There are thousands of mutual fund schemes on which an SIP can be started. Identifying the best SIP plans for long-term capital appreciation has a science behind it. In this article, we shall look at five such mutual funds that will serve your long-term SIP investment needs.
There is little doubt that SIP investment is a fantastic strategy and mutual funds are a great vehicle to wealth building. Articles after articles have reaped praises and scribed the benefits of mutual funds which has made the Indian mutual fund industry cross the ₹26,00,000 crores mark.
I put forward 5 mutual fund schemes in which I have SIPs running. Additionally included is my logic for having these in my best SIP plan to invest in for the long-term i.e. 10 years and over.
The best SIP plans to invest in 2020 are –
- Axis Bluechip Fund – Direct Plan
- Franklin India Prima Fund – Direct Plan
- Invesco India Contra Fund – Direct Plan
- ICICI Prudential Nifty Next 50 Index Fund – Direct Plan
- SBI Small Cap Fund – Direct Plan
Why a portfolio of these 5 schemes?
- These five schemes are diversified. They have adequate proportion of assets split between large cap, mid cap and small cap stocks.
- Additionally I have created a blend of actively managed and passively managed instruments with the introduction of a index fund.
- And finally, there is a good mix of growth and value investing just the value I like it.
Let’s examine every fund and understand why they are a part of my best SIP plans for 2020 list.
1. Axis Bluechip Fund – Direct Plan
- The Axis Bluechip Fund has delivered a 5-year performance alpha of 2% over the category returns. And a 2.5% alpha over it’s benchmark (Nifty 50 Total Return). These are strong numbers in the large cap category.
- The fund follows a strong growth style of investing. This is evident from the fund manager’s preference for high growth stocks inspite of high PE ratio. The PE of the fund’s portfolio was 34.18 (Feb 2019). The Nifty PE ratio was 22.77 then.
- The AUM are a manageable ₹4,221 crores (as of Feb 2019). Although not always true, it becomes difficult for fund managers to deliver high alpha after a fund has crossed ₹10,000 crores.
- Finally, we see that the Sharpe Ratio and Sortino is higher than the category and the benchmark. We want higher Sharpe ratios and Sortino scores and the Axis Bluechip Fund does well on both.
A mix of high historical performance, growth style, excellent risk statistics and track record buts the Axis Bluechip Fund in my best SIP plans for 2020 list.
2. Franklin India Prima Fund – Direct Plan
- This midcap fund has delivered upwards of 20% annual returns over the last 5 years. At a CAGR of 20.82%, the fund has delivered an alpha of 1% over the category 5Y returns (19.83%). And has a 1.5% alpha over the benchmark performance (19.34%)
- The Franklin India Prima Fund has been in existence for over 25 years having launched in December 1993. The fund has consistently delivered and it’s annualized returns since inception is an outstanding 19.76%. If one had put in ₹1,00,000 in this fund in Dec 1993, the same would now be worth ₹95,78,295. Thats a 95x return on your investment.
- The fund size is ₹6,491 crores (as of Feb 2019) and the expenses are a respectably moderate 0.96%. I use the word respectable because mid cap funds tend to be average around 1.25%. Incidentally of the top 5 (by AUM) midcap funds, the Franklin India Prima Fund is the only fund which is sub-1% expense ratio. All others incl. HDFC Midcap, Reliance Growth, Sundaram Midcap and DSP Midcap have expenses ranging from 1.12% to 1.45%.
- The Sharpe ratio and Sortino of this fund is higher than the category and benchmark. This gives us an additional comfort.
3. Invesco India Contra Fund – Direct Plan
- Not a lot of people have heard of this fund and it surprises me. The fund has ₹3,658 crores in assets (as of Feb 2019). It has a share of over 30% in the Value Category. I have it in my portfolio because it offers diversification from the growth-strategy side of investing.
- The Invesco India Contra Fund has delivered outstanding results in the last 5 years with a CAGR of 21.13%. It has beaten it’s benchmark (S&P BSE 500 TRI) by a handsome 6.75%.
- The Sharpe ratio & Sortino of this fund is quite high. An interesting thing to note here is that the Sharpe ratio & Sortino of the Invesco India Contra Fund is far better than the Sharpe ratio & Sortino of the Axis Bluechip Fund. The Axis Bluechip Fund is into growth investing as we highlighted earlier.
