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Best large cap mutual funds to invest in 2019

Large cap mutual fund schemes, as the name suggests, invest in stocks of very large companies, or top 100 stocks with the largest market capitalisation.

ET Online|
Updated: Nov 07, 2019, 10.19 AM IST
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Here is the monthly update on our recommended large cap mutual funds. Once again, we are happy to state that there is no change in the recommendation list this month. That means you may continue with your investments in these schemes to achieve your long-term financial goals. Thanks to the recent rally in the stock market, the large cap mutual fund category has given an average return of 13.07% in one year, 12.22% in three years and 8.42% in five years.

If you are a cautious investor (conservative equity investor, in mutual fund lingo) and want to create wealth without too much risk and volatility, you should consider investing in large cap mutual fund schemes. According to Sebi's new categorisation norms, large cap mutual fund schemes have the mandate to invest at least 80 per cent of the corpus in top 100 companies by market capitalisation.

The investment strategy has a lot of advantages. First, these large companies are likely to be leaders in their respective field. That means, they may be relatively stable than smaller companies during volatile phases in the market. This feature makes large cap stocks and schemes ideal for investors who want to create wealth without taking too much risk or exposing their corpus to a lot of volatility.

Many mutual fund managers and advisors have been recommending large cap schemes for a while now. They believe that they are ideal to tide over uncertain times. No wonder, since large cap stocks are better placed than mid cap and small cap stocks to fare relatively better in times of a market correction.

Note, since these schemes are relatively less volatile, they also offer modest returns. So, it is important to have realistic return expectations while investing in large cap schemes. Also, you should remember that the ability of this category to generate considerable returns over their benchmarks is seriously contested after the re-categorisation. In fact, most actively-managed large cap schemes failed to beat their benchmark last year. Passively-managed schemes – index schemes and ETFs – fared better than them in the last year.

However, mutual fund advisors believe that actively-managed large cap schemes may bounce back once the market rally becomes broad-based.

Here are our recommended large cap schemes. You may invest in these schemes with a minimum investment horizon of five to seven years to achieve your long-term financial goals. Look out for our monthly updates - so that you know whether your schemes are performing up to the mark. We usually come up with our updates in the first week of every month.

Best large cap mutual funds to invest in 2019
Axis Bluechip Fund
ICICI Prudential Bluechip Fund
Reliance Large Cap Fund
Canara Robeco Bluechip Equity
HDFC Top 100 Fund

Here is our methodology:
ET.com Mutual Funds has employed the following parameters for shortlisting the equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore

Also Read

Large cap mutual funds

Best large cap mutual fund managers 2019

Large cap mutual funds stage a comeback; top schemes offer 20% plus in a year

Actively-managed large cap mutual funds poised for a comeback

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