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The top equity growth mutual funds with the best returns in the last 3 years

<ul class="summary-list"><li>The best-performing mutual <keyword id="86852" type="PERSON" weightage="60" keywordseo="fund-managers">fund managers</keyword> of 2020 earned their success by foreseeing big investment themes that benefited from the pandemic.</li><li>Business Insider interviewed the nine top performers in the US, and the five in Europe, to learn about their strategies and what they have up their sleeves for 2021.</li></ul>COVID-19 changed the world - and it also accelerated many trends that were already underway in the version of society that existed beforehand.Several investors who outshined their peers this year had the foresight to plug into trends that became essential for our new reality. That's what Business Insider's <keyword id="35175" type="ORGANIZATION" weightage="60" keywordseo="investing">investing</keyword> team learned as we interviewed the top-performing mutual fund managers of 2020 in the US and Europe. <keyword id="6354298" type="DEFINITION" weightage="60" keywordseo="Stocks">Stocks</keyword> like vaccine developer <a href="https://markets.businessinsider.com/stocks/mrna-stock">Moderna</a> (+700% this year) and streaming service <a href="https://markets.businessinsider.com/stocks/roku-stock">Roku</a> (+129%) were already big holdings in their portfolios. A relatively obscure biotech company was the largest holding for <a href="https://www.businessinsider.com/category/dennis-lynch">Dennis Lynch</a>, the top performer this year and a frontrunner for the last decade.And as ARK Invest's <a href="https://www.businessinsider.com/category/cathie-wood">Cathie Wood</a> said, "so many trends that were well in place before the COVID crisis have gained so much more traction. Because of that, our companies have outperformed significantly."Some of the big <keyword id="6357440" type="DEFINITION" weightage="60" keywordseo="Stock-Market">stock market</keyword> winners were not direct pandemic beneficiaries. Tesla's seemingly unstoppable rally created breakout performances for multiple portfolio managers. And in <a href="https://www.businessinsider.com/stock-market-outlook-2021-top-europe-investors-fund-managers-picks-2020-12">Europe</a>, where the likes of Tesla and its 600%-plus gain this year are scarcer, fund managers used old-fashioned fundamental analysis to find cheap yet promising stocks.In addition to learning about what worked this year, we asked these pros for their 2021 outlooks: investment ideas they expect to continue reaping from, and new frontiers they are exploiting to maintain their chart-topping performance. <h2><a href="https://www.businessinsider.com/top-wall-street-investors-of-2020-stock-picks-2021-outlook-2020-12">Read our interviews with the 9 best-performing stock pickers in the US here</a>.</h2><h2><a href="https://www.businessinsider.com/stock-market-outlook-2021-top-europe-investors-fund-managers-picks-2020-12">Read our interviews with the 5 top fund managers in Europe here</a>.</h2>

The best stock-pickers in the US and Europe reveal the secrets to their success in 2020 - and share their highest-conviction bets for 2021

