Hello Readers!
Equity Mutual funds have been showing a high amount of volatility since the last some months, possibly due to the down market because of COVID-19 massive spread. However, we cannot ignore the opportunity that the market even at the times of correction, has provided to investors, to rethink their allocations.
Investors who are planning to start afresh investment in equity mutual fund or those who must be thinking to reshuffle their allocation in Equity mutual fund must have landed a dilemmatic situation. The must-have question in their mind like whether to add more large-cap, mid-cap, or small-cap schemes? Out of the three where should they invest, or allocate higher amounts?
Well, let us reach out to their solution.
LONG-TERM BENEFITS
Investors, generally who look towards long-term investment say 7-10 years or more and eagers to get inflation-beating returns, plans to invest in Equity mutual funds. In this way, the right selection of fund scheme, add the chances of achieving their investment objective. Only investors need to buy and hold their investment for the long-term.
Investors may think that there is high return potential from the small-cap and mid-cap mutual fund as compared to the large-cap funds. But at the same time, they should not ignore the high amount of risk associated with small-cap and mid-cap funds than large-cap funds. Added to that in time of market corrections, this higher risk in small-cap and mid-cap fund converts into sharper one.
However, there are some funds in mid and small-cap categories that have shown sharp uptrends, when the markets are rallying. Thus, it can be concluded that in a ten-year kind of long period, small-cap funds outperform large-cap funds.
The higher risk association in small caps can be seen in their return even during this volatility. For example, in the last ten years, the top five best performing large-cap funds have delivered an average return of around 10% ranging from 11.5% to 9.5% annualized return. However, for the same period the top five best performing small-cap funds have also delivered a similar average return, but in the range of 12%-7.5% annualized return.
CHOOSE FUNDs WITH ACCURATE METRIC
Do not focus on picking out one among the large, mid or small-cap schemes. It’s better if you focus on funds that have a good amount of diversification and a track record of consistent performance during the market’s ups and downs. These funds have the potential to bring you an expected inflation-beating plus return anytime in a long period.
Thus, if we conclude, then we can say, rather than looking at which category the fund belongs to, and what is its market capitalization segment, analyze the funds based on three important metrics:
- consistency of performance
- quality of the portfolio
- the fund manager’s track record
For any kind of investment query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).