Top 5 Mutual Funds to invest in 2022

Churning your portfolio at regular periods is one of the golden rules of equity investing. You should examine and contrast the current performance of the various companies and mutual funds units in your portfolio once every 12 months or so to filter out the chronic underperformers and book profits in the outstanding performers. It will ensure that your portfolio stays current and does not fall behind the larger market’s movements.

Every calendar year, the end of the year is an excellent opportunity to tune your portfolio and get it ready for the fresh money-making chances that will surface the following year.

This is especially true for New Year’s Eve in 2022. After an unparalleled one-and-a-half-year rise, the Indian equities market is reversing course.

Because of the recent drop in stock prices across sectors, there is little or no risk of losing money if you sell a portion of your portfolio and invest the proceeds in other stocks or funds.

Because of the recent market decline, most equities and equity mutual funds are now significantly cheaper than they were only a few months ago.

The benchmark BSE Sensex is currently trading at about a 27X trailing price-to-earnings ratio, down 10% from almost 30X at the end of October.

And, according to the age-old investing adage, buying at a lower price maximizes long-term gains and vice versa.

While we can’t say for certain about the individual equities, here are some of the best diversified mutual funds to invest in for the New Year. These new mutual funds were chosen based on a fund score that took into account a variety of factors including long- and short-term performance, return volatility, portfolio overall valuation, portfolio concentration, and, most crucially, the fund’s expense ratio.

The funds at the top of our ranking have not only been the best performers over the previous five years, but they have also delivered with the least amount of volatility and the most portfolio diversification.

For new investors, their portfolio stays reasonably priced. To top it off, all of these funds have some of the industry’s lowest-cost ratios or management fees, ensuring that investors get the most out of their investment.

Most of these funds have relatively substantial assets under management (AUM), which assures consistency in performance and few negative shocks if one of the portfolio’s equities goes down in value.

The research is based on ICRA Analytics MutualFundIndia.com’s most recent monthly mutual fund data on all diversified and index equity funds. Here are the top 5 mutual funds on our list:

HDFC Index Fund

The HDFC Mutual Fund Index Fund, which tracks the BSE Sensex, is at the top. In the last five years, the HDFC Sensex index fund has returned 17.6 per cent on an annualized basis, and 17.8 per cent in the last three years. This may appear to be a laggard when compared to the 20 per cent-plus returns generated by top-performing actively managed diversified mutual funds, but active funds’ higher expense ratio eats away at a significant portion of their increased profits. Over the long run, index funds may show to be a winner in terms of net costs ratio.

UTI Nifty Index Fund

With a 5-year CAGR of 17.2 per cent and one of the industry’s lowest expense ratios of 0.3 per cent, the UTI mutual fund index fund based on the Nifty50 index is in second place. One of the most significant advantages of index funds, such as the UTI Nifty plan, is that you no longer have to worry about the fund manager’s quality or competency, and you are relieved of the stress of churning your portfolio every year.

Nippon India Small Cap Fund

With 5-year CAGR returns of 23.7 per cent and 3-year CAGR returns of 29.1 per cent, Nippon India Small Cap Fund is rated third. It also stands out with a 1.8 per cent expense ratio, which is among the lowest in its peer group. With a P/E multiple of 47.44X at the end of November-21, its price is likewise pretty affordable.

DSP Small Cap Fund

DSP Small Cap Fund is ranked fourth on our list, with a CAGR of 28.4 per cent over the last three years. With a P/E multiple of 33.6X, its portfolio is likewise among the lowest in the business.

Parag Parikh Flexi Cap Fund

The Parag Parikh Flexi Cap Fund is ranked fifth, with a 5-year CAGR of 23% and a 3-year CAGR of over 30%. With a P/E of just 34.7X and an expense ratio of 1.8 per cent, the fund also earns a great score on value, making it an all-rounder.