Tax saving is something that all of us typically think about only in the last quarter of a financial year. As we enter January, we get an email from our company’s HR department to submit our tax-saving details for the year. This email makes us realise that we haven’t made any tax-saving investment yet. We rush to invest to save taxes and end up making hurried investment decisions. Sure, even this way, we do end up saving tax. But that shouldn’t be the sole purpose of tax-saving <keyword id="6362476" type="ORGANIZATION" weightage="20" keywordseo="investments">investments</keyword>. When planned and executed properly, tax-saving investments can help you build wealth over the long-term as well. By their nature, tax-saving investments are long-term and can be used for goals like child’s education or marriage and your own retirement. Under Section 80C, a taxpayer can invest up to Rs 1.5 lakh in a year to save tax. This is a decent amount to build a corpus of wealth as well. But these investments should not be done in the last few months with little time and after little thought. These investments should be planned and started in the beginning of the financial year itself. Here is how you can plan your tax-saving investments for FY2017-18 to make maximum gains. Figure out the tax-saving expenses that you can claim Under Section 80C, there are a number of expenses that qualify as tax-saving deductions. This includes the life insurance premium you pay, school tuition fees for two children, repayment of your home loan, etc. These are expenses that you make anyway and they should be used to save taxes. Figure out how much will be the amount of these expenses. This will help you understand how much of the Rs 1.5 lakh 80C limit you need to invest. Build a portfolio of tax-saving investments Once you know how much you will need to invest to fulfil the 80C limit, you should think about where you want to invest that money. There are a number of investment options available, like ELSS funds, PPF, NPS, SukanyaSamriddhi, fixed deposits, NSC, etc. Choose the kind of investment that you are comfortable with, which matches your risk profile and start investing in them right away. It is easier to invest a small amount every month through the year than a big amount in one go at the end of the year. Make good use of ELSS funds ELSS funds are equity <keyword id="6357979" type="ORGANIZATION" weightage="20" keywordseo="mutual-funds">mutual funds</keyword> that come with a lock-in period of 3 years. They are considered to be the best tax-saving investment because of the flexibility they come with and the ability to earn inflation-beating returns. Everyone should invest some amount of their 80C limit in these funds. The equity-related risks get mitigated over the long-term and the returns earned by these funds also become tax-free after a year. Ideally, the younger you are, the more you should invest in ELSS funds. Link investments to goals It is always good to have investment goals. With a target in mind, it would become easier for you to choose a tax-saving investment. For example, for a goal like retirement, you can rely on your investments in EPF or PFF. But for a goal that is just 5-7 years away, you can put money in tax-saving fixed deposits or ELSS funds. This way, investments with different lock-in periods can be used to achieve different short-term and long-term goals. Don’t invest and forget This is a mistake that many investors do, especially with ELSS funds. It is of no use to check a fund’s performance every single day, but you should at least once in 6 months or a year. You can stop your SIPs in an underperforming ELSS fund any time you want and start SIPs in another ELSS fund to avail the same tax benefit. This flexible nature of ELSS funds should be used to earn optimum returns. Think beyond 80C Tax-saving doesn’t end with Section 80C investments and expenses. There are other ways to save taxes that should also be utilized by taxpayers. Medical insurance is tax-deductible under Section 80G. An additional ₹50,000 can be invested in NPS under Section 80CCD. Taxes can also be saved by making certain donations under Section 80G. You should find out about these tax-saving deductions and avail as much benefit as you can. These are some things that the common taxpayer can do to get the most out of saving taxes this year. But the most important thing is to not procrastinate. Plan your investments and start early. (The article is authored by Archit Gupta, Founder &amp; CEO, ClearTax.com)

Here’s how you can plan your investments to gain maximum savings

<div class="KonaFilter image-container display-table"><div><div class="image on-image">Mario Tama / Getty Images</div></div></div><ul><li>According to a report from Goldman Sachs published earlier this week, mutual fund returns bounced back modestly in the the third quarter from their year-to-date lows. </li><li>Despite the rebound, returns are still sluggish compared to the last 10 years, the firm's analysts also found. </li><li>Here are the top 10 stocks most loved by mutual funds, according to Goldman Sachs. </li><li><a href="https://www.businessinsider.com/">Visit the Business Insider homepage for more stories.</a> </li></ul>Mutual fund returns have rebounded in recent months, but still look sluggish compared with the last 10 years, a report released earlier this week from Goldman Sachs found. "Rotations within the equity market during the past few weeks have offset part of this drag since funds are overweight cyclical sectors, such as Financials and Industrials, which have outperformed," the firm wrote in the report. Some funds were able to buck the trend of weak returns with concentrated portfolios and by building up exposure to international stocks, Goldman said. The firm's analysts also found that the most overweight mutual fund positions have fallen behind the most underweight holdings by about 1.25%. "The most overweight mutual fund positions have tumbled this year. Sector exposures have also hurt fund returns for most of 2019," the analysts said. The analysts compiled a list of the top stocks held by mutual funds. The stocks are ranked in terms of how many basis points they are "overweight" in mutual funds' portfolios. Here are the top 10 companies most loved by mutual funds, according to Goldman Sachs:

