Here are our recommended large cap mutual funds to invest in 2020. We are happy to share that we are continuing with the schemes we have recommended in 2019, and we are adding a new scheme to the list. Simply put, if you have been investing in any of these large cap schemes to meet your long-term financial goals, you may continue to do so. If you are a new investor looking to invest in large cap schemes, you have one more scheme to consider investing.

Before you proceed, here are a few pointers you should keep in mind. Large cap mutual fund schemes are recommended typically to cautious investors (conservative equity investor, in mutual fund lingo) looking to create wealth without taking too much risk and volatility. According to Sebi rules, large cap mutual fund schemes have the mandate to invest at least 80% of the corpus in top 100 companies by market capitalisation.

The investment strategy makes large cap schemes ideal for conservative equity investors. These large companies are mostly leaders in their respective fields. That means, they may be relatively stable than their smaller counterparts during volatile times in the market.

This is the reason why many mutual fund managers and advisors recommend large cap schemes during uncertain times. Large cap stocks mostly fare better than mid cap and small cap stocks in times of a market correction.

Note, since these schemes are relatively less risky and volatile, they also offer modest returns. So, it is important to have realistic return expectations while investing in large cap schemes.

Also, you should keep in mind that the ability of this category to generate considerable returns over their benchmarks is seriously contested after the re-categorisation exercise around two years ago. In fact, most actively-managed large cap schemes failed to beat their benchmark in the last two years. Passively-managed schemes – index schemes and ETFs – fared better than them in both 2018 and 2019.

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

Mirae Largecap Fund

Here is our methodology: 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

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