What’s in: Funds that made an entry in Mint50
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Here is a list of schemes that have entered the Mint50 Best Funds list:
DSP BlackRock Focus 25 Fund (DBR25): There’s a dearth of well-performing pure large-cap funds and the ones we like are already a part of Mint50. But given the run-up in mid- and small-cap funds, this is a good time to invest incrementally in large-cap funds. DBR25 is a fund with a difference.
Unlike other diversified funds, DBR25 invests 95% of its corpus in just 25 stocks, hence the name ‘Focus’. The scheme holds around 30% of its corpus in banks, 13.7% in autos and 8.2% in petroleum products. Fund manager Harrish Zaveri says that banks that have a high current account-saving account ratio—a good retail franchise—would do well, due to low interest rates that would ensure low borrowing costs for these banks.
Curiously, the fund has a high exposure to the pharmaceuticals sector at 6.3%. While share prices of both pharma companies in this fund have gone down in the past 1 year, Zaveri is not worried. One of these companies has many approvals pending, which are expected to materialise. The other company, he adds, is just going through a bad phase at the moment, he insists. DBR25 returned 22.64% in the past 1 year and 11.35% in the past 2 years. Due to its focused strategy, this should not be the first or second fund in your portfolio. But if you are a mature mutual fund investor and have a well-defined portfolio, you can invest a small amount in it.
L&T Tax Advantage Fund (LTAF): We had only two equity-linked savings schemes (ELSS). So, enter LTAF, earlier known as Fidelity Tax Advantage Fund. Like Kotak Mahindra AMC, L&T Investment Management Ltd has also turned around and it’s time to put more money behind these fund houses. We bring three of L&T Investment Management’s schemes in Mint50 this year.
LTAF is an ELSS. It offers section 80C tax benefits up to Rs1.5 lakh and therefore comes with a 3-year lock-in. Fund manager Soumendra Nath Lahiri, who is also the fund house’s chief investment officer, doesn’t churn his portfolios frequently. Its portfolio turnover ratio is at a lowof 30-38%. LTAF returned 18.62% and 22.41% in the last 5 and 3 years, respectively. Lahiri expects the economy to pick up and has invested accordingly, with high allocation to banks, construction projects, industrial products and the cement sector. “Government spending will continue in infrastructure areas where it is present like defence sector, roads and railways.
Kotak Opportunities Fund (KOF): We’re adding another fund from Kotak Mahindra AMC. KOF is a multi-cap fund that invests in sectors and scrips across market capitalisations. Unlike Kotak Select Focus (KSF: in Mint50), which is also a multi-cap fund but relies on sector calls in addition to picking stocks, KOF relies purely on its stock selection. For instance, KSF’s portfolio doesn’t have media stocks as it doesn’t find the sector to be as attractive, but it has Zee Entertainment Enterprises Ltd’s shares.
Harsha Upadhyaya, chief investment officer-equity, Kotak Mahindra AMC, does not churn much. “The fund is focused more towards large-caps and the endeavor is to invest 65-70% here,” he says. Investments in companies like UPL Ltd, Coromandel International Ltd, and staying underweight in information technology and pharmaceutical sector helped the fund in the last couple of years. Upadhyaya also avoided telecom stocks as freebies offered by Reliance Jio affected the earnings of listed telecom firms.
L&T India Prudence Fund (LPF): Current market conditions are better suited for conservative funds and we think another balanced fund is in order. LPF is a good option on that count. When fund manager Lahiri (who manages the equities portion; Shriram Ramanathan looks after the debt portion) started managing the scheme in November 2012, its size was Rs25 crore. By end-April 2017, LPF was worth Rs4,117 crore.
The scheme usually invests 69-72% in equities. The portfolio is well diversified. Lahiri has invested the fund’s equity portion in banks (14.5%), construction projects (7.7%) and software (4.3%), although the share of software has been reducing. When the fund was smaller in size, Lahiri used to invest in small- and mid-cap scrips, but as the fund’s size grew, he now prefers large-cap companies. “More than 60% of the portfolio is usually in large-cap scrips now,” he says.
For the fixed income portion, Ramanathan sticks to an accrual strategy: investing in well-managed companies’ bond to earn interest income. Ramanathan has consciously avoided following a duration strategy (increasing or reducing the portfolio’s average maturity to make the most of fall or rise in interest rates) as he sees a bigger risk in it.
Kotak Corporate Bond Fund: This fund is about 10 years old, with a track record of steady returns from investing in a high-quality corporate bonds. Current average maturity of the fund is slightly below 3 years. It is placed in the income fund category, but given that the focus is on corporate bond-based accrual portfolio, it does not take high risk opportunistic-duration calls. This makes the fund returns less volatile as compared to the category.
Moreover, it is largely a AAA portfolio, which gives comfort on quality. In 2013-14 when financial markets world over were under stress, this fund too performed poorly. Two other years where performance was below average are 2009 and 2010, which were stress years for the Indian debt markets as the economy was in a rate-hike cycle. Other than that, the fund has been able to deliver between 8.5% and 9.5% annualised return over 9 years. In a positive rate cycle, returns have gone up to double digits of around 12-14% as well.
Again, this is a conservative fund meant for investors who want to park short- to medium-term money with little concern on credit quality and a steady return.
L&T Short term opportunities fund: We are including another fund from the L&T stable as we like a conservative approach on the debt side. The fund is jointly managed by Jalpan Shah and Shriram Ramanathan. Launched in December 2011, this fund is a low-risk option in the short-term funds space. The fund’s portfolio has AAA-rated securities largely from high-quality private sector companies and a few public sector entities. Its average maturity is kept around 2 years but at times moves to about 2.5 years or so, when market opportunity demands.
Returns are in line with the conservative approach. It is not a top-performing scheme in the category. However, over 5 years the fund has shown greater stability in returns as compared to the category. While the scheme saw negative return for a brief period during 2013, when global debt and currency markets were thrown off by the announcement of pull back in quantitative easing, it recovered soon and maintained its long-term returns stability. It is meant for investors looking for alternatives to fixed deposits, rather than top-of-category returns. Its steady accrual portfolio has delivered 8.75% annualised returns over a period of 5 years. At 0.70%, expense ratio of the scheme is not high.
SBI Magnum Monthly Income Plan: This scheme invests up to 15% in equities and the rest in fixed income. The equities portion is used to earn a returns kicker, but the equity fund manager, Ruchit Mehta, tilts the portfolio towards large-cap scrips to avoid volatility and he adopts a bottom-up stock picking strategy. The debt fund manager, Dinesh Ahuja, invests in debt securities in such a way that the portfolio’s average maturity remains between 5-10 years. But doesn’t that add to the fund’s risk quotient if the fund manager’s prediction on interest rates go wrong? “Yes it does, but if the MIP investor comes in for at least 3-5 years, which she does and ought to, the risk gets evened out. In this period, the calls that go right are enough to generate a spike in returns to take care of an occasional call or two that could go wrong,” says Ahuja.