Difference between value investing and growth investing
The value category is quite the opposite of growth investing.
Value styled funds has a bias towards picking stocks which have a lower PE ratio. It means the the fund manager opines that he/she is not paying too much per rupee of profit.
Infact, in value funds, it is not uncommon to see a decent portion of stocks being in companies where the PE ratio is lower than the long term average PE. Infact, there might be a few zero PR stocks aswell. These are companies which are suffering from temporary lapses in profitability which have driven down the prices. Once the stock gets back on operating profit, the fund manager expects a windfall in price appreciation.
Another trait, although not always. Value funds will generally find stocks in the midcap and smallcap categories. On the contrary, growth investing funds look more at large and mid cap stocks. Further, value funds will invest in stocks which are not as popular or speculative as in the growth category
In case the valuations are stretched, the value funds will have no qualms about sitting on cash. They prefer not to invest in expensive markets and wait for their time to come.
Value funds are not specific about which sectors but relate to bottom-up stock picking i.e. if the company’s stock has value in it (i.e. ability to grow appreciably with little risk) then they will go for it irrespective of which sector or industry the company participates in. However growth funds will follow a set pattern with having a high percentage of their assets in financial stocks like banks, NBFC and housing loan companies.
The beta of value funds will be much lower than the Beta of growth funds. Beta is the measure of how an asset (like a stock or mutual fund) moves versus a benchmark (like an index). So a high beta of 0.90 means that the mutual fund will move 90% in the stock market’s direction. In other words, if the stock market gained 2% in a week, the mutual fund would have gained 1.8% in that same week.
Comparison with an example
For illustration sake, let’s examine all the above points for the growth and value funds with two examples –
- Growth is represented by Motilal Oswal Multicap 35 Fund. This is a ₹12,702 crore multi-cap fund with a growth mindset and can invest across sectors and capitalization
- Value is represented by Aditya Birla Sun Life Pure Value Fund. The AUM of this fund is ₹4,042 crore and it too can invest unrestricted across different sectors and capitalization
All above data is from Valueresearchonline as on 28 Feb 2019
4. ICICI Prudential Nifty Next 50 Index Fund – Direct Plan
- This is the only index fund in our portfolio. I have specifically chosen the Nifty Next 50 series instead of the Nifty 50 series which have more funds in it.
- The reason for choosing the Next 50 series are –
- Large cap funds already have a high proportion of the top 50 stocks in their portfolio. And midcap funds have a larger mandate with the top 250 companies to choose from. This means companies ranked 51-100 range may not get an adequate participation in large cap and mid cap funds.
- The Nifty 50 stocks (companies ranked from 1 to 50) have a high contribution of financial sector (40%). However in case of Nifty Next 50, the highest sector contribution is from consumer goods (22%). Then comes financial sector contributing 19% and pharma contributing 15% to the portfolio. This gives me good diversification which’ll help lower my portfolio risk.
- The fund size of the ICICI Prudential Nifty Next 50 Index Fund is just ₹379 crore. But that should not be a bother as this fund continues to deliver good risk adjusted performance with a 5Y return of 12.64% at a Sharpe ratio of 0.71 and Sortino score of 1.18.
5. SBI Small Cap Fund – Direct Plan
- The SBI Small Cap Fund is one of the highest performing fund consistently for the last few years. It has an envious 5 year CAGR return of 29.01%. That is an over achievement of 8.85% over it’s category peers and 13.68% over the benchmark. To put that into perspective, ₹10,000 invested exactly 5 year back in the SBI Small Cap Fund would have yielded you a largess of ₹35,736. Your money would have grown by 2.5X.
- The fund has ₹1,604 crores in assets with a high Sharpe ratio of 0.72 and Sortino score of 1.10. This adds comfort to our decision of investing in SIPs via this fund.
Additional Resources You Might Like
Here are some articles you might like:
- Rakesh Jhunjhunwala and his secrets to investing (Part 1)
- Complete SIP Investment Guide (over 8000 words compedium updated until 2020)
- The trillion dollar index fund story that John Bogle started in the 1970s
- Best SIP for achieving long term goals
- 5 steps on choosing the right term insurance plan for yourself