MC30: The best mutual funds to invest in

How do you pick the best mutual fund scheme? There are 45 mutual fund houses and 1,461 schemes in the Rs 37 trillion Indian mutual funds (MF) industry. Of these, 349 are closed-end schemes across equity and debt. You can’t invest in these schemes as closed-end schemes don’t accept any fresh application once their new fund offer (NFO) periods close. The only way to invest in them is through the stock exchanges, but liquidity would be a challenge. Of the remaining 1,091 schemes that are open-ended, it’s not an easy choice either. There are 365 equity schemes (spread across 11 categories), 317 debt schemes (across 16 categories), 137 hybrid funds that invest in both equity and debt in several combinations, 35 solution-oriented schemes and 237 passive funds, including index funds, exchange-traded funds, gold ETFs and funds that invest in overseas stock exchanges.

And it’s not getting any easier, as the number of funds are just going up. In 2020 and 2021, the Indian MF industry launched 107 and 178 schemes, respectively. The numbers are just going up. Where do you start?

Enter MC30; Moneycontrol’s curated portfolio of 30 top mutual fund schemes to choose from. The MC30 basket of schemes is spread across equity and debt schemes, actively-managed and passively-managed schemes designed to make your choice simple. Through a rigorous risk-return analysis, Moneycontrol brings the large market of MF schemes, down to just 30 for you to choose from. Each of these schemes go through multiple hoops to make sure that they are fit and worthy for your money.

MC30: How investors should use the ratings

We launched MC30 in August 2021. As promised, every year in February, we will come to you with an update of MC30. Some schemes would be axed and new better ones added. Our aim is to keep this churn minimal. But some schemes are bound to fall by the wayside. Either fund manager calls go drastically wrong or their strategies underperform for longer periods that don’t justify their continuance in MC30. Or, quite simply, some schemes outside MC30 become screaming buys, especially in light of their long-term performance. Here, change is inevitable, but as promised, our aim to keep this change to a bare minimum. After all, if we at Moneycontrol advise our personal finance readers to stay invested for the long run, it is only natural that we do the same.

An important part of our annual review is the MC30 audit. This is crucial because MC30 is nothing if the portfolio doesn’t do well. How did our last MC30 do? Ninety percent of our actively-managed schemes (25 out of 30 schemes) outperformed their category averages over the past 5-year period. Eighty percent of actively-managed schemes outperformed their respective benchmark indices over the same period.

What goes in, what goes out?

Nothing. You read that right.

MC30: A sparkling list of the 30 best mutual funds from key categories

Since MC30 was launched only in August 2021, it has just been around six months. Mutual funds are meant for long-term investments, more so MC30 schemes. Here, we do not include liquid and overnight schemes, which in our opinion are not invest avenues. These schemes are merely parking vehicles where you put your money temporarily, till you find a better, more permanent, avenue for investment. All MC30 schemes are meant for long-term investments, since we pick schemes from just 11 categories out of a total of 37 categories in the MF industry.

MC30 in 2021: A review

After a consistent rise, since the COVID-19 market crash of March 2020, equity markets have faced volatility since October 2021. The good news was as the economy opened up and activity resumed, there was optimism for growth in corporate profits. The bad news was that the US markets signalled the end of low interest rates. This made global and Indian equity markets jittery as there was fear that easy money would go out.

Active equity funds part of MC30 continued showing resilience during the period. Schemes like Parag Parikh Flexi Cap Fund, Axis Midcap Fund, UTI FlexiCap Fund, SBI Focused Equity Fund and SBI Small Cap Fund managed to outperform their respective category averages with significant margins by 4-6 percent points, over the 5-year period. These schemes continued retain their top notch ratings in their respective categories in our current rating compilation.

Both hybrid funds of MC30, Canara Robeco Equity Hybrid and DSP Equity & Bond Fund, too outperformed their category averages and benchmark indices, despite a significant fixed income investment portion (up to 35 percent of their respective corpuses) in their portfolios.

Debt funds had a slightly tougher run in 2021. Concerns over possible interest rate hikes and a rise in inflation, kept returns low. Budget 2022 spooked debt markets with its large-than-expected market borrowing. But the recent Monetary Policy brought about cheer as interest rates were kept steady. Still, experts predict, a hike in interest rates is only a matter of time.

In the meantime, debt funds reduced the maturities in their portfolios. MC30’s debt funds did well. Schemes such as HDFC Short Term Debt Fund, ICICI Prudential Short Term Fund and Axis Short Term Fund outperformed their category averages notably during the period.

Passive funds in our basket including Motilal Oswal Nasdaq 100 ETF and Nippon India Gold BeES rewarded the investor handsomely.