Diversified Equity Funds Outperform Index SIPs, Say Experts

Expert View: Creating Long-Term Wealth through Diversified Equity Mutual Funds

Feroze Azeez, Joint CEO of Anand Rathi Wealth, has highlighted the importance of diversified equity mutual fund categories in creating long-term wealth. According to Azeez, more than half of the funds in this category have outperformed the Nifty 50 from 2018 to 2025. This is in contrast to index funds, where only 2% of funds managed to outperform the Nifty 50 during the same period.

Azeez suggests that investors should allocate 55% of their portfolio to large caps and the rest to mid and small caps. This strategy allows portfolios to participate in different phases of the market cycle, rather than relying on a single segment. He also emphasizes the importance of staying invested and being part of the eventual recovery that follows market falls.

Read also: Groww AMC Secures Strategic Boost as SEBI Approves State Street Global Advisors' Minority Stake

Investment Strategy for Long-Term Wealth Creation

For investors with a long-term horizon (over 5 years), Azeez recommends allocating 80% of their portfolio to equity and the rest to debt. Those with a medium-term horizon can follow a 70:30 split, while investors with a short-term horizon (less than 1 year) should invest 100% in debt. Gold exposure can be added within the debt portion of the portfolio, but it should not dominate the portfolio.

Avoiding Common Mistakes in Portfolio Building

Azeez warns investors against blindly increasing the number of funds in their portfolio, which can increase the chance of overlap and concentration risk. He suggests that smaller investors should hold around 6 to 8 funds, mid-sized investors 10 to 12 funds, and larger investors 10 to 14 funds.

Read also: Mahindra Manulife Launches MPOWER SIF, Entering the Systematic Investment Fund Segment

Key Takeaways for Wealth Creation

Azeez emphasizes the importance of using the same measure, such as CAGR, to compare investments and not relying solely on returns. He also warns against falling into the trap of recency bias, where recent performance drives investment decisions. Instead, investors should focus on risk-adjusted returns and avoid following the herd.

Market Outlook for the Next 12-18 Months

Azeez expects leadership to come from mid and small caps, which are expected to deliver earnings growth of nearly 18% and 20%, respectively. He believes that the domestic growth story still looks constructive, despite market leadership rotating across segments. The Nifty 50 is currently trading below its estimated fair value by nearly 10%, making it a good entry point for long-term investors.