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ULIP INSURANCE

Best Mutual Fund Scheme for a Moderate Equity Investor

Jagrity Sharma Jagrity Sharma 30 July 2019

Portfolio diversification is the key for a moderate equity investor and must be kept in mind for a moderate risk profile. Multi Cap and Diversified equity funds can be considered for the same.

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Everyone is interested in creating a corpus that can be utilized for fulfilling dreams or overcoming financial emergencies. Keeping this in mind, everyone aims for investing strategically that would reap them handsome benefits. Some of you might have a notion that investing in mutual fund is a risky affair. But this is not entirely true. In fact, there are numerous options in mutual funds like equity fund, debt fund and balance fund, all as per the needs and risk appetite of the investor. All these mutual fund schemes offer returns as per the risk factor associated with it. The capital market is like a sweet shop, full of mutual fund schemes, having sweets as per everyone’s appetite. In this article, we shall understand what the best mutual fund schemes are, for a moderate equity investor.

What is moderate equity investment?

The capital market has mutual fund schemes that invest in shares and stocks of various companies. The corpus collected from the investors is invested into the instruments that are either equity instruments, debt instruments or balanced instruments. All these instruments have a certain risk factor associated with it. You as an investor must decide your risk appetite and then go ahead with investments.

The equity instruments have the highest risk factor as compared to debt instrument and balanced instruments. While a moderate equity investor means you are investor who is willing to take medium or moderate investment risk. There are few equity driven mutual fund schemes that offer an opportunity to the investor to invest in equity funds yet offers balanced returns in terms of income and growth.

What are the traits of a moderate equity investor?

A moderate equity investor is a person who understands capital market volatility and is ready to take risk in exchange of good returns. However, there is a thumb rule to this- higher the risk, higher are the returns. So, an investor who is willing to take medium risk in exchange of good return is called as a moderate equity investor. The mutual fund portfolio of a moderate equity scheme is where your 0% to 50% money is invested in equity instrument, while the remaining money is invested in a balanced or debt mutual fund scheme.

One of the most important thing that every investor must do before investing in mutual fund is to identify and understand one’s risk appetite and invest according to it. Risk appetite is usually associated with the age of the investor, financial goal to be achieved and the time offered for investments. It is usually observed that young single individuals have highest risk appetite and as you grow old, the risk profile dilutes. Following are the traits of a moderate equity investor:

  • Are aware of market volatility:

A moderate equity investor understands that the capital market is volatile in nature, but is ready to take this volatility in exchange of better returns as compared to returns earned from bank fixed deposits.

  • Risk appetite vs. Returns:

You are a moderate equity investor if you are expecting good returns on your investment, but know your risk appetite. In short, if you are willing to accept that you will receive a little less return as compared to an aggressive investor, then you are a moderate equity investor.

  • Balancing Act:

If you are a moderate risk taker, you will strive to achieve balance with investment and returns. A moderate equity investor is one who is willing to take the investment risk to earn higher returns, but not at the cost of losing the entire money due to large swings in capital market.

Thus, above are the traits of moderate equity investor. A normal retail investor usually falls under this category, but many investors still believe that mutual fund is a risky matter. However, in reality, the capital market offers equity funds as per their risk profile. Investing in mutual fund is beneficial for moderate equity investor because it offers the opportunity to diversify their investment portfolio based on age, financial goals, risk profile and investment time horizon.

Diversification can help a moderate equity investor to improve the returns received on capital investments. During the entire process of investments, you will have to decide the amount of risk you are willing to take up and the trade-offs of it. As per thumb rule, it is expected that the investment portfolio of a moderate equity investor must include a mix of all i.e. shares, stocks, debentures and cash. If you are a conservative investor, then your investment portfolio must include investment in large cap and mid cap funds as these are the best equity fund schemes that offer growth and stable income option.

The below given table suggests a model asset allocation of investment portfolio suitable for moderate equity investor.

Investment Portfolio InclusionsAllocation of Equity for a Moderate Equity Investor
Large Cap Funds20.00% to 30.00%
Large cap and mid cap funds10.00% to 20.00%
Midcap funds10.00% to 20.00%
Multi Cap funds20.00% to 30.00%
Value style funds10.00% to 20.00%
Small Cap Funds0.00%
Aggressive Hybrid fund10.00% to 20.00%

Note: The above table is for illustrative purpose only as there is no definite investment pattern which should be followed by moderate equity investor. Investing in mutual funds and finding the best equity funds is an individualistic process that requires a lot of research and risk profiling.

Here is a list of best equity fund schemes that have proved beneficial to moderate equity investor. The following list of best mutual fund scheme is for illustrative purpose only and is suitable for investors having moderate risk to high risk appetite.

  • Aditya Birla Sunlife Frontline Equity Fund
  • Mirae Asset India Opportunities fund
  • Reliance Small Cap Fund
  • ICICI Prudential Equity and Debt Fund
  • HDFC Hybrid Equity Fund

All the above schemes are considered as best mutual fund scheme for a moderate equity investor because all the above-mentioned schemes invest in equity instruments between 60.00% to 80.00% and the remaining balance percentage in debt instruments. This balances the risk factor as per your risk appetite.

The first 4 mutual fund schemes gave annualized returns of 15.00% in last decade, while in the last 5 years, 20.00% annualized returns were generated. On the other hand, HDFC Hybrid Equity Fund gave annualized returns of 16.00% in last decade, while in the last 5 years, 22.00% annualized returns were generated.

Conclusion

Investing in equity fund is easier with mutual funds as it diversifies your investment portfolio and the risk associated with it. All trade analysts highly recommend to carry out extensive research and define your risk profile before investing in mutual fund schemes.

Jagrity Sharma
Written by Jagrity Sharma
A bibliophile who hates alliterations, but loves cream, comics and content immensely! On another note, a content marketer who leverages the power of words to explain...almost anything!