These are the 10 stocks most loved by mutual funds

A large number of investors are investing in mutual funds to grow their money. As is the case with any investment instrument, your money can yield very high returns if you can plan strategically well backed by a thorough industry knowledge. You must also know that all mutual funds are not equally potential enough to assure a definite growth. Here are a few illustrations on the different kinds of mutual funds and how much you can earn from them. <keyword id="35247" type="PERSON" weightage="20" keywordseo="money-market">Money market</keyword> mutual funds which assure low returns Money market mutual funds are types of mutual funds designed to provide a high degree of liquidity to the investors rather than assuring high returns. We can say these are cash like investments that give you returns depending on the existing short-term interest rates that can fluctuate both upward and downward based on market scenario. Looking from a long term perspective, money market mutual funds produce an average returns between 3% and 4% per year. Over the recent years, money market mutual funds could hardly give any returns and they could produce close to zero percent earnings over the investments made. If you want to see mutual funds as a vehicle to grow your money, then you must stay away from investing in money market mutual funds that can hardly let you accomplish your goals. Bond mutual funds which assure moderate returns For the sake of boosting up the returns, a large number of investors invest in mutual funds that work by buying bonds. Bonds come with longer period of maturities than what the securities held by the money market mutual funds. Therefore, the companies issuing them are found to pay higher interest rates. One downside to this kind of mutual funds is the <keyword id="3002490" type="PERSON" weightage="20" keywordseo="Interest-rate-risk">interest rate risk</keyword> they carry. Hence when you invest in a bond fund, there are chances that your principal amount might suffer a loss. In the long run, bond mutual funds have assured average returns between 5% and 6%. A typical bond fund can match such a kind of performance. At the same time, future returns under the existing conditions could work out to be lower than the average due to the low rate environment that had existed for a long time. The upside potential of the bond mutual funds is rather limited in most cases. Stock <keyword id="6354820" type="DEFINITION" weightage="20" keywordseo="mutual-fund">mutual fund</keyword> which assure high returns If you look for the kind of mutual funds that assure the highest returns, then we must name stock mutual funds to fill in the blanks. Endowed with the potential to give the highest returns, stock mutual funds also carry greater risk. Over a period of time, majority of stock market funds have facilitated an average of 10% returns. Some higher risk funds connected to some riskier small company stocks have even given higher returns than that. It is possible that the stock market funds will rise and fall in the market. From time to time, we can expect some dramatic downturns. If you are willing to accept the risks associated with the stock mutual funds, then you can enjoy the rewards of very high average returns in the long run. Take home There is no end to how much money you can make by investing in mutual funds. They can help you achieve any big financial goal you might have in your life. it is not possible to get rich overnight by investing in mutual funds. At the same time, their potential to help you earn a lot can never be underestimated.

How much money can I make in mutual funds?

The average mutual fund investor is missing out on 2 percentage points of annual returns by making one terrible psychological mistake: They're putting more money into funds after periods of strong returns, and then they're yanking their money out of funds when performance is weaker.
YiLi Chien, Senior Economist at the St. Louis Fed, <a href="http://www.stlouisfed.org/on-the-economy/chasing-returns-has-a-high-cost-for-investors/?utm_source=Twitter&amp;utm_medium=SM&amp;utm_campaign=Twitter">has a short paper</a> up about Return-Chasing Behavior, which is basically what's described above, the tendency of investors to react to the latest moves of the market, rather than hold tight.
This chart shows the phenomenon. As you can see, when quarterly mutual fund returns (orange line) are higher, people put more money into mutual funds (blue line). When returns are lower, investors pull money out.
<div class="KonaFilter image-container display-table"><div><div class="image"><a href="http://www.stlouisfed.org/on-the-economy/chasing-returns-has-a-high-cost-for-investors/?utm_source=Twitter&amp;utm_medium=SM&amp;utm_campaign=Twitter">St. Louis Fed</a></div></div></div>
Investors shouldn't be reacting to the past like this. They should just be holding steady through the market swings.
The study's conclusion:
To assess how much return-chasing behavior costs investors, I compared the actual realized return of return-chasing behavior in our sample to a simple buy-and-hold investment strategy (a strategy in which investors simply buy equity and hold it for an extended period of time). We set the holding period of the buy-and-hold strategy to five years. (The result would be even stronger if the holding period was longer.)
Return-chasing behavior involves the size of investors' equity positions changing over time, so the returns of both investment behaviors were evaluated in terms of so-called asset-weighted return. Note that the asset-weighted return of the buy-and-hold strategy simply equaled the time-weighted return during the holding period, which is the standard definition of average equity return reported on financial statements.
The result shows that return-chasing behavior had a significant impact on the performance of return. The buy-and-hold strategy earned an average annual return of 5.6 percent in the sample period, while return-chasing behavior only realized 3.6 percent. In other words, chasing returns caused the average U.S. mutual fund investor to miss around 2 percent return per year, which is very significant.

