Investing in mutual funds can become a daunting task considering there are more than 5000 options for someone to buy.

It is always recommended to invest in a portfolio of mutual funds instead of a single mutual fund scheme.

In this article, I will lay out a step by step plan about how you, as a beginner can build a perfect mutual fund portfolio considering current and future market conditions.

 

Market conditions of 2018

The Indian markets erased this year’s gains as concerns around the U.S-China trade war and rising interest rates added to the rout caused by rising fuel prices and a weaker rupee.

The Sensex fell 2.2% or 760 points to 34,001 on Monday, and the Nifty 50 Index dropped 2.2% or 225 points to 10,235. Sensex wiped out all its 2018 gains as it fell 0.16% year-to-date. The Nifty has already declined 3% year-to-date.

What led to the recent market fall? An investor’s perspective

Unlike last year, when the stock market rose steadily and considerably, both Sensex and Nifty has gotten off to a disappointing and disconcerting in 2018.

In August 2018, the Indian stock market indices were at an all-time high, buoyed by a strong Q1 earning season and positive global sentiment.

Both the Sensex and Nifty have been registering phenomenal growth over the past few months, with very few instances where the markets have nosedived.

Sensex soared to close at 38,645.07 on 31st August 2018. On the other hand, Nifty rose over to touch a new peak of 11,680.80.

Since then, Sensex came down to 34,376.99 and its counterpart Nifty came down to 10,316.45.

The domestic stock market has lost almost $300 billion since August 2018, with concerns over defaults at private lenders adding to those over the impact of rising crude prices and a weakening rupee.

It’s now worth only $1.97 trillion, falling below the $2 trillion for the first time since August 2017.

Here is the graph showing last 22 months of trend.

As concerns have shifted back and forth from a sluggish economy to an overheating one, the market has taken investors on a roller coaster ride, resulting in poor returns and testing investors’ strategy and resolve.

However, the mutual fund industry is still in a growing trend.

The AUM of the Indian MF Industry has grown from ₹ 4.83 trillion as on 30th September 2008 to ₹22.04 trillion as on 30th September, 2018, more than four and half fold increase in a span of 10 years!

The total number of accounts (or folios as per mutual fund parlance) as on September 30, 2018 stood at 7.79 crore (77.9 million), while the number of folios under Equity, ELSS and Balanced schemes, wherein the maximum investment is from the retail segment stood at 6.54 crore (65.4 million).

This is the 52nd consecutive month witnessing rise in the no. of folios.

How is the market likely to perform in 2019?

The global research and brokerage firm Morgan Stanley has forecasted a Sensex target of 44,000 June 2019 in a bull case scenario following better-than-expected outcomes on the back of policy and global factors and markets believing on strong election results.

For the base case scenario, the 30-share barometer Sensex is seen at 36,000 keeping all outcomes at a moderate level and slow growth acceleration.

But if global conditions deteriorate, the market starts pricing in a poor election outcome then Sensex may steer back to a level of 26,500 (bear case), Morgan Stanley report said.

Source: Moneycontrol

The global financial services firm seeing signs of investment rate rising and thereby profit margins should rise. Elections outcome in 2019 is the key risk for the market.

Big Bull Rakesh Jhujhunwala says he expects Prime Minister Narendra Modi to come back to power in 2019, even though he finds it difficult to predict what the exact outcome would be.

The Big Bull believes India should see big improvements in its manufacturing capability in the coming years.

How to build a mutual fund portfolio for 2019?

Based on current and future market condition, an ideal portfolio for 2019 will be one that has 5 mutual fund schemes spread across different market capitalization and across various asset classes, especially if you are a beginner.

Best approach would be to include one large-cap equity scheme, one multi-cap scheme, one small or mid-cap scheme fund and 1 to 2 debt-oriented fund.

Now, if you want to save tax by investing in mutual funds, you can replace 1 fund from the multi cap or large cap category with ELSS funds.

Avoid sector funds or thematic funds till the next year budget presentation and general election.

For long-term debt-oriented mutual funds, choose a fund that will invest across instruments like gilt, corporate bond, commercial paper and deposits and also vary its portfolio maturity based on the interest rate cycle.

