Large Cap Mutual funds are equity mutual funds that invest at least 80% of their capital in stocks of companies, that are in the top 100 in terms of market capitalization. It would be interesting to see how actively managed Large cap mutual funds have fared in the recent market crash caused by Covid19.
While analyzing various funds to select the best large cap mutual funds, we have considered:
Three return periods –
returns (CAGR) in the last one year, the past 3 years, and the past 5 years.
Risk parameters such as Standard Deviation, Beta, Sharpe ratio, and Sortino ratio.
Downside Capture ratio which determines how much downside protection the fund has given.
Alpha which indicates the excess return generated by the fund for every unit of risk taken.
Here is our list of Best Large Cap Mutual Funds that you can consider investing in the present scenario.
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* Please note that the funds are not ranked in any hierarchical order.
Let us analyze the funds on different parameters:
Returns
Of the 5 funds selected, Axis Bluechip Fund, Canara Robeco Bluechip Equities Fund, and Mirae Asset Largecap Fund have given a return of more than 5% over the last 5 years. However, only the Axis Bluechip Fund has managed to keep the same level of performance over the last 3 years. When the markets crashed in March, only Axis Bluechip, Canara Robeco Bluechip Equities, and Motilal Oswal Focused 25 have managed to give single-digit negative returns. The rest of the two funds have given double-digit negative returns.
Standard Deviation
Of all the funds, Axis Bluechip Fund and Canara Robeco Bluechip Equities have the lowest risk. For all other funds, Standard Deviation or the risk assumed is around 20%, while for Axis Bluechip Fund and Canara Robeco Bluechip Equities Fund it is less than 18%.
Beta
Higher the Beta, higher is the riskiness of the fund as compared to the market. Here too Axis Bluechip fund takes the lead with a beta of 0.74, implying that the fund is 25% less risky as compared to markets. The other funds are around 15% less risky than the markets.
Sharpe Ratio
On this parameter, once again, Axis Bluechip Fund and Canara Robeco Bluechip Equities take the lead with positive Sharpe ratios, with Axis Bluechip beating Canara Robeco Bluechip Equities by a big difference of 0.18. All the other three funds have reported negative Sharpe ratios indicating that the returns given by them are lower than even the risk-free rate.
Also read: Mutual Funds Vs. ETFs: Where to invest?
Sortino Ratio
On this parameter, too, Axis Bluechip Fund and Canara Robeco Bluechip Equities take the lead with positive Sortinos, with Axis Bluechip once again beating Canara Robeco Bluechip Equities by a big difference of 0.18. All other funds reported negative Sortino ratios.
Downside Capture Ratios
On this parameter, again Axis Bluechip Fund and Canara Robeco Bluechip Equities lead with lower downside capture ratios. All other funds have a higher downside ratio indicating that they have fallen as much as the broader markets or even more. A better downside will always result in superior returns as can be seen for both Axis Bluechip Fund as well as Canara Robeco Bluechip Equities Fund.
Expense Ratios
Lesser expense ratios will translate into higher returns. While Mirae Asset Largecap has the lowest expense ratio, its performance in terms of risk and rewards is not up to the mark. Of the two funds that fare well on all other metrics, viz, Axis Bluechip Fund and Canara Robeco Bluechip Equities Fund Axis Bluechip beats Canara Robeco by a big margin of 0.44%
Should you invest in Large cap mutual funds?
Even if the recent fall in the market is not taken into consideration, most of the shortlisted funds haven’t fared well on the return metric. This is also attributable to the fact that returns on large cap mutual funds have come down in the last 2-3 years, mainly due to the Mutual Fund Categorization exercise done by SEBI in 2018. However, Large cap funds are equity funds that are meant for long-term investment and over a long period, they can generate higher returns as compared to fixed-term investment options over the same period. The funds we have short-listed are well-managed funds with lower expense ratios and consistent performance over a period of time. So, you should not be deterred from investing in largecap mutual funds for your long-term goals.
Also read: Categorization & Rationalization of Mutual Fund Schemes by SEBI
Lexicon
Standard Deviation
is a measure of risk that shows the deviation in fund returns from the average expected returns of the fund. It sheds light on the volatility of the fund.
Sharpe Ratio
is a measure of Risk-Adjusted returns given by the fund. It indicates the returns generated for every additional unit of risk taken by the fund.
Sortino ratio
is also a measure of Risk-adjusted performance of Mutual Funds, however, unlike Sharpe Ratio, Sortino Ratio considers only the downside or negative deviations in a fund returns.
Beta
can be viewed as an index of the market risk of a fund relative to the risk of the market as a whole. Beta of the market is set as 1, so a fund with Beta of 2, for example, can be termed twice as risky as the broader market.
Downside capture ratio
measures how much of the downside of the market the fund has absorbed. A fund that falls 10% when the market falls 15% is preferred for investment over a fund that falls 18 or 20% for the same level of market fall. Thus lower the Downside capture ratio the better.
Thank you for sharing very useful information about mutual funds investment.