A Simple Psychological Mistake Is Costing Investors A Fortune

<ul class="summary-list"><li><keyword id="6357979" type="UNKNOWN" weightage="60" keywordseo="mutual-funds">Mutual funds</keyword> this year have had near-record-low exposure to <keyword id="9816417" type="UNKNOWN" weightage="60" keywordseo="faamg">FAAMG</keyword> stocks compared to 2020.</li><li>The underweight exposure has boosted relative fund returns thus far, a report from <keyword id="6361649" type="UNKNOWN" weightage="60" keywordseo="Goldman-Sachs">Goldman Sachs</keyword> said.</li><li>FAAMG stocks are higher by 6% year-to-date, compared to the 11% gain seen for the remaining 495 S&amp;P 500 companies.</li></ul>Mutual funds this year have had near-record-low exposure to <a href="https://markets.businessinsider.com/stocks/fb-stock">Facebook</a>, <a href="https://markets.businessinsider.com/stocks/amzn-stock">Amazon</a>, <a href="https://markets.businessinsider.com/stocks/aapl-stock">Apple</a>, <a href="https://markets.businessinsider.com/stocks/msft-stock">Microsoft</a>, and <a href="https://markets.businessinsider.com/stocks/googl-stock">Alphabet</a>'s Google compared to 2020, a factor that has resulted in higher returns so far in 2021. In general, mutual funds were underweight FAAMG by 555 basis points at the beginning of the second quarter of 2021 - five basis points lower than last quarter's all-time-low, according to a May 21 portfolio research strategy report by <a href="https://markets.businessinsider.com/stocks/gs-stock">Goldman Sachs</a>. The lack of exposure has been a tailwind, given that FAAMG stocks have slumped this year as investors shift from high growth tech stocks to value stocks set to benefit from the economic reopening.<div type="image" title="Screen Shot 2021 05 24 at 12.53.03 PM" height="457" width="915" msid="82920791" hostid="261"></div>So far, FAAMG stocks are higher by 6% year-to-date, compared to the 11% gain seen for the remaining 495 S&amp;P 500 companies, the analysts said.In contrast, low exposure was a significant headwind for relative mutual fund returns in 2020, the report, led by Arjun Menon, said, when FAAMG outperformed the broader market. On average, mutual funds have been underweight since 2016, driven by high index weights and restrictions around portfolio diversification.<div type="image" title="Screen Shot 2021 05 24 at 12.54.53 PM" height="499" width="999" msid="82920793" hostid="261"></div>

Mutual funds have near-record-low exposure to elite FAAMG stocks - and that's actually helping their performance this year

If you are looking to invest in a <keyword id="6354820" type="ORGANIZATION" weightage="20" keywordseo="mutual-fund">Mutual Fund</keyword> (MF), you will find one that will match your needs but with so many companies, each with so many schemes, it will be a difficult journey to find one that fits the requirement. 
 
Here, we will focus on a few parameters that will help you in choosing the right mutual fund for investment depending on an individual’s requirements. 
 
Ø Identify the objective: Like stated before, there is a right kind of mutual fund for everyone and every need. So, the first thing one needs to do is identify their objective for <keyword id="35175" type="UNKNOWN" weightage="20" keywordseo="investing">investing</keyword> in the mutual fund. This can be based on the timeline for investment (short or long term) or the financial goal. For instance, if Asha is looking to invest in a mutual fund to save tax; an Equity Linked Savings Scheme (ELSS) will suit her requirements, while Mr. Mehta is looking for a regular flow of income so for him a Monthly Income Plan (MIP) is required. So the first step is to be sure about the reason for investing in a MF so that you can focus on that segment and choose a scheme that suits you best. You can have multiple funds to satisfy one objective or different fund to meet different kinds of goal. 
 
Ø Asses your Risk Appetite: Mutual funds are managed by professionals and generally these professionals base their decisions on extensive research. However one cannot forget the MFs are market linked products which means they are susceptible to market risk and they do not have guaranteed but have indicative returns. So before choosing a scheme it is important to understand if it matches your objectives and whether it matches your risk appetite also or not. Equity funds are high risk and high returns, while debt funds lie on the other end of the spectrum. Balanced funds as the name suggests lie somewhere in between. Generally those in advanced years do not prefer equity oriented schemes while the younger investors can afford to invest in equity funds and take some risk. 
 
Ø Focus on History: As stated earlier, MFs are market related instruments so there can be no guaranteed returns. Even for debt funds the returns are indicative; so how does an investor decide if the fund will deliver what it promises in terms of returns? This can be assessed to an extent by looking at the past performance which can be indicative of the expected future returns but again there is no surety that in the future also a similar pattern will be followed. Looking at the past returns can help in assessing a trend that a mutual fund follows in terms of returns. 
 
