap stocks have the better ability to manoeuvre through market phases and tide over volatility. Apart from being market leaders, blue chip stocks (or companies) have well-established brand recall value, economic moats, competitive pricing, ethical and efficient management, governance and compliance practices, solid balance sheet, and surplus cash reserves. And most importantly, they enjoy customer loyalty that helps them tide over the tough times.

This enables Large Cap Funds to offer stability and witness lower downside risk compared to Mid Cap Funds and Small Cap Funds during phases of high market volatility or during market correction. Thus, investors in Large Cap Mutual Funds benefit from the steady growth of capital over the long run without exposing the portfolio to high risk.

Notably, large-cap stocks appear better-placed in terms of valuation (on par with their long-term average), compared to mid and small-cap stocks that appear to have run ahead of the fundamentals amid the risk-on environment seen in the market in recent years.

Examples of Large Cap Funds include ICICI Pru Bluechip Fund, HDFC Top 100 Fund, Mirae Asset Large Cap Fund, etc.

Click here to explore the best performing Large Cap Funds of 2024.

Best mutual fund to invest now #2: Flexi Cap Funds

Amid the global uncertainties and rising valuations, particularly in the mid-cap and small-cap segments, it is important to tread with caution. It would be better to avoid getting carried away by irrational exuberance and instead focus on creating a well-diversified portfolio spread across market caps and sectors.

Investing in Flexi Cap Mutual Funds is a great way to diversify your portfolio across market caps and thereby maximise portfolio returns over the long run. These funds have the flexibility to trim allocation to mid and small-cap stocks if the valuations turn expensive while simultaneously increasing exposure in large-cap stocks.

Depending on market conditions, liquidity conditions, and valuations, the fund manager of a Flexi Cap Fund has the flexibility to manoeuvre among large-cap, mid-cap, and small-cap stocks without any restriction. This allows fund managers the scope to identify alpha-generating opportunities from a large universe of stocks, which can reward investors with superior risk-adjusted returns across market phases.

Examples of Flexi Cap Funds include Parag Parikh Flexi Cap Fund, HDFC Flexi Cap Fund, and Kotak Flexicap Fund.

Click here to find out the top performing Flexi Cap Funds of 2024.

Best mutual fund to invest now #3: Value Funds

Value Funds aim to pick undervalued stocks, i.e., the stocks’ whose current market price is lower than their intrinsic/fair value but have strong fundamentals and high-growth potential. Value Funds tend to underperform during momentum-based market rallies that generally favour growth stocks. But when the market realises the true potential of value stocks, the NAVs of Value Funds soar, and investors are rewarded with attractive gains.

The fund managers use various valuation metrics such as P/E ratio, P/B ratio, EBIT, EBITDA, cash flows, etc., along with profitability ratios such as ROCE, ROE, and ROA, among others, and complement it with qualitative aspects to judge the future potential of the stocks.

Value Funds can offer a better risk-reward potential and act as a great diversifier because they are better positioned to manage the downside risk during a market fall. They also tend to do well during phases of market recovery. Against the backdrop of geopolitical tensions, climate events, uncertain inflation outlook, and heightened stock market volatility, value investing may continue to be in focus, just like it has in the last couple of years.

Examples of Value Funds include ICICI Pru Value Discovery Fund, HSBC Value Fund, and Badhan Sterling Value Fund.

Click here to check out the best performing Value Funds of 2024.

Best mutual fund to invest now #4: Aggressive Hybrid Funds

The equity market may continue to face challenges in the near term due to various domestic and global factors. On the other hand, debt investments are expected to fare better due to the impending rate cuts by the RBI. When interest rates start declining, debt instruments offer better returns due to the inverse relationship between interest rates and bond prices.

Keeping this in mind, it is better to play safe and diversify the portfolio across equity and debt. Aggressive Hybrid Funds are hybrid mutual funds that invest predominantly in equity and equity-related instruments (65-80% of their assets) along with meaningful exposure to debt securities (20-35% of their assets). This approach provides investors with the benefit of the upside potential of equity investment at a lower risk as compared to pure equity funds.

The equity part of the Aggressive Hybrid Fund offers investors the opportunity to benefit from the long-term growth of equities, while the debt part of the portfolio offers stability and cushion against equity market volatility.

Examples of Aggressive Hybrid Funds include SBI Equity Hybrid Fund, HDFC Hybrid Equity Fund, and ICICI Pru Equity & Debt Fund.

Click here to know about the best performing Aggressive Hybrid Funds of 2024.

Best mutual fund to invest now #5: Multi Asset Allocation Funds

Allocation of assets across diverse classes is an important strategy that helps investors balance risk-reward by adjusting the proportion of each asset in the investment portfolio. Multi Asset Allocation Fund is one such category that aims to generate modest capital appreciation while trying to reduce overall risk to the portfolio from a combined portfolio of low-correlated assets. These funds are mandated to invest in at least three asset classes, usually equity, debt, and gold/silver, with a minimum allocation of at least 10% in each.

While history reveals that equities hold the potential to build wealth and beat inflation over the long term, it could be subject to drawdowns in the short term-to-near term. This is where debt as an asset class offers stability and steady growth to the investment portfolio. Meanwhile, gold has proved to be an effective portfolio diversifier and displayed its trait of a safe haven during phases of geopolitical tensions and macroeconomic uncertainties.

Thus, Multi Asset Funds can offer stable returns across market phases as volatility in one asset class will be likely offset by growth in one or more other asset classes.

Examples of Multi Asset Allocation Funds include ICICI Pru Multi-Asset Fund, Kotak Multi Asset Allocation Fund, and Quant Multi Asset Fund.

Click here to discover the best performing Multi Asset Allocation Funds of 2024.

How to invest in equity mutual funds during a volatile market?

Despite bouts of volatility in the interim, India’s long-term growth story seems intact. So, while there may be various factors at play affecting returns from equity mutual funds, selecting the right schemes (among the various asset classes and sub-asset classes) as per one’s risk appetite and financial objectives helps in reducing the risk. One should avoid highly risky investments such as Small Cap Funds and Sector/Thematic Funds unless they understand the risk-reward matrix of such funds. Moreover, investors may be better off following a staggered approach to investment to manage volatility and reduce risk.

Lastly, one must have an investment horizon of at least 3-5 years when investing in equity-oriented mutual funds.

Watch this video to explore the 15 top-rated equity funds in our watchlist:

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.

The securities quoted are for illustration only and are not recommendatory.

This article first appeared on PersonalFN here