Is one of your 2022’s goals is to compound your money by investing in mutual funds? Then STAY AWAY from these funds!! to achieve your goal. If you still want to invest in mutual funds but are confused with so many funds? This guide will help you to choose one.
The action of the central bank to sustain the economic growth due to pandemic by increasing the liquidity and by reduction of tax by the Government increased the inflation rate around the globe. To control inflation most of the central banks of developing economies and the developed economies started to raise the interest rate. The interest rate and bond have an inverse relationship. When the interest rate is increased the bond price will decrease and vice versa. Therefore, it is a bad idea to invest in debt mutual funds during this time. To overcome this effect investors can choose dynamic funds and short-term funds.
Dynamic funds have the freedom to invest in various securities with different maturities. Therefore, during the interest rate hike, the fund can be shifted into short term bonds which will have a lesser effect on interest rate raise than in long-term bonds. Meanwhile investing in short term funds is also a good choice which has a duration of over 1-3 years.
The new investor who can take only moderate risk with limited growth can choose hybrid schemes as it has a mix of equity and debt. Large-cap funds deliver better results than hybrid schemes during normal market conditions. Diversified equity funds invest across different market capitalisation and sectors which is good for regular equity investors. Aggressive investors who are willing to take risks and expect higher returns can invest in mid and small-cap mutual funds.
Dynamic Funds:
- Kotak Dynamic Bond Fund
- ICICI Prudential All season Bond Fund
Short Term Funds:
- HDFC Short Term Debt Fund
- ICICI Prudential Short Term Fund
- Axis short term Fund
Large Cap Funds:
- Axis Bluechip Fund
- Mirae Asset Large Cap Fund
Flexi Cap Fund:
- Parag Parikh Flexi Cap Fund (Formerly known as Parag Parikh Long Term Equity Fund )
- UTI Flexi Cap Fund
Mid Cap Fund:
- Axis Midcap Fund
- Kotak Emerging Equity Fund
Small-Cap Funds:
- Axis Small Cap Fund
- SBI Small Cap Fund
Hybrid Funds:
- SBI Equity Hybrid Fund
- Mirae Asset Hybrid Equity Fund
Parameters considered
- Mean rolling returns – rolled daily for last three years
- Consistency – Hurst exponent is used to calculated the consistency of the fund. Its is the long term memory of time series. H exponent between 0 to 0.5 indicates anti persistent time series of returns. H exponent equal to 0.5 indicates random walk time series and H exponent 0.5 to 1 indicates persistent time series.
- Downside risk – The negative returns are only selected as they represent downside deviations, and it is squared and the squared deviations are added. The resultant figure is divided by the number of periods under study and then the square root of the answer is calculated which is the downside risk.
- Outperformance – Based on fund return and bench mark return.
Although it’s easy to choose the fund best way is to do SIP a fund than investing in a lump sum.
Disclaimer:
The above information is for education purposes only. Please consult with your financial advisor before investing in mutual funds.
PhiGrowth Capital and Consultants 