Ø Use Statistics: Apart from returns, certain other numbers are also important when choosing the right mutual fund. Alpha is one such indicator; it is a measure of MF’s performance on a risk adjusted basis and as compared to the benchmark. A positive alpha indicates that the fund is doing well. Beta is the measure of fund’s volatility as against the benchmark. It measures the fund’s sensitivity to changes in the market. For an investor with low risk appetite a fund which has a beta value less than one is the right choice and the opposite is true for those are willing to have a bigger risk appetite. Standard deviation in terms of a MF will indicate its volatility; how much the returns deviate from the expected returns calculated based on the past performance. An investor should also keep an eye on the various costs that he/she incurs as these costs ultimately impact the overall profitability of a mutual fund. 
 
Ø Pedigree is Important: Another factor that one should focus on while selecting a mutual fund is the fund house that is promoting it and who the fund manager is. Choosing a well known and experienced fund house will ensure that they will not indulge in unethical practices or will go bust while leaving you in the lurch. A fund manager decides which instruments or securities to invest in so an experienced and knowledgeable fund manager will ensure that you get good returns on your investments. Being preemptive and not reactive is what distinguishes a good fund manager from an average one. 
 
The above factors can hopefully help you in choosing the right mutual fund for yourself which not only helps you in meeting your financial goal but is also a safe and profitable investment. 
 
(Rajiv Raj is the Director and Co-Founder of www.creditvidya.com) 
 
(Image: ThinkStock)

Here are 5 ways that will help you zero on the right mutual fund

<div class="KonaFilter image-container float_right"><div class="image on-image">REUTERS/Shamil Zhumatov</div></div>FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
<a href="http://www.stlouisfed.org/on-the-economy/chasing-returns-has-a-high-cost-for-investors/?utm_source=Twitter&amp;utm_medium=SM&amp;utm_campaign=Twitter">Why Return Chasing Behavior Is Harmful For Investors</a> (St. Louis Fed)
Past experience often dictates investment behavior. "An average equity mutual fund investor tends to buy when past returns are high and sell otherwise. This is called return-chasing behavior," writes YiLi Chien, senior economist at the St. Louis Fed. 
Chien compared the realized return of return-chasing behavior to a buy-and-hold strategy for a period of five years. "The result shows that return-chasing behavior had a significant impact on the performance of return. The buy-and-hold strategy earned an average annual return of 5.6 percent in the sample period, while return-chasing behavior only realized 3.6 percent. In other words, chasing returns caused the average U.S. mutual fund investor to miss around 2 percent return per year, which is very significant."
<a href="https://www.tiaa-cref.org/public/about/press/about_us/releases/articles/pressrelease500.html">TIAA-CREF To Acquire Nuveen For $6.25 Billion</a> (TIAA-CREF) 
Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) is acquiring Nuveen Investments for $6.25 billion including outstanding debt. Investment management company Nuveen has about $221 billion in assets under management (AUM). "We are pleased to bring our clients around the globe access to new investments and strategies through our partnership with an experienced, market-tested investment firm like Nuveen," Robert Leary, executive vice president, TIAA-CREF said in a press release. 
"In addition, Nuveen's strong distribution network will give us growth and scaled presence in several important channels through relationships built around experienced investment managers with strong track records." TIAA-CREF is a financial services provider.
<a href="http://www.businessinsider.com/the-most-important-charts-in-the-world-2014-4#meb-faber-cambria-investment-management-111">Meb Faber: Don't Chase The Dividends</a> (Business Insider) 
Mebane Faber at Cambria Investment Management, thinks investors in the U.S. should stop chasing high dividend yield in favor of shareholder yield. "We mentioned this back in August where the premium that dividend yield stocks are trading at, relative to the market, is near the highest ever," Faber told Business Insider. "Historically, when you invest in high yield, you are getting a value tilt, but now, as money has rushed into all things high yield, you are actually getting the opposite - not something you want! Valuations are also cheaper abroad."
<div class="KonaFilter image-container display-table click-to-enlarge"><div><div class="image"><a title_source="OSAM" title_caption="" class="zoomin" href="https://static-ssl.businessinsider.com/image/534c04a06bb3f7955ef77753-960/screen shot 2014-04-14 at 11.50.45 am.png"></a>OSAM</div></div></div>
<a href="http://online.wsj.com/news/articles/SB10001424052702304117904579501482310070934?mg=reno64-wsj&amp;url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304117904579501482310070934.html&amp;fpid=2,7,121,122,201,401,641,1009">Why Structured Notes Don't Deserve The Bad Rap They've Got</a> (The Wall Street Journal) 
Structured notes are hybrid securities in which certain conditions are tied to an asset that changes its risk/return profile. These notes have been getting a bad rap writes Jerry Verseput, owner of Veripax Financial Management in a new WSJ column. Critics complain that structured notes are complex, the principal isn't protected, and that it is "vulnerable to adviser abuse," Verseput writes. 
But Verseput argues that in terms of complexity, there are many risky investment products, and that most assets put your principal at risk. As for advisor abuse he writes that "this criticism tends to focus on the product itself, rather than saying there are some advisers who market it badly. An adviser worth his salt is going to explain the risk to clients." Verseput argues that structured notes "are one of the few investment vehicles that allow you to control not only the amount of risk, but the type of risk, so specifically," and therefore advisors should not ignore these products entirely.
<a href="http://www.businessinsider.com/map-the-worlds-back-in-wait-and-see-mode-2014-4">MAP: The Most Uncertain Spots In The World</a> (Deutsche Bank)<a href="http://www.businessinsider.com/map-the-worlds-back-in-wait-and-see-mode-2014-4"> </a>
Deutsche Bank is out with its latest House View report summarizing five key points of uncertainty around the world. In the U.S. it stems from uncertainty about the strength of the economy and Q1 earnings season. In Europe, there are questions about the ECB's next moves. Of course there's the geo-political crisis in Russia and Ukraine. In China concerns about slowing growth are mounting and in Japan the impact of the consumption tax hike is unclear.
<div class="KonaFilter image-container display-table click-to-enlarge"><div><div class="image"><a title_source="Deutsche Bank" title_caption="" class="zoomin" href="https://static-ssl.businessinsider.com/image/534bd1836da811f429f97345-960/screen shot 2014-04-14 at 8.09.18 am.png"></a>Deutsche Bank</div></div></div>

