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Which Fund To Buy guide
Which Fund to Buy guide
Publication Date : 23 June, 2016Validity : Till 31 December, 2016Data Source : Capital Line NAV
: Moneycontrol.com
Bharosa Club is a Registered Investment Advisor with SEBI (RIA # INA100004657). Ouropen to public algorithm helps investors identify good performing Mutual Funds.Investors are free to do their own analysis and choose their own investment picks.
1
Table of Contents
Top Algorithm Picks
Page
4
How to use this guide 5
How did we determine our top picks - EQUITY 8
2
How did we determine our top picks - DEBT 10
How did we determine our top picks – TAX SAVER 12
Disclaimer:1. Mutual Fund Investments are subject to market risks, read all scheme
related documents carefully.2. Past performance does not guarantee future returns.
Message from CIO, Bharosa Club 3
3
Message from the Chief Investment Officer
B.Tech( IIT - Mumbai)PGDM ( IIM - Ahmedabad)Head Equity Derivative Operations, Citibank New York, Reuters Digital Vision Fellow, Stanford University, PayPal founding teamNISM Investment Advisor (Level I&II)
Sanjay BhargavaCEO & CIO, Bharosa Club
Dear Member,
To begin with, a big congratulations to first time mutual fund investors for getting started on yourinvestment journey. It’s our endeavour to consistently provide you well researched & unbiased advice. Youon your part are encouraged to stay the course and not get deterred by short term volatility. Patience &Persistence are the key success mantras when it comes to long term investing.
This guide seeks to address the one question asked by most investors, “Which fund should I buy?”
Our algorithm helps investors resolve this dilemma. We begin by helping you decide your asset allocation(based on your age & risk profile) and then go on to recommend funds across mutual fund categories. Webelieve in an open algorithm, and no one can accuse us of bias. Members are free to execute our advice ordo their own research to select their funds. We recommend the use of websites like Money Control &Value Research to help members dig deeper.
This guide is designed to keep it simple. Some of you may only want to look at our picks; others may wantmore detail. We have tried to balance these needs.
We believe in continuous improvement, and would love to hear from CIO's of AMCs and our members onhow they think our algorithm should be improved. Should the 1,000 cr limit for equity funds be lowered orraised? How can we spot emerging stars and not be biased by past performance? These are just some ofthe issues where we would love to have inputs.
With that, all the best & Happy Investing!
Top Algorithm Picks
EQUITY PICKS
For long term wealth creation. Equity Funds are volatile and risky in the short term
DEBT PICKS
A better alternate to savings account or even FDs. Offer easy liquidity and tax advantages if held for more than 3 years.
TAX SAVER PICKS
Just a 3 year lock-in and higher returns makes them a better alternative for tax saving. They carry the risks associated with Equity Mutual Funds.
Invested
4.67L 4.72L
4.93L
5.51L
SBI BlueChip
Franklin India Prima
Plus
MO Most Focused Multicap
35
ICICI PruValue
Discovery
SBI Magnum Midcap
Rs. 10,000 monthly SIP between June 1, 2013 & May 31, 2016. The above data shows the value of investments on May 31, 2016. Figures have been rounded off. Investments in the DIRECT Growth plans of the above funds. * The Motilal Oswal Most Focused Multicap 35 Fund is only 25 months old. In order to get comparable returns, we assumed an SIP in the ICICI Nifty ETF Fund between June 1, 2013 & April 30, 2014. Post which this amount was transferred to the Motilal Oswal Fund with regular SIPs starting May 1, 2014. We even compared this fund’s performance vis-à-vis the other top picks for the 25 month period, and it mirrors the performance shown in the chart above.
