Best large & mid cap mutual funds to invest in 2019

These schemes, as the name suggests, would invest in a mix of large and mid-sized companies.

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Here's a monthly update on our recommended large and mid cap mutual fund schemes. And the good news is that there is no change in the recommendations this month. After being in the negative territory for some time, the large and mid cap category is offering 11.45 per cent returns in one year. These schemes are offering an average returns of 9.72 per cent in three years and 9.03 per cent in five years.

As per Sebi mandate, large & mid cap schemes must invest a minimum 35 per cent of their corpus in large cap companies, and another 35 per cent in mid cap companies. Multi cap scheme, on the other, has the freedom to invest across market capitalisations and sectors based on the view of the fund manager.

Sebi defines large & mid cap funds as open ended equity schemes investing minimum 35 per cent of total assets in equity and equity related instruments of large cap companies and a minimum of 35 per cent of total assets in mid cap stocks.

The large and mid cap category makes sense because of the strict investment mandate imposed by Sebi for every mutual fund category. Even though these schemes may be less risky than pure small cap schemes, the 35 per cent minimum exposure to mid cap companies make them riskier than multi cap schemes that had the freedom to switch between market capitalisation based on the market conditions.

Mutual fund advisors believe that there might be two kinds of large and mid cap mutual fund schemes: those which are inclined towards large cap stocks and those which are inclined towards mid cap stocks. Advisors ask investors to look at the portfolio and strategy of the schemes before investing. Investors should pick schemes according to their risk appetite.

For example, if you want more margin of safety, opt for schemes that have a tilt towards large cap stocks. Aggressive investors may bet on schemes that are inclined towards mid cap stocks.

If you have a long-term horizon and are willing to take a little extra risk, you may choose from our list of recommended large & mid cap schemes:

Best large & mid cap mutual funds to invest in 2019
Mirae Asset Emerging Bluechip Fund
Sundaram Large and Midcap Fund
Invesco India Growth Opportunities Fund
Canara Robeco Emerging Equities Fund
Principal Emerging Bluechip Fund
LIC MF Large and Midcap Fund

Our methodology: Mutual Funds has employed the following parameters for shortlisting the Equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.

i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H <0.5, the series is said to be mean reverting.
iii) When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.

X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z

4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.

Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}

5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)
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