Top 3 Equity Mutual Funds for SIP To Invest In 2016

Mutual Funds investing via SIP is one the best wealth creation tool but only and if you remain invested during turbulent times of stock market. I am personally a big fan of mutual funds because it is has always given me superior returns. It is not just that i only give recommendation but i do remain invested in this scheme.

I have selected on 3 funds rather than 10 -15 funds which actually confuse the investor i mean lesser the better 

Below are the 3 best equity mutual funds (Large Cap) as on 30/05/2016 handpicked for you which are based on following parameters 
1-> Funds having CRISIL ratings of 4 Star & 5 Star
2-> Funds having Value Research Ratings of 4 Star & 5 Star 
3-> Superior returns compared to benchmark funds for last 10 years (where available) in SIP & Lump Sum investment (Proof below)
4-> Funds with positive Alpha
5-> Funds providing a return of more than 12% CAGR

Must Read : Why Real Estate is and always was a Dull Investment

#1 : SBI Bluechip Fund

Objective of the fund is to provide long term wealth while investing more than 80% in Equity & 20% in Debt related instruments 

Materials and Industrial are some places fund is currently overweight compared to index.Fund Manager has taken that little bit of a contra approach in the sense where the other fund would probably be more towards financial and technology companies

SBI Bluechip Fund has outperformed its benchmark index BSE 100 Indices from last 10 years 

Image Source : freefincalc.com

From the above screen we can analyze 

• If you had invested Rs 1000 in SIP for last 10 years then you would have accumulated Rs 245940 for an investment of Rs 120000 with a Compounded Annual Growth Rate (CAGR) of 13.8% and absolute return of 104.5% double the amount with a mere Rs 1000 a Month 

• Compared to Benchmark Index of BSE 100 your SIP invested value would be Rs 190269 vis a vis Rs 245940 generated from fund

• Year after Year SBI Bluechip Fund has outperformed BSE 100 Benchmark 

Must Read : Best 3 Midcap Churning Money For Investors  

#2 : Birla Sun Life Frontline Equity

If I had to look at the consistency of returns; over the last 10 years it is been a quartile one or two performer throughout. So an investor like you getting into this fund would be very comfortable about the consistent track record of returns.

Let us take a closer look at the fund returns compared to Benchmark Index NIFTY 50

Image Source : freefincalc.com

• If you had invested Rs 1000 in SIP for last 10 years then you accumulated wealth would Rs 253899 for an investment of Rs 120000 with a Compounded Annual Growth Rate (CAGR) of 14.4% and absolute return of 111.5825% infact double the amount with a mere Rs 1000 a Month 

• Compared to Benchmark Index of Nifty 50 your SIP invested value would be Rs 189384 vis a vis Rs 253899 generated from fund

• Year after Year Birla SL Frontline Equity Fund has outperformed Nifty 50 

#3 : ICICI Prudential Top 100 Fund 

ICICI Prudential Top 100 contains a slightly different large-cap strategy that is aggressive in comparison to different funds from the AMC’s however what i might call it a contra strategy on the large-cap side. Therefore where as the portfolio would be holding regular sectors, the fund manager is truly at now overweight in sectors like materials, industrial and energy, which is what this fund is making an attempt to derive value from.

Let us have a closer look at the returns from Top 100 Fund

Image Source : freefincalc.com

• If you had invested Rs 1000 in SIP for last 10 years then you accumulated wealth would Rs 233661 for an investment of Rs 120000 with a Compounded Annual Growth Rate (CAGR) of 12.8% and absolute return of 94.7175% almost double the amount with a mere Rs 1000 a Month 

• Compared to Benchmark Index of Nifty 50 your SIP invested value would be Rs 18984 vis a vis Rs 233661 generated from fund

• Year after Year ICICI Top 100 Fund has outperformed Nifty 50
   except the current year but i truly believe it is a fund for long term investment

PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left

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Buy Straddle Option

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Synthetic Short Call

Bull Call Spread

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In case of any further explanation you can reach me on vipuls1979@gmail.com or tweet me  @vipuls1979

Disclaimer  :-

The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose. https://investkiyakya.blogspot.com and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.

