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Top 10 Best SIP Mutual Funds to invest in India in 2018

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Top 10 Best SIP Mutual Funds to invest in India in 2018

In this article, I will share my Top 10 Best SIP Mutual Funds to invest in India in 2018. Yearly I will publish my Top 10 Best SIP Mutual Funds to invest in India. Continuing that trend, I will publish the list for 2018.

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Before proceeding further, let us first analyze the funds of Top 10 Best SIP Mutual Funds to invest in India in 2017. Do remember one thing that due to continues market uptrend, the majority of equity funds performed well and given you better returns.

However, my concern is always to go for a fund which is old, went through all market cycle, given you consistence performance and also with downside protection.

Top 10 Best SIP Mutual Funds to invest in India in 2017 Performance Report

Notice that few funds since a year not able to beat the benchmark index. However, they have easily beaten the benchmark if you look at 3 yrs, 5 yrs or 10 yrs returns. Hence, you no need to worry in this front.

Why I have to invest?

Before a BLIND investment, it is always best that you must know the reason for your investment. Hence, before jumping into investment read what I am sharing below.

You must have a proper Financial Goal

I noticed that many of investors simply invest in mutual funds just they have some surplus money. The second reason may be someone guided that mutual funds are best in long run compared to Bank FDs, PPF, RDs, or even LIC endowment product.

If you have clarity like why you are investing, when you need money and how much you need money at that time, then you will get the better clarity in selecting the product. Hence, first identify your financial goals.

You must know the current cost of that particular goal. Along with that, you must also know the inflation rate associated with that particular goal. Remember that each financial goal to have it’s own inflation rate. For example, education or marriage cost of your kid’s is different inflation that the inflation rate of household expenses.

By identifying the current cost, time horizon and inflation rate of that particular goal, you can easily find out the future cost of that goal. This future cost of the goal is your target amount.

I have written a separate post on how to set your financial goals. Read the same at “Financial Goals – How to set before jumping into investing?”

Asset Allocation is MUST

Next step is to identify the asset allocation. Whether it is short-term goal or long-term goal, the proper asset allocation between debt and equity is a must. I personally prefer the below asset allocation. Remember that it may differ from individual to individual. However, the basic idea of asset allocation is to protect your money and smoothly sail to reach the financial goals.

If the goal is below 5 years-Don’t touch equity product. Use the debt products of your choice like FDs, RDs or Debt Funds.

If the goal is 5 years to 10 years-Allocate debt:equity in the ratio of 40:60.

If the goal is more than 10 years-Allocate debt:equity in the ratio of 30:70.

While choosing debt product, make sure that the maturity period of the product must match your financial goals. For example, PPF is best debt product. However, it must match your financial goals. If the PPF maturity period is 13 years and your goal is 10 years, then you will fall short of meeting your financial goals.

Return Expectation

Next and the biggest step is the return expectation from each asset class. For equity, you can expect around 10% to 12% return. For debt, you can expect around 7% return expectation.

When your expectations are defined, then there is less probability of deviating or taking knee-jerk reactions to the volatility.

Portfolio Return Expectation

Once you understand how much is your return expectation from each asset class, then the next step is to identify the return expectation from the portfolio.

Let us say you defined the asset allocation of debt:equity as 30:70. Return expectation from debt is 7% and equity is 10%, then the overall portfolio return expectation is as below.

(70% x 10%) + (30% x 7%)=9.1%.

How much to invest?

Once the goals are defined with target amount, asset allocations is done, return expectation from each asset class is defined, then the final step is to identify the amount to invest each month.

There are two ways to do. One is constant monthly SIP throughout the goal period. Second is increasing some fixed % each year up to the goal period. Decide which suits best to you.

Hope the above information will give you clarity before jumping into equity mutual fund products.

How many mutual funds are enough?

How many mutual funds do we have? Is it 1, 3, 5 or more than 5? The answer is simple…you don’t need more than 3-4 funds for investing in mutual funds. Whether your investment is Rs.1,000 a month or Rs.1 lakh a month. With the maximum of 3-4 funds, you can easily create a diversified equity portfolio.

Having more fund does not give you enough diversification. Instead, in many cases, it may create you portfolio overlapping and leads to underperformance.

Now let us move to the selection of mutual funds.

Taxation of Equity Mutual Funds for 2018-19

Remember that Equity Funds and Debt funds are taxed differently. Hence, you must understand the taxation part as well before jumping into investment. I tried to explain the same in below image.

Mutual Fund Taxation FY 2018-19

The rate of taxation is as below for the current FY.

Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rates

Below is the DDT Rates applicable to Mutual Funds after the Budget 2018.

Mutual Fund Taxation FY 2018-19 - DDT or Dividend Distribution Tax

 

Hope taxation part is clear to all of you. If you still have doubt, then refer my latest post “Budget 2018 – Mutual Fund Taxation FY 2018-19“.

How I selected Top 10 Best SIP Mutual Funds to invest in India in 2018?

