MF Query Board

Which type of SIP is best for a five-year period: Small-Cap, Mid-Cap or Large-Cap? - Ramesh Joshi 

One of the most important aspects is risk. It depends on your capacity for taking risks. Returns and risk always go together. You will need to take on a certain level of risk if you want to earn larger profits. The question is this: is the risk you are taking worth the returns you get in the end? It will be different for every individual. The large-cap index has grown by 70 per cent in the last five years whereas the mid-cap has risen by 52 per cent and the small-cap has appreciated by 66 per cent. If someone had stayed invested in any of these fund categories for at least five years, they would have not made any loss in any of these three categories.

The standard deviation and Sharpe ratio are the two tools that frequently assist us in determining the risk-adjusted returns in mutual funds. You can gauge the degree of category volatility using standard deviation. A greater standard deviation ratio means higher volatility. Sharpe ratio is used to measure the excess return you earned for every additional unit of risk you took.

Can you tolerate the fluctuations for the sake of higher returns? If so, small-cap and mid-cap funds are certainly the best option. If not, large-caps can serve as your default fund. Also, rather than sticking to any one category, you can spread out your investments across the three categories based on your risk appetite and life goals. The beauty of investing in mutual funds is the diversification they offer.

I have three SIPs: Parag Parikh Flexi-Cap Fund, Axis Blue Chip and PGIM India Mid-Cap Opportunities Fund. Due to a financial problem I want to cancel one SIP among them. So please suggest me which two SIPs to continue with in the future? - Tejas Bakori

The comparison of the funds is as follows which will help you in deciding which fund to discontinue. The PGIM Mid-Cap Opportunities Fund has posted consistently higher annualised returns than category average for the past one year, three years and five years. It has a higher alpha of 11.39 per cent. The fund produced returns that were higher than the Nifty Mid-Cap 150 benchmark. Also, it has a lower expense ratio of 0.38 per cent. It has consistently beaten the benchmark indices, and it has lower probability of downside risk. The Parag Parikh Flexi-Cap Fund has posted higher three-year and five-year annualised returns than the category average.

It has higher alpha of 7.34 per cent. The fund has generated returns higher than benchmark Nifty Total Return index in the last three years. Its expense ratio is also lower at 0.78 per cent along with lower probability of downside risk.

It protects capital during a bear phase. Speaking of the Axis Blue Chip Fund, it has consistently lower annualised returns than the category average for the past one and three years. It has the highest PE as compared to the other three funds. Also, it has the highest cash holding as compared to others and lowest amount of funds invested in equity. It has underperformed benchmarks during a bull run and its three-year returns are in the bottom 25 per cent of the category.