How to Select Mutual Fund for Portfolio

To select among so many mutual fund schemes, investors must understand how to evaluate past performance and the degree of risk associated with mutual fund. The total return of funds include dividends, capital gains distributions and increase in the NAV (net asset value). To get a clear picture of fund's performance , they should be compared with an appropriate benchmark index, the returns of similar funds available in market. Studying performance over a long period of time , during both bull and bear markets gives a hint as to how the fund will perform in future. 

Risk is an integral part of Mutual funds and you should look into the various risk ratio mentioned below before investing in Mutual Funds and not alone investing by absolute or annualized returns 

Alpha : Alpha is the measure of fund's excess return relative to a market Index. Alpha measures the difference between a fund's actual returns and its expected performance, given its level of risk. A fund's alpha is often considered to represent the value that a portfolio manager adds to or subtracts from a fund's return above and beyond a relevant index's risk/reward profile.

Calculation:-

Alpha = {(Fund return-Risk free return) – (Funds beta) *(Benchmark return- risk free return)}.

Example:

Fund return 10%

Risk free return 8%

Benchmark return 5%

Beta of Fund 0.8

By computing with above formula we will get alpha as 4.4 for this fund

A positive alpha of 1.0 suggest the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha indicates an underperformance of 1%. For investors, for you the more positive an alpha is, the better it is.

Beta : Beta measure the volatility of fund's return compared to that of benchmark index.

For Example : A beta of fund with 1.2 is 20% more volatile than the Index. It will, on average, rise 20% more when market is increasing and fall 20% when market is declining. A beta of fund with .7 is less volatile than the Index. The fund will give a return of 30% lower than market when market is rising and decline 30% less when it is falling 

Beta = 1, This happens when the stock price movement is same as that of market.

Beta > 1: Beta exceeds one when the stock price movement surpass market movement.

Beta < 1: This happens when the stock price moves less in comparison of market.

Investors willing to take on more risk in search of higher returns should look for high beta investments. 
In case if you want to calculate volatility manually here is the link How to Calculate Daily and Historical Volatility

R-Squared : R-Squared measures whether the fund's price movements are correlated to the benchmark index on a scale from 1 to 100. 

R-squared is not a measure of the performance of a portfolio. A great portfolio can have a very low R-squared. It is simply a measure of the correlation of the portfolio's returns to the benchmark's returns.

General Range for R-Squared:

70-100% = good correlation between the portfolio's returns and the benchmark's returns

40-70% = average correlation between the portfolio's returns and the benchmark's returns

1-40% = low correlation between the portfolio's returns and the benchmark's returns

Index funds have an R-squared nearly close to 100.

A rule of thumb, an R-Squared above 75 typically indicates that the comparison of a given fund to a given benchmark is meaningful.

Standard Deviation

Standard deviation (SD) measures the volatility the fund's returns in relation to its average. It provides information whether you how much the fund's return can deviate from the historical mean return of the scheme. If a fund has a 12% average rate of return and a standard deviation of 4%, its return will range from 8-16%.

Computation:

Standard Deviation (SD) = Square root of Variance (V)

Variance = (Sum of squared difference between each monthly return and its mean / number of monthly return data – 1).

The higher the number, the more volatile is the fund's returns. Investors should prefer funds with lower volatility.

Sharpe Ratio : - Sharpe Ratio is effectively the risk premium per unit of risk. Higher the Sharpe Ratio, better the scheme is considered to be. Care should be taken to do Sharpe Ratio comparisons between comparable schemes. For example, Sharpe Ratio of an equity scheme should not be compared with the Sharpe Ratio of a debt scheme.

