Best Five Equity Mutual Funds For 2023

Taking on equity exposure via mutual funds sets you free from portfolio diversification. The year gone by was quite volatile and eventful for equities, but now the question is what’s there for mutual fund investors in 2023? In this article, Henil Shah analyses the best five equity mutual funds for 2023 for conservative, moderate and aggressive investors


Although Nifty ended the year 2022 with a negative return of 3.48 per cent in December, overall it delivered a positive return of 4.32 per cent. Equity markets in 2022 provided returns merely matching the interest rate on savings deposit. However, Indian equity markets scored over other prominent global equity markets.


 

As can be seen from the above graph, while most of the prominent global indices tumbled by almost double digits, the Indian equity markets were standing tall in the positive. This can very well be attributed to strong economic print and cooling off of the inflation numbers. In fact, equity mutual funds too had their own set of hits and misses in 2022.
 

The graph above clearly shows that sector funds dedicated to banking and financial services, automobile, power and infrastructure were the top performers, generating double-digit to higher single-digit returns. On the flip side, technology funds, international funds and pharma funds were the clear underperformers. A small disclaimer: To be successful at investing in sectoral and thematic funds, one needs to take tactical calls. Moreover, the performance of conventional equity funds like Large-Cap, Mid-Cap, Small-Cap and flexi-cap funds were muted. So, what’s there for mutual fund investors in 2023? Which fund to invest in? Would underperformers of the last year turn outperformers? These are some of the most common questions of mutual fund investors. While listing the best five equity mutual funds for 2023, we have made it simple for investors with varied risk profiles such as conservative, moderate and aggressive risk-takers. 

Importance of Risk Profiling

Risk profile consists of two main components:one is the ability to take risks and the other is the willingness to take risks. The ability to take risks tells us about the risk capacity and it relates to the investor’s financial circumstances in context to achieving their financial goals. Risk capacity can be objectively measured by financial parameters like age, employment status, dependents, total wealth, income, net worth and other financial ratios. So, investors having high net worth and strong personal balance sheets have a strong financial position, leading to higher risk capacity. 

However, investors with higher risk capacity do not necessarily have a high-risk tolerance. The reason is that risk tolerance relates to the investor’s willingness to take risks which are highly subjective depending upon various non-financial parameters like previous experiences, the background of the investor and personal values indicating behavioural aspects. Therefore, assessing your risk profile would help you understand your ability and risk tolerance levels. This in turn will help you to invest in those mutual funds that match your risk profile. It also helps you avoid taking unnecessary risk for higher returns. 

However, investors with higher risk capacity do not necessarily have a high-risk tolerance. The reason is that risk tolerance relates to the investor’s willingness to take risks which are highly subjective depending upon various non-financial parameters like previous experiences, the background of the investor and personal values indicating behavioural aspects. Therefore, assessing your risk profile would help you understand your ability and risk tolerance levels. This in turn will help you to invest in those mutual funds that match your risk profile. It also helps you avoid taking unnecessary risk for higher returns. 

Best Five Funds for 2023

This section covers the best five funds to invest in 2023 for varied risk profiles. We believe in reducing the clutter while risk profiling and hence have only three major risk profiles i.e. conservative, moderate and aggressive. You can access your risk profile via various online sources or your financial advisor. We recommend you to get it done via a financial advisor as he or she would also take into account the subjective part of the risk profiling. 

Conservative

As investors with conservative risk profile prefer to take on lower risk, we have picked up funds that also have allocation to fixed income securities of not more than 35 per cent. 

For conservative investors, we have suggested funds like Edelweiss Balanced Advantage Fund and ICICI Prudential Equity and Debt Fund. This will help reduce the overall risk of your portfolio. Moreover, to further reduce the risk we have not added small-cap fund. But to boost your returns by limiting risk, we have suggested ICICI Prudential Large and Mid-Cap Fund and SBI Flexi-Cap Fund. 

Moderate

These are investors who wish to take on additional risk as compared to conservative investors to earn reasonable returns. Hence, we have not added any fixed income part to this portfolio. 

This is a pure equity portfolio but we have made sure to keep it light so that you do not get overboard with risky investments. Hence, here too we have avoided small-cap funds and rather preferred to add a sectoral fund to give your investments a boost. Moreover, we have added Kotak Emerging Equity Fund, which is a pure mid-cap fund. This will make sure that you get additional return for the additional risk undertaken. 

Aggressive

This portfolio is not for the soft-hearted. The investment suggested in this section is aggressive in nature, carrying high risk – high return profile. Therefore, conservative and moderate investors should avoid investing in them. 

In 2023, banking and infrastructure themes are likely to do well. Moreover, investment in technology funds would prove to be a contrarian bet. Hence, we have added funds dedicated to these sectors. Moreover, on valuation terms, small-caps seem to be attractively valued as against mid-caps and large-caps. Hence, we have suggested Nippon India Small-Cap Fund. 

Conclusion

To be successful with your mutual fund investments, you need to have a consistent and disciplined approach. Therefore, investing consistently via systematic investment plan (SIP) is prudent. However, if you are an aggressive investor, then investing tactically would be wiser. In this special report, we have suggested the best five funds for 2023 suitable for investors with varied risk profiles. Use this as a guide for your equity investments in 2023.