One of the most frequent questions on investors’ minds is: Which are the best mutual funds to invest in for the long term?
For investors who can be more hands-on with their portfolio, which only means making the odd change every 12-18 months, a combination of active equity mutual funds can outperform the index. Hence, the Capitalmind Equity Mutual Fund Portfolio.
Capitalmind Mutual Fund Portfolio comprises three active funds that allow us adequate diversification across strategies, categories, and risk-return profiles.
You can get access to Capitalmind Equity Mutual Fund Portfolio by signing up for Capitalmind Premium
How we shortlist funds
- Look beyond the returns: Funds should have a certain amount of operational history (track record) and longevity to understand how they have been through various market cycles.
- Performance within the category: Evaluate the outperformance and underperformance of a fund on a 1-year rolling return basis
- Volatility: The annualised standard deviation of daily returns normalised for the fund’s median 1-year performance. So, a lower-volatility but low-return fund gets penalised compared to a higher-return fund of similar volatility.
- AUM Health: The AUM of the fund should at least cross a threshold that allows the fund to deploy adequate resources (research team, tools, etc.) that help generate good performance.
- Beat the index: If the fund cannot constantly beat its tracking index, it’s not even worth considering it as an investment.
Surviving Volatility
Volatility is as much a part of the deal as returns. Ask yourselves this – How likely are you to hold on to a fund that falls 50% from its peak? You’re far more like to back yourselves and stay invested in a fund that does not fall as much. A lower volatile fund, in some cases, may mean settling for lower returns but it will keep you invested in the long run which is better than ducking out of your investment plan.
Two things to consider before investing
- This is an all-equity portfolio, so it assumes that your asset allocation in the form of debt and other asset classes is taken care of. The portfolio is suitable for investment horizons of 5 years or more. That doesn’t mean the funds in the portfolio won’t change, just that equities, especially mid and small caps, can see periods of negative to no returns for periods of time, sometimes extending to 3 years or more, so it is unsuited for sub-five-year horizons.
- This is an aggressive mutual fund portfolio with 50% allocation to mid and small-cap funds plus the remaining in one flexicap fund. Note your effective allocation to mid and small caps will likely be lower than 50% because most mid and smallcap funds typically invest the mandated 65% minimum to those market caps and the remaining in large caps.
Get access to this mutual fund portfolio along with investible insights & research, 5 other model portfolios, active strategies, and access to the slack community!