3.60L
Invested
4.12L
Birla Sun Life Cash Manager
ICICI PruFlexible Income
Reliance Money
Manager
SBI Ultra Short Term
Debt
HDFC Cash Mgmt -
Treasury Advantage
Ret
urn
s o
ver
3 y
ears 3.60L
Invested
4.78L 4.81L4.67L 4.56L
Birla Sun Life Tax
Relief '96
AXIS Long Term Equity
Franklin India
Taxshield
DSP BR Tax Saver
HDFC Long Term
Advantage
Ret
urn
s o
ver
3 y
ears 3.60L
4.26L4.10L 4.10L 4.09L 4.08L
Ret
urn
s o
ver
3 y
ears
4
5.11L*
How to Use this guide
STEP 1: Determine the right asset allocation for yourself
• If you can’t tolerate any volatility in returns
• If you have very short term goals
• If you want regular income out of your investments
RISK AVERSE
• If you can handle slight volatility but not large losses in the short term
• If you want to beat post tax FD returns
• If your investment horizon is less than 5 years
CONSERVATIVE
• If you can handle risk and digest large losses in the short term
• If you want to get higher returns
• If you want to invest for 5 years or more
MODERATE
• If you are a risk taker and can handle losses over the medium term
• If you want to create wealth• If you have an investment
horizon of 10 years or more
AGGRESSIVE
Recommended Asset Allocation
B00% Equity : 100% Debt
B2020% Equity : 80% Debt
B6060% Equity : 40% Debt
B8080% Equity : 20% Debt
STEP 2: Select Funds for the DEBT portion of your portfolio
Top Picks 1st Investment (Min Amt)
Subsequent Investments (Min Amt)
Birla Sun Life Cash Manager - Direct (G) 5,000 1,000
ICICI Pru Flexible Income Plan - Direct (G) 500 100
Reliance Money Manager Fund - Direct (G) 500 500
SBI Ultra Short Term Debt Fund - Direct (G) 5,000 1,000
HDFC Cash Mgmt - Treasury Advantage - Direct (G) 5,000 1,000
We don’t recommend excessivediversification in case of Debt Funds, but youare free to invest in any number of funds.
Our default pick for this category of mutualfunds is ICICI Pru Flexible Income Plan, and wewould recommend this fund in case you don’twish to diversify.
We recommend you also visit our website and use our Product & Goal Report (coming soon) tools
5
How to Use this guide
STEP 3: Select Funds for the EQUITY portion of your portfolio
Equity Mutual Funds are of several types. We have looked at 3 in particular• LARGE CAP FUNDS (Invest in stocks of large companies). These provide stability to a portfolio and seldom give super normal profits or losses as large companies have predictable
growth paths.• MID CAP FUNDS (Invest in stocks of mid sized companies). These provide opportunities for super normal profits as mid sized companies have greater room for growth. However, they
are volatile and can also lead to super normal losses during downturns.• MULTI CAP FUNDS (Invest in large, medium and small companies). These provide the advantages of Large Cap and Mid Cap Funds and thus are typically more volatile than Large Cap
funds.
The above are just recommendations, you are free to decide your own allocations as well as pick any fund of your choice
6
Top Picks Fund Type
Which Funds to invest in(Recommended distribution in equity allocation basis your profile)
1st
Investment (Min Amt)
Subsequent Investments
(Min Amt)
If you are a 1st time investor and want to try
Equity
If you want a diversified
and balanced portfolio
If you want limited volatility
in your Equity portfolio
If you can handle high volatility
and want higher potential returns
SBI BlueChip Fund - Direct (G) Large Cap 100% 20% 30% 5,000 1,000
Franklin India Prima Plus - Direct (G) Large Cap 20% 30% 5,000 1,000
Motilal Oswal Most Focused Multicap 35 Fund-Direct (G)
Multi Cap 20% 20% 30% 5,000 1,000
ICICI Pru Value Discovery Fund - Direct (G) Multi Cap 20% 20% 30% 5,000 1,000
SBI Magnum Midcap Fund - Direct (G) Mid Cap 20% 40% 5,000 1,000
How to Use this guide
STEP 4: Select Funds for Tax Saving (first calculate how much you need to invest in tax saving instruments)
Top Picks 1st Investment (Min Amt)
Subsequent Investments (Min Amt)
Birla Sun Life Tax Relief '96 - Direct (G) 500 500
AXIS Long Term Equity Fund - Direct (G) 500 500
Franklin India Taxshield - Direct (G) 500 500
DSP BR Tax Saver Fund - Direct (G) 500 500
HDFC Long Term Advantage Fund - Direct (G) 500 500
Choose the amount of diversification you want and invest in any number of funds from this selection. You are also free to invest in any other fund of your choice.
Our default pick for this category of mutual funds continues to be Axis Long Term Equity Fund (our recommended pick in our last report), and we would recommend this fund in case you don’t wish to diversify.
7
What about other funds? Want more research?
Our algorithm picks serve as a guide for thosewho need assistance in fund selection