Equities tend to beat all asset classes over the long term period. To give you an idea while gold has given a return of just 3 to 4 percent over the period of last five years, top five large cap equity funds have given an average return of 22 percent.
Having said that, if you had invested just Rs5000 in any of the top 5 equity large cap mutual funds (See the table: Best Performing Mutual Funds), then you would have accumulated a corpus of more than Rs2 crore over the period of 20 years.
|Best Performing Large Cap Funds|
|Fund||1-Year Return (%)||3-Year Return (%)||5-Year Return (%)|
|Kotak Select Focus Fund – Direct Plan||14.22||14.12||23.34|
|ICICI Prudential Value Discovery Fund – Direct Plan||9.49||8.31||22.87|
|Mirae Asset India Equity Fund – Direct Plan||17.5||13.35||22.6|
|Invesco India Growth Fund – Direct Plan||27.03||14.31||22.37|
|Kotak Select Focus Fund Regular Plan||12.91||12.84||22.14|
|Source: Value Research|
Recently, Securities and Exchange Board of India (SEBI) broadly classified all mutual fund schemes in five groups — equity, debt, hybrid, solution oriented and other scheme. Equity schemes are further classified as large cap, mid cap and small cap. In order to avoid any duplication, top 100 companies in terms of market capitalisation are classified under large cap segment, while those 101st- 250th firm fall under mid-cap category and 251st company onwards they fall into the category of small-cap.
It is best to avoid small cap funds at this stage, as they look bit over valued. Last year small cap mutual funds gave a return as high as 30-40%. But with stocks getting overvalued now, it is best time to invest in large cap funds. Large cap funds invest in top companies in terms of market cap and hence they are less volatile when compared with small cap mutual funds.
Even though stock markets are currently going through a correction phase, it is advisable to keep investing in stock markets every month through systematic investment plans (SIPs) as equity markets tend to be the best performing asset class in the long run.
Moreover, it is advisable not to invest 15 per cent your portfolio in gold as after years of underperformance, gold might give you lucrative returns over the period of next year. The trade war between the US and China and rising commodity prices could lead to a rise in gold prices.