Which fund should I invest in to get the highest possible return on a long-term investment?
Rajiv Mehra
Staying on your chosen path for the long term is the right way to get some big gains in the course of time. And since your objective is capital appreciation and assuming that you can hold on to your investments for the next two to three years, diversified equity funds will be the most appropriate choice for you. As the main purpose of diversified funds is long term capital appreciation of investments, this is perhaps the best option from amongst the entire gamut of funds' category.
Equities have always proved to be the return-oriented asset class in the long run. At least in the last three years, diversified equity funds proved to be the best category amongst equity funds barring petro funds, which comes under the sectoral classification and are relatively more volatile. The 3-year average returns for the diversified fund category has been around 28 per cent while in the same period the average returns from the Sensex has been just 12 per cent, thereby bettering the benchmark performance comprehensively. Similarly, the 2-year category average has also been extremely impressive at 34 per cent thereby bettering every other fund category as well as the benchmark.
Though the past performance of a fund or a category is in no way a guarantor of future performance, the true test of a fund or for that matter any asset category lies in its performance in falling markets. Those funds, which manage to survive in turbulent times, turn out to be the true wealth creators and retain investors' attention. Therefore, one should always look at the sustainability of the past performance of the fund as also the return generated on a consistent basis and not just over a short period of time.
The underlying advantage of diversified funds lies in the variety they offer. You can choose amongst a large-cap oriented fund or a mid-cap oriented fund or a judicious mixture of both, depending on your risk appetite. Franklin India Bluechip, HDFC Equity, Franklin India Prima are amongst several diversified fund options to choose from.
If you have a fairly low risk appetite and are looking for steadiness and stability of returns, then Franklin India Bluechip and HDFC Equity would be the right choice for you. Both the funds have a healthy flavour of large-caps and maintain a quality portfolio. Also, the 3-year and 5-year returns from these funds have comfortably beaten both the category average performance as well as the benchmark. However, if you have a good risk toleration capacity, you can have a look at Franklin India Prima, which is a pure mid-cap fund and has rewarded investors with its stupendous performance over a sustained period of time.
This article was originally published on August 05, 2004.
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