Mutual Fund Investors Love To Chase Returns, And It's Costing Them

“Mutual funds investments are subject to market risks, please read the offer document carefully before investing’ goes the oft-repeated statement.” 
	 
This warning that is written on all mutual fund investment documents and websites, just like they write warnings on cigarette packs, yet mutual fund investors ignore this caution primarily because people like you or me are not generally aware of the risks involved in mutual funds. This article would cover various market risks involved in mutual fund investments and also share tips on how you can reduce them. 
 

	Types of risks
The market risks are of two types. One type is of market risks are the ones that you, as an investor, can do nothing about. These are called systematic risks; these could be political factors, exchange rate fluctuations or even bad weather. Contrary to what you may have heard, these are difficult, if not impossible to predict or avoid. The second type is of risks are those that you can manage by diversification strategies. Generally, in a mutual fund, these risks are taken care of by your fund manager but you should be aware of them nonetheless. We can categorize them further into three broad types: business risk, concentration risk and liquidity risk. 
 
· Business risk: A sudden strike in the auto sector is an example of business risk. Poor financial performance of a company is another example. A fund manager mitigates this by diversifying across companies and sectors. 
 
· Concentration risk comes in when a mutual fund invests too large a proportion of its money in a single stock or sector. Sector funds, by definition, suffer from concentration risk because they invest in a single sector. 
 
· Liquidity risk arises if a fund cannot quickly convert its investments into cash, either in response to a redemption demand by investors or as part of portfolio rebalancing. Mutual funds investing in small cap stocks face this risk. 
 
 
 
What can you do about this, now that you know? 
Be careful while picking mutual funds. Ensure that you invest in large well-diversified equity funds. If you invest in specific sector or small/mid cap funds, do it with full knowledge of attendant risks. 
In our experience, mutual fund managers do a good job of managing risk. The biggest risk to an individual investor investing in mutual funds comes from faulty investment practices. And there is a lot you can do about it. 
 
Reduce risk by reducing mistakes 
Investing by definition involves exposing yourself to ‘risk’. The best you can do is: minimize risk. Having decided to invest via mutual funds, and not directly into stocks, is step 1 of minimizing risk. You are saying, “Let me entrust the task of investing to people more capable than me, and who do it fulltime”. 
 
But most investors still make lots of simple errors while investing in mutual funds. Let’s look at common errors, so can you avoid them. 
 