Mutual Fund Evaluation Criteria –
Consistent Performance -> Low Standard Deviation; High Sharpe Ratio -> Higher ranked fund

Volatile Performer -> High Standard Deviation; Low Sharpe Ratio –> Lower ranked fund

As an Investor you should not blindly look at the past returns and purchase the funds instead you should look at the parameters above on how to select mutual fund  , do some research and review their performance at a regular intervals

Several Fund rating agency such as CRISIL provides rating system and tools to compare the performance of funds with other funds with similar objective. The most and the important aspect of fund performance is consistency. Investors are advised to choose funds with returns that are ranked above compared to their peers majority of the time

PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left

Mutual Funds & Insurance Related Articles :-

Benefits of Systematic Investment Plan
What is Systematic Transfer Plan and How it works ? 
Advantages of Equity Linked Savings Schemes
Top 3 Mutual Funds to Invest in 2016 for Long Term
How Much Insurance Do I Need ?
How to Select Mutual Fund for Portfolio ?
How to Budget your money with 40/30/30 Rule ?
Mutual Fund Versus ULIP 
Why Term Insurance Policy is required till 60 years ?

Equities related article :

Market Order vs Limit Order vs Stop loss Order vs Bracket Order

Risk Management in Broking House for You as Investor

Understand Your Daily Margin Statement

What is Power of Attorney in Online Trading?

Futures & Options related article :

Futures Trading Terminologies

What is Futures Trading?

What is Derivatives ?

What are Forward Contracts ?

Advantages & Disadvantages of Futures Trading ?

Guide to Options Trading

Long Call - Bullish Trading Strategies

Long Put

Short Call - Bearish Strategies

Sell Put - Bullish Strategies

Buy Straddle Option

Short Straddle Option

Synthetic Long Call

Synthetic Long Put

Synthetic Long Futures

Synthetic Long Futures

Synthetic Short Call

Bull Call Spread

Bull Put Spread

In case of any further explanation you can reach me on vipuls1979@gmail.com or tweet me @vipuls1979
Disclaimer  :-

The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose. https://investkiyakya.blogspot.com and its subsidiaries / affiliates /

sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.

Mutual Funds Versus ULIP

In this article you will be able to understand how beneficial it is to have remained invested in Mutual Fund versus ULIP

For our example, Lets take Example of ICICI Pru Guaranteed Wealth Protector Plan 

Didn't that word "GUARANTEED" immediately appeals you, and we prefer to invest in avenues where the principal amount is safe. It may not be wise, but that's our immediate reaction when asked about investing. But that is where we are wrong and many insurance agents even doesn't know what does the term guaranteed means 

Lets go ahead with our Example 

ICICI Pru Guaranteed Wealth Protector Plan is a ULIP plan where you have premium paying term of 1 year and 5 years with a lock in period of 5 Years.

In case if you paid a premium for 5 Years then Sum Assured is 10 times and for Single Premium it is 1.25 Times.

ICICI Pru Guaranteed Wealth Protector Plan will be investing 60% in Equity Market and 40% in Debt Market with Life Growth & Life Income Fund respectively which would be reduced to 90% in Debt & 10% in Equity at the end of 10th year that is maturity year 

You will get tax benefits on premiums paid as per section 80C so in our comparison we would also include a Tax Savings (Balanced) Mutual Fund

Must Read : Best 3 Large Cap Mutual Fund to Invest in 2016 via SIP

Illustrations

Annual Premium : Rs 1,00,000 

Sum Assured     :  Rs 10,00,000

Age at Entry       :  35 Years 

Model of Premium Payment : Annual 

Premium Paying Option : 5 Years 

Assured Benefit at Maturity : 5,05,000

Now Let us calculate the charges levied by fund 

Premium Allocation Charges are 6%,5%,4%,4% in annual premium payment mode for 1st , 2nd , 3rd , 4th and 5th year respectively , After 5 Years there are no charges 

Policy Administration Charges are from 1st to 5th year 0.21% p.m. (2.52% p.a) and from 5th year onwards 0.10% (1.20% p.a)

there is also a charge called Fund Management Charge which is adjusted against NAV 

Below are the details for units accumulated

Nav for ICICI Pru Guaranteed Wealth Protector - Life Growth Fund as on 20/05/2016 is 13.09