Avoid funds that will take exposure to credit, specifically have corporate bonds as a theme.

Also, ensure that you spread your investments across different fund houses for a particular category. This will build stability in your portfolio even if there are major changes in the fund house or at the fund manager level.

Different fund houses follow different investment philosophies and follow different strategies for stock picking.

Also, the age of the investor and his risk appetite plays an important role in deciding the funds he should have in his portfolio.

Read: What is risk?

Once you have selected the funds based on the above-mentioned criteria you must regularly visit your portfolio to check for its performance and review if its living up to the purpose for which it was bought.

If a particular fund has not performed for say a quarter or so, there is no need to panic. Give it some more time before deciding to replace it with a better performing fund.

Don’t judge a fund by its past performance alone, check if it has really performed during bear market situations also.

Usually, all funds do well in a bull market but only a few good ones deliver consistent returns across different market conditions. Consistency is the key here.

Best 5 mutual funds for beginners - 2019
Fund Name 1Y 3Y 5Y Category Risk
Mirae Asset India Equity Fund - Direct - Growth 1.2% 14.99% 20.37% Equity
(Multi Cap)
Moderately High
Reliance Large Cap Fund - Direct - Growth 2.11% 13.06% 19.36% Equity
(Large Cap)
Moderately High
HDFC Small Cap Fund - Direct - Growth 0.23% 18.03% NA Equity
(Small Cap)
Moderately High
Franklin India Ultra Short Bond Fund - Direct - Growth 8% 8.83% 9.32% Debt
(Ultra Short Duration)
Moderate
L&T Money Market Fund - Direct - Growth 7.47% 8.46% 8.64% Debt
(Money Market)
Moderately Low

Best 5 mutual funds for beginners 2019 – Details

1. Reliance Large Cap Fund – Direct – Growth

This is one of the most popular large cap mutual fund in the market right now and has given 14.4% return since its launch.

Ideal investment duration for this funds: 4 years and above.

Key Information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹34.4
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹10,898 Cr
Riskometer Moderately High
Minimum SIP ₹100
Minimum SWP ₹1,000
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE 100 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.28%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

This is one of the most popular multi cap mutual fund in the market right now and has given 16.9% return since its launch.

Ideal investment duration for this funds: 5 years and above.

Key Information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹49.3
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹8,755 Cr
Riskometer Moderately High
Minimum SIP ₹1,000
Minimum SWP ₹1,000
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.32%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

3. HDFC Small Cap Fund – Direct – Growth

This is one of the most popular small cap mutual fund in the market right now and has given 18.38% return since its launch.

Ideal investment duration for this funds: 7 years and above.

Key Information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹44.7
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹4,948 Cr
Riskometer Moderately High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark NIFTY Small-cap 100 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 0.54%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

This fund invests in debt & money market instruments, such that the duration of the portfolio is between 3 – 6 months.

Ideal investment duration: 3 to 6 months

Key information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹25.3
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹13,240 Cr
Riskometer Low
Minimum SIP ₹1,000
Minimum SWP ₹1,000
Performance w.r.t its Benchmark Has consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund 5 years old
Expense Ratio 0.34%
Exit Load NIL
Type  Open Ended

This fund invests in money market instruments that have a maturity of up to 1 year.

Ideal investment duration: 12 months

Key information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹18.2
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹1,325 Cr
Riskometer Moderately Low
Minimum SIP ₹1,000
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund 5 years old
Expense Ratio 0.28%
Exit Load NIL
Type  Open Ended

Conclusion

The perfect portfolio for beginners to buy for 2019 will include a diverse set of categories.

Smart investors don’t try to time the market by jumping in and out of investments in the short-term but will instead employ a buy and hold strategy for periods of more than one year.

Mutual Funds: Things you should know as a beginner

With this investing philosophy in mind, we can determine which are the best mutual funds to buy and hold for 2019.

Investing in mutual funds online is very simple and paperless. Simply log in to your Groww account, choose a fund, and invest using net banking – exactly like you would when shopping online.

Start investing in mutual funds early and stay invested for longer duration to get its true benefit. Here are the top 10 mutual fund for you to bet in 2019, check out Best mutual funds to invest in 2019.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww