Investors often seek mutual funds that offer the best risk-adjusted returns. While past performance is a key indicator, valuations of funds based on risk (beta) and excessive returns (alpha) can provide deeper insights. Mutual funds with low beta and high alpha can show better stability and better risk-adjusted returns. In this article, we will explore 20 equity mutual funds with low beta and high alphacreates an attractive option for investors.
What is a mutual fund beta?
Beta is a measure of mutual fund volatility related to the broader market (usually expressed as an index such as a Nifty 50 or Sensex). The beta version of 1 shows that the fund is moving in sync with the market. Beta versions below 1 suggest a reduced volatility. This means that funds have less volatility than the market. Conversely, betas above 1 means that the fund is more volatile than the market.
For example, a fund with a beta of 0.80 is expected to move only 80% in response to market movements. This makes low beta funding a favorable option for conservative investors looking for portfolio stability. check 10 mutual funds that have fallen at least in the last six months of this stock market falling.
What is Alpha in Mutual Funds?
Alpha measures the fund’s ability to generate excessive returns via benchmarks. This reflects the ability of fund managers to outperform the market after adjusting for risk. Positive alphas suggest that the fund offers higher than expected returns based on the beta, while negative alphas suggest lower performance.
For example, if the mutual fund’s alpha is 6.0, it means that the fund has surpassed the benchmark by 6% on a risk-adjusted basis. High alpha funds are attractive to offensive investors seeking excellent returns.
How do beta and alpha help us assess mutual fund risk and reward?
Understanding beta and alpha together can help investors to assess mutual fund performance more effectively.
- Low beta, high alpha: Perfect for risk aversion investors who want stability but expect great returns.
- High Beta, High Alpha: Suitable for offensive investors willing to take higher risks for a higher return. These are commonly found in mid caps and some Top Performance Small Cap Mutual Fund.
- Low beta, low alpha: Shows a fund that is stable but average performance. As an example, an online value survey shows that the SBI SmallCap Fund beta and alpha (0.72 and alpha, respectively) are present.
- High beta, low alpha: Generally, risky and poorly performed funds should be avoided. For example, following online value research, the Samco Flexica Fund beta version is 1.07 and the alpha is -13.96.
Top 20 Equity Mutual Funds with Low Beta and High Alpha
Below is a list of 20 equity mutual funds that exhibit low beta (low volatility) and high alpha (good risk-adjusted returns).
| Funds | beta | alpha |
|---|---|---|
| HDFC Focus 30 Fund | 0.76 | 10.91 |
| HDFC Flexi Cap Fund | 0.83 | 9.11 |
| HDFC ELSS Tax Saver Fund | 0.83 | 8.33 |
| ICICI Prudential Large & Mid Cap Fund | 0.85 | 7.88 |
| ICICI Prudential Value Discovery Fund | 0.81 | 7.41 |
| Parag Parikh Flexi Cap Fund | 0.66 | 6.90 |
| Iti Small Cap Fund | 0.81 | 6.54 |
| Parag Parikh Elss Tax Saver Fund | 0.65 | 6.45 |
| ICICI Prudential India Equity FOF | 0.83 | 6.25 |
| HDFC Retirement Savings Fund Equity Plan | 0.80 | 6.23 |
| Investco India Smallcap Fund | 0.80 | 6.19 |
| Tata Small Cap Fund | 0.75 | 5.98 |
| DSP Value Fund | 0.76 | 5.54 |
| Nippon India Small Cap Fund | 0.86 | 5.18 |
| Quantum ELSS Tax Saver Fund | 0.83 | 4.82 |
| Taurus ELSS Tax Saver Fund | 0.77 | 4.74 |
| ICICI Prudential Flexicap Fund | 0.86 | 4.44 |
| Franklin India Small Business Fund | 0.84 | 3.95 |
| HDFC Small Cap Fund | 0.80 | 3.82 |
| ICICI Prudential Passive Strategic Fund (FOF) | 0.83 | 3.04 |
These funds provide the right balance between stability and excellent performance and are suitable for investors who improve risk-adjusted returns.
When can beta or alpha be misleading?
Beta and alpha are useful indicators, but there are some limitations.
- Beta alone does not guarantee stability: Low-beta funds don’t always offer the best returns. Some low beta funds may still perform poorly due to poor inventory selection. For example, according to the MoneyControl website, the beta version of the PGIM Smallcap Fund is 0.72 and the alpha is -5.84, which has reduced performance compared to benchmarks and peers.
- Alpha is based on past performance: High Alphas from the past do not guarantee future outperformance. Cash management strategies and market conditions can change over time. I’ll invest A diverse portfolio of mutual funds To avoid the negative effects of such strategies.
- Sector allocation issues: Funds with low beta and high alpha may still be concentrated in several sectors, and if these sectors perform poorly, this increases the risk.
Conclusion: Investing in mutual funds requires a balance of risk and compensation. Low beta and high alpha funds can provide stability while providing excellent returns. However, investors should also consider other factors such as the fund manager’s expertise, portfolio composition, and expense ratio before making an investment decision. A diverse approach that combines beta, alpha and basic analytics can help investors achieve their financial goals efficiently.
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