Below are the details for units accumulated

Nav for ICICI Pru Guaranteed Wealth Protector - Life Income Fund as on 20/05/2016 is 12.5512

Must Read : Best 3 Mid Cap Fund Churning Money for Investors 

 

Fund Value as on 20/05/2016

13889.33 X 13.09 = Rs 181,811

9901.14 X 12.512 = Rs 123,883
Total                     = Rs 305,644
Since you paid 3 years premium amount to Rs 3 Lakhs and currently your fund value is 305644 a gain of Rs 5644 and XIRR 6.39% p.a. along with an insurance of 10 Lakhs 


If we buy only mutual funds then we wont be able to cover the insurance part, since insurance is not an investment but a risk mitigation tool we would go ahead with Term Insurance for a male aged 35 years and rest would be invested in SIP in Birla Sun Life Tax Relief 96 (Growth Fund).  I have written an article on "How much insurance do i need" which would help you to select the exact insurance amount

Well, The reason for selection of Birla Sun life tax relief is, it is a Tax Savings and Balanced fund with target allocation of 80%equity & 20% debt and money market securities.

From the above image we had to pay a premium of Rs 5254/- p.a + service tax 761.83 = Rs 6,015 every year 

We would be investing 

1,00,000 (Original Premium)

-   6,015 (Term Insurance Premium) 

=93,985 divide by 12 i.e 7,832 rounding off Rs 7800 in SIP

In ULIP you would have paid premium every 1 year and SIP you pay monthly , but remember you are paying your premium advance to Insurance Companies and that is not the case in SIP and logically you are losing Interest on the premium amount paid initially to insurance companies.

SIP Calculation is below where in we would have paid 210600 for 27 months and our investment value appreciated to Rs 237828 as on 20/05/2016

Remember : We haven't purchased units of Rs 1 Lakhs in third year instead we are going with SIP mode that is the reason our investment is still below 3 Lakhs compared to ULIP.

Below is the calculations where every year we have purchased a lump sum of Rs 93,985 for Birla Sun life tax relief fund
 

from the above sheet it is clearly visible that Mutual Funds Versus ULIP, MF always have an upper hand 

I hope you enjoyed reading the article , it takes time to write  articles with facts and figures, request you to please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left.

Who doesn't like a financial healthy life,In case if you want one contact me for Financial Planning, please do drop an email to me at vipuls1979@gmail.com. I would be happy to assist you


Mutual Funds & Insurance Related Articles :-

Benefits of SIP
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Best 3 Large Cap Mutual Funds for SIP in India
Best 3 Midcap Mutual Funds for SIP in India
Top 3 ELSS TAX Savings Funds for SIP in India
Why you should not buy ULIP
How to Select Mutual Fund for Portfolio
Liquid Funds are better alternative than Savings Bank account
What is FMP in Mutual Funds
Complete Guide on Monthly Income Plans
Complete Guide on Credit Opportunities Fund
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Equities related article :

Market Order vs Limit Order vs Stop loss Order vs Bracket Order

Risk Management in Broking House for You as Investor

Understand Your Daily Margin Statement

What is Power of Attorney in Online Trading?

Futures & Options related article :

Futures Trading Terminologies

What is Futures Trading?

What is Derivatives ?

What are Forward Contracts ?

Advantages & Disadvantages of Futures Trading ?

Guide to Options Trading

Long Call - Bullish Trading Strategies

Long Put

Short Call - Bearish Strategies

Sell Put - Bullish Strategies

Buy Straddle Option

Short Straddle Option

Synthetic Long Call

Synthetic Long Put

Synthetic Long Futures

Synthetic Long Futures

Synthetic Short Call

Bull Call Spread

Bull Put Spread

In case of any further explanation you can reach me on vipuls1979@gmail.com or tweet me @vipuls1979
Disclaimer  :-

The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose. https://investkiyakya.blogspot.com and its subsidiaries / affiliates /

sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect

loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any

investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must

make his own investment decisions based on his specific investment objective and financial position and using

such independent advisors as he believes necessary. https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.