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The Big Wealth Creators: These equity funds have grown investors capital 25 to 80 times since inception

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Mutual Funds article in Advisorkhoj - The Big Wealth Creators: These equity funds have grown investors capital 25 to 80 times since inception
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We keep hearing that it is very easy to lose money by investing in share markets. It is true that equity markets are risky. But it is also true that equity as an asset class has the potential to create wealth. How can investors create wealth by investing in equities, given that there is the risk of losing the invested capital? The secret sauce is to adopt a methodical approach to investing. Investors need to identify their investment objective and time horizon to develop an investment plan. This is the most important step of the investing process, because it determines how much you will invest and for how long. Choosing the right instrument is also equally important. Retail investors should opt for good quality diversified equity mutual funds for their long term equity investments. Once the investment is made, it is imperative that investors stick to their investment plan, irrespective of how the market is doing in the short term. In this article, we will discuss how the top equity funds created substantial wealth for their investors.

We have selected some of the most well known large cap, diversified equity and midcap funds that have completed at least 15 years and given excellent returns to their investors. Each of these funds would have grown a 1 lac NFO investment to a value 24 lacs to 80 lacs, depending on the fund and the start date. The chart below shows how much a 1 lac investment in these funds in the NFO would have grown to as on October 30 2014.

These funds were all launched in the period from 1994 to 1998. The Franklin India Bluechip and Prima funds were launched towards the end of 1993. The HDFC Equity fund was launched in 1994 and the HDFC Top 200 fund was launched in 1996. The ICICI Prudential Top 100 fund was launched in 1998. Over the last 15 – 20 year period the stock market went through several bull and bear market cycles. The stock markets saw major downturns in years 2000, 2007 and 2011. Yet despite these downturns, each of these funds has given nearly 20% compounded annual return over a 15 to 20 year period since inception. That is why it is important to have a long time horizon for equity investments. The chart below shows the trailing annualized returns of these funds since their inceptions.

How does the fund returns compare with Sensex returns? The 15 year return of the Sensex is about 12% and the 20 year return is about 9.5%. These funds have outperformed the market by a large margin over the last 15 to 20 year period and achieved legendary status among mutual funds as big wealth creators.

Franklin India Bluechip Fund

This large cap fund was launched in November 1993. The fund has an AUM base of over 5,400 crores. The fund has given an annualized return of nearly 23% since inception. 1 lac investment in the NFO of the fund would have grown in value to nearly 80 lacs today. The chart below shows the growth of 1 lac investment in the Franklin India Bluechip Fund since inception.

Franklin India Prima Fund

This small and midcap fund was launched in November 1993. The fund has an AUM base of over 2,400 crores. The fund has given an annualized return of nearly 21% since inception. 1 lac investment in the NFO of the fund would have grown in value to nearly 57 lacs today. The chart below shows the growth of 1 lac investment in the Franklin India Prima Fund since inception.

HDFC Equity Fund

This diversified equity fund was launched in December 1994. The fund has an AUM base of over 16,200 crores. The fund has given an annualized return of nearly 21% since inception. 1 lac investment in the NFO of the fund would have grown in value to nearly 47 lacs today. The chart below shows the growth of 1 lac investment in the HDFC Equity Fund since inception.

HDFC Top 200 Fund

This large cap fund was launched in August 1996. The fund has an AUM base of nearly 13,000 crores. The fund has given an annualized return of nearly 23% since inception. 1 lac investment in the NFO of the fund would have grown in value to over 42 lacs today. The chart below shows the growth of 1 lac investment in the HDFC Top 200 Fund since inception.

ICICI Prudential Top 100 Fund

This large cap fund was launched in June 1998. The fund has an AUM base of over 1,200 crores. The fund has given an annualized return of nearly 21% since inception. 1 lac investment in the NFO of the fund would have grown in value to nearly 25 lacs today. The chart below shows the growth of 1 lac investment in the ICICI Prudential Top 100 Fund since inception.

Recent Performance

While all these funds have given annualized returns of more than 20% since inception, recent performance as measured by three years annualized returns is more important in evaluating the suitability of funds for investment purpose. Even in terms of 3 years annualized returns, most of these funds have done extremely well and given over 20% returns. The chart below shows the three year trailing annualized returns of these funds.

While Franklin India Bluechip Fund has somewhat lagged between its peers in terms of 3 years trailing annualized returns, the other funds have continued to deliver excellent returns. No wonder these funds have remained strong favourites with investors and financial advisors. You should note that, while the return of Franklin India Prima Fund is higher than the other funds, the Prima Fund is a midcap fund, while the others are large cap oriented funds. Small and midcap funds have greater downside risk than large cap funds in volatile markets.

Conclusion

In this article, we have discussed how top equity funds created substantial wealth for their investors in the long term. These funds are by no means the only options for investors looking to create wealth by investing in equity funds. We selected these funds to demonstrate the benefits of investing with a 15 to 20 year time horizon. There are equity funds of more recent vintage that have also given excellent returns. You should consult with your financial advisor to help you select quality funds which have the potential to give strong future returns. The average retail investor in India is underinvested in equities. Equities should be the most important component of your asset allocation, for you to create wealth in the long term.

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Dwaipayan Bose

An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with 13 years of management experience, mostly in MNCs like American Express and Ameriprise Financial, both in India and the US. In his last role, he was the Chief Financial Officer of American Express Global Business Services in India. His key interests are building best in class organizations, corporate governance and talent development

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