Best mutual funds: 86% of actively-managed schemes outperformed benchmarks in MC30’s 2023 run

Intro audit

Last year was very good for Indian mutual funds. They crossed the Rs 50 lakh crore mark in terms of assets under management (AUM).

On the back of the equity markets rising due to sharp gains in small- and mid-cap stocks, small-cap funds generated a return of 41 percent on average and mid-cap funds 37 percent in 2023.

These funds outperformed large-cap funds, which returned 24 percent on average. A total of Rs 1.8 lakh crore came in through the systematic investment plans of retail investors.

This begs the question: Which mutual fund to invest in?

There are 1,541 mutual fund schemes across asset classes such as equity, debt, gold and international funds. There are 39 categories that offer 440 equity schemes, 316 debt schemes, and 155 hybrid funds. Also, there are 66 international funds and 460 passively managed schemes investing across equity, debt, gold and silver.

In 2023 alone, 215 new schemes were launched. Where do you start?

Enter MC30, Moneycontrol’s curated list of 30 investment-worthy mutual fund schemes. This list of schemes is culled from a carefully designed and internally built ranking and rating system with multiple hoops of risk and return criteria.

Also read: The complete MC30 list of mutual fund schemes

The idea is not to invest in all these schemes. It is to bring the number of investible schemes down to a more manageable number and arm you - our dear reader - with just about enough data and information about each of them so that you can then pick and choose. All you need are 7-12 funds from the MC30 schemes to set up a portfolio to achieve all your financial goals.

Also read: How to use MC30?

2023: Who won, who lost?

Equities did well in 2023. Sectors including public sector enterprises, defence and pharmaceuticals did well. Private-sector banks and the technology sector delivered below-average returns.

While small-cap funds topped the charts, value funds made a comeback. Funds that focused on themes such as public sector companies, infrastructure and defence did well.

Hybrid funds including the aggressive hybrid and balanced advantage funds benefited by maintaining a higher allocation to equity. For instance, the average equity allocation of balanced advantage funds was 69 percent as of December 2023 compared with 68 percent a year ago.

Also see: The methodology behind the curated basket of mutual fund schemes

Debt mutual fund schemes delivered much better returns in 2023 than in 2021 and 2022. Most of these funds had increased their durations on expectations of a sharp interest rate cut by the Reserve Bank of India.

The rate hike cycle paused at 6.5 percent in April 2023 after six consecutive increases aggregating 250 basis points since May 2022. However, things did not turn out as expected as the RBI maintained the status quo, which led most debt schemes to end with 6-7 percent returns in 2023.

Gold exchange-traded funds continued to attract inflows from individual investors. The gold ETF category gained about 13 percent in 2023.

Also read: Top mutual funds: 3 new schemes that enter MC30

An audit

Launched in August 2021, the MC30 is an existing portfolio that goes through minor tweaks once a year. Existing schemes that derailed due to consistently bad fund management calls or were merged with other schemes or were wound up went out and were replaced by better, more well-deserving schemes. There also needn’t be anything drastically wrong with an existing scheme - there could simply be better alternatives.

Every year, at this time when the new, revised edition of the MC30 comes in, Moneycontrol audits the MC30. But before we get down to the numbers, let’s take a quick recap.

Seventy-one percent of our actively managed schemes outperformed their category averages over the five-year period that ended December 31, 2023.

Meanwhile, 86 percent of actively managed schemes outperformed their respective benchmarks during the same period.

In this edition, there are three schemes that make a fresh entry as three schemes go out. Let’s meet them, shall we?

Also see: The schemes that moved out of MC30 2024 and why