1. Investing with expectation of very high returns 
In an earlier section we talked about what the long-term expected returns from various asset classes are. However, we continue to see investors choose investments with expectation of unreasonable (40-50%) returns. This is just not going to happen and in an attempt to generate that return, you are likely to be misled into investing in funds that have shown a temporary blip in performance. 
Look at returns of funds over a minimum 5 year period. A 2-3% outperformance for equities and a 0.5-1% outperformance in debt funds is the best you can expect and you should be aware of that. 
 
2. Investing without understanding of underlying investments 
You already know that all mutual funds are not the same. Depending on which asset class and category of assets they invest in, you will get different returns with different behaviours. Debt funds offer lower but steadier return. Equity funds offer higher but more volatile return. 
 
Taxes saving funds (ELSS) are essentially equity funds and have the same return and risk profile. 
 
With this course, you should have enough knowledge to understand how the returns from a specific type of mutual fund will vary. 
 
3. Investing in NFOs “at par” or funds with “low” NAV 
Some investors believe lower the NAV (Net Asset Value) of a fund, the better value it provides. In other words, a fund with an NAV of Rs 20 is “cheaper” than another with an NAV of Rs 30. This belief is, perhaps, a mistaken application of the value-investing principles of equity investing. 
 
So, often such investors invest into a New Fund Offering (NFO) at par value or Rs 10, thinking they are buying value. 
 
But as you already know, from this course, that it makes no difference whether the NAV of a fund is high or low. In fact, older funds, with a longer track record, will always have high NAV and you are better off choosing those rather than a new fund with lower NAV but no track record. 
 
4. Investing for “dividends” 
We often see advertisements by mutual funds declaring dividends. Some investors are misled by these and think higher dividends reflect good performance. In the case of mutual funds, dividend declaration is nothing more than a book entry. Dividends are not interest but repayment of capital. Therefore the fund’s NAV falls to the extent the dividends are paid out to its unit holders. In fact, a growth option where you withdraw the money when YOU need it is better for you from a tax perspective. 
 
Conclusion 
Understanding market risk is important, but if you have chosen the asset class that best meets your objectives, you can trust the fund manager to manage the market risk for you. 
As an investor, you should focus on things you can control which are: Choosing the right mutual funds; following the correct process for investing; and reviewing your investments every year. 
 
(About the author: This article has been contributed by Sanjiv Singhal, CEO, <a href="http://scripbox.com/" target="_blank">scripbox.com</a>.) 
 
(Image credits: www.economictimes.com)

Mutual fund risks: Here is how you can reduce them

By the term ‘Mutual Funds’, we mean the money pooled out through the contribution of many investors who intend to save and make money through their investments. The corpus thus created with the investment of these individuals is then invested in different categories namely debt funds, liquid assets and others. The individuals investing in mutual funds have to share the profits and losses equally in proportion to the value of their contribution to the corpus of the mutual funds. Here are the different kinds of mutual funds in India. <keyword id="6354820" type="DEFINITION" weightage="20" keywordseo="mutual-fund">Mutual fund</keyword> types based on asset class Equity funds Equity funds are those that are invested in stocks or shares of different companies. Since these investments can provide higher results, they are also called as high risk funds. Debt funds Debt funds are those that are invested in debt such as government bonds, fixed income assets and company debentures. These are considered as safe investment options since they provide fixed retruns to the investors. Money market funds Money market funds are those that are invested in liquid instruments. Some examples to this type are CPs and T-bills. These are also deemed as safe investment options since you will get an immediate return on your investment though the returns might be moderate. Balanced or hybrid funds Hybrid funds also called as balanced funds are invested in different kinds of asset classes. When the proportion of debts are found lower than the equity or when the equity is found lower than the proportion of debts, this kinds of funds enable striking a balance between risks and returns. Sector funds Sector funds are those kinds of investments in which the investor chooses to invest in a particular sector or the division of the market. For example, infrastructure fund investors invest in sectors confined to the infrastructure. They might also choose the investment instruments offered by the infrastructure companies. Returns on sector funds investments are directly related to how the given sector performs. The risk factor with regard to these investments vary between sectors. Index funds Index funds are investment tools that represent a specific index on the stock exchange for the purpose of monitoring the returns and how the index moves. In other words, it is like purchasing shares from the BSE Sensex. Tax-saving funds Tax-saving funds are those that are invested predominantly in equity shares. Tax-saving funds enable an investor to claim the tax deductions under the income tax act. The risk factors that are involved in such kinds of investments are very high. Also, in case these funds perform well, higher returns are possible. The tax saving aspect is one of the major attractions connected with these kinds of investments. Those that are willing to take high risks for the sake of inviting higher returns prefer this model. Funds of funds Funds of funds are those that are invested in other mutual funds. The returns on such investments depend on how the target funds perform on the whole.