I will first screen the top 15 funds in each category based on their returns to benchmark since inception. The funds who consistently beaten the benchmark are listed in that 15. Once I have the list in my hand, then I select the funds based on Risk-Return Analyzer.

Many simply select the funds based on eye-catching returns. However, at what cost the fund is giving you a better return? To what extent it protects my investment during a downturn is what differentiate from good fund to bad fund.

Again, I am not saying that these 1o funds alone be considered as “Top 10 Best SIP Mutual Funds to invest in India in 2018”. There may be fewer other funds, which are good to compete with these funds. However, I may be biased towards few Mutual Fund Companies (purely on their size and how long they are in MF business in India). Below are the metrics I used to arrive at finally selecting the funds.

If the fund cleared all these tests and given me around a minimum of 80% score since inception, will be added to my list.

  1. Beta-Volatility measure and tell how much the fund changes for a given change in the Index. Lower the beta, lower the volatility. Hence, your fund must have lower beta.
  2. Standard deviation-It tells us how for a given set of returns, how much do fund returns deviate from the average. Lower the standard deviation, lower the volatility. Hence, your fund must have lower beta.
  3. Alpha-It is the risk-adjusted measure. By taking risks, how much the fund manager generated the return over the benchmark. Higher the alpha, higher the outperformance of the fund.
  4. Sharpe Ratio-It is the risk-adjusted measure. Higher the Sharpe ratio, better is the performance.
  5. Sortino Ratio-It is the risk-adjusted measure. Higher the Sortino ratio, better is the performance.
  6. Treynor Ratio-It is also be known as reward ratio. Higher the Treynor ratio, better is the performance.
  7. Information Ratio-This is calculated by average excess return obtained compared to a benchmark and divides it by the standard deviation of excess returns. Higher the information ratio, higher the consistency in beating the benchmark.
  8. Omega Ratio- It is a risk-return performance measure of an investment asset.
  9. Downside deviation-This is also be called as BAD RISK.
  10. Upside potential-This is exactly the opposite of Downside deviation.
  11. R-squared- It is a measure of how correlated the fund’s NAV movement is with its index.
  12. SIP Returns-For how many times the fund’s returns are above the index when we invest in SIP.
  13. Lump Sum Returns-For how many times the fund’s returns are above the index when we invest in a lump sum.

Below are my selection in each category of funds.

Best SIP Mutual Funds to invest in India in 2018 -Large Cap

In this category, there are other funds also which are in my radar like SBI Bluechip Fund, Birla Sunlife Frontline Equity Fund. However, I found no reason to change my last year recommendations. Hence, I am continuing the same funds.

Best SIP Mutual Funds to invest in India in 2018 -Large Cap

Best SIP Mutual Funds to invest in India in 2018 -Multi-Cap

In this category, I am bit skeptical with ICICI Pru Value Discovery as the fund underperforming since a year. Those who invested in this fund based on my recommendation must continue and watch this fund for another year or so. Along with this, you can check with the fund like SBI Magnum Multi Cap Fund also.

Best SIP Mutual Funds to invest in India in 2018 -Multi Cap

Best SIP Mutual Funds to invest in India in 2018 -Mid Cap

Last year I recommended HDFC Midcap Opp Fund and Franklin India Prima Fund. I am sticking to the same funds in this year also as I have not found any reason to change these funds. You can also have a fund like Mirae Asset Emerging Bluechip Fund.

Best SIP Mutual Funds to invest in India in 2018 -Mid Cap

Best SIP Mutual Funds to invest in India in 2018 -Small Cap

Last year, I recommended DSPBR Micro Cap Fund and Franklin India Smaller Companies Funds. However, DSPBR now not accepting the fresh investments. Hence, those who already have a SIP in that fund may continue in that fund without any worries. Fresh investors can use Franklin India Smaller Companies Fund.

Best SIP Mutual Funds to invest in India in 2018 -Small Cap

Best SIP Mutual Funds to invest in India in 2018 -Equity Oriented Balanced Funds

Here also I am managing the same funds of last year. No change here also.

Best SIP Mutual Funds to invest in India in 2018 -Balanced Funds

 

The final list of Top 10 Best SIP Mutual Funds to invest in India in 2018 are as below.

Best Mutual Fund Schemes 2018

Conclusion:-You might have surprised that I did not change my funds this year also. Yes, because equity investment does not mean changing fund frequently. However, keeping an eye on fund performance is also a must. The fund I selected are old funds and consistently performed in all market cycles.

You may see some other funds which performed well above these funds. But do remember that during a market uptrend, even the worst fund will generate you BEST returns. The real test of the fund will come into picture when the market starts to fall i.e downside protection.

If the benchmark fell to 20% and your fund has fallen 10 15%, then this is the best fund to me. Because it protected from fall. Hence, always look for consistency and other parameters rather than chasing returns.

 

 

 

Source by:- basunivesh

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