You shouldn't be picking an equity mutual fund for anything less than 8-10 years. During such a long period the fate of any MF can change, so do not be very picky. Go with a rough idea and then live with it. A normal strategy does not involve switching funds frequently and it is impractical after you have accumulated a huge corpus. How do you move a huge corpus into another equity fund quickly without increasing risk? Holding an equity fund for a long duration reduces the probability of loss.
The focus is longer than 8-10 years and protection from market fall. You should bear in mind that you will be holding a huge corpus that will not be easy to move into another equity fund. That is why taking high bets on a sector or thematic fund for the long term is risky, it is not easy to time them! A Flexi cap (earlier this was called a multi-cap) allows a better risk-reward scenario in the long run with relatively lesser management effort. Pure equity funds will also give the opportunity of harvesting excess gains from time to time along the journey. That is due to its higher volatility compared to lesser volatile debt funds. Balancing from time to time by hand allows a deeper understanding of investment management and moving funds to suitable known low-risk debt funds is better than relying on the debt component of an aggressive hybrid fund when the goal is coming close. Managing a pure equity fund with debt fund by hand is superior in this way when compared to an aggressive hybrid fund. It also allows you to have clearer management of your debt fund and equity fund. Incidentally, this also allows remaining handy with a low-risk debt corpus if there is a sudden huge opportunity in the form of a severe market crash (which is environmental and expected to recover soon). Most gains in a market are made in the few bull runs after a huge market correction, so this is a significantly important aspect of this strategy and not a trivial one.
This is how I filter a Flexi cap fund for the long term, one Flexi cap fund with one ultra-short duration or money market fund from the same AMC is good enough. Maybe an aggressive hybrid fund or a balanced advantage fund (also called dynamic asset allocation fund) instead of Flexi cap fund when you have learned to manage a large corpus in equity for a very long term patiently and want to shift to something less volatile than Flexi cap:
- High downside protection (in the category)
- Low max drawdown (in the category)
- Low expense ratio (below 1.2)
- Reasonable PE ratio (not much above nifty)
- High fund age (more than 10 years)
- Large fund size (more than 2k crore)
- less Volatility (less than nifty)