Different types of Mutual Funds that you can buy in India

Over the past few years, mutual fund schemes in India have significantly grown. As a result, we see the best performance funds keep changing. In India, systems like CRISIL, Morning Star, and ICRA evaluate the performance of <keyword id="6357979" type="UNKNOWN" weightage="20" keywordseo="mutual-funds">mutual funds</keyword> on the basis of the returns they assure, standard deviation, qualitative and quantitative aspects and other factors. When these findings are summed up, we get the list of top performing <keyword id="864677" type="PERSON" weightage="20" keywordseo="Mutual-Funds-in-India">mutual funds in India</keyword> for a given financial year. This list can guide the investors in choosing the right kind of avenues to invest in the domain of mutual funds. Here we discuss the <keyword id="35457" type="PERSON" weightage="20" keywordseo="Best-Mutual-Funds">best mutual funds</keyword> for FY 2019-20. <table style="width: 279pt;"> </colgroup> <tbody><tr> <td class="xl65" style="height:15.0pt;width:162pt">Mutual Fund Name</td> <td class="xl65" style="border-left-width: initial; border-left-style: none; width: 117pt;">12-month change (%)</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Mirae Asset Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">58.7</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Invesco Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">49.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">AXIS Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">23.4</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Canara Robeco Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">20.5</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">SBI Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">20.4</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Kotak Mahindra Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">16.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Tata Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">11.8</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">IDFC Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">11.6</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">PRINCIPAL Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">3.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">UTI Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">2.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">ICICI Prudential Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">2.7</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">HDFC Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Reliance Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">0.2</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">L&amp;T Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-7.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Motilal Oswal Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-7.7</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">BNP Paribas Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-8.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Sundaram Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-8.4</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Aditya Birla Sun Life Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-9.9</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">Franklin Templeton Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-12.1</td> </tr> <tr> <td class="xl65" style="height: 15pt; border-top-width: initial; border-top-style: none;">DSP Mutual Fund</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none;">-13.3</td> </tr></tbody></table>Source: August'19 (Motilal Oswal - Indian Mutual Fund Tracker) Nifty changed by -5.6% during the same period. The background Following the market correction in 2018, the valuations in several categories have reached highly attractive levels. This has opened up new opportunities for the investors and the fund managers. India’s top performing mutual funds are all set to assure strong returns to the investors in 2019-20. Axis Blue Chip Fund Incepted on January 5, 2010, the AUM of this large cap fund is Rs. 4,802 crore. The outperformance of this fund over the recent past is impressing the industry experts during a time when a large number of actively managed funds failed during last year. As of May 2019, the 5 year CAGR of Axis Bluechip Fund is 15.16%. This can offer a solid platform for a very powerful mutual fund portfolio in 2019. Kotak Standard Multicap Fund Considered under the category of Equity Multicap fund, the AUM of Kotak Standard Multicap Fund incepted on September 11, 2009, is Rs. 23,881 crore. It has delivered a return of 19.48% over the past five years. This fund also presents immense growth prospects in the mid cap space. Fairly diversified across 56 sticks, the investors feel they are taken care very well when they invest in it. HDFC Small Cap Fund Found under the category of small cap funds and incepted on April 3, 2008, the AUM of HDFC small cap fund is Rs. 7,660 crore. Despite the severe test of the times in 2018, the fund has managed to provide the investors a 5 year CAGR at 20.83%. About 57% of this funds has been invested in small cap companies while 36% is invested in mid-cap space leaving the remaining 6% to large caps. Franklin India Prima Fund Incepted on December 1, 1993, this fund has completed 25 years in the stock market. Categorized as mid cap fund, the AUM is Rs. 7,116 crore. It could deliver a highly amazing 19.52 CAGR. This will mean that if a sum of Rs 1 lakh was invested in during its inception, it will value at Rs 90.70 lacs now. Axis Long Term Equity Fund Incepted on December 29, 2009 and categorized as ELSS tax saving fund, the AUM of this fund is Rs. 18,852 crore. This fund is considered as a legend in the arena of tax saving schemes. For a long time, it has continuously outperformed till it reached a point when a majority of investors always had a portion of their tax saving investment in this fund. See Also:<a data-type="tilCustomLink">Top Mutual Funds to invest this Diwali for long-term prosperity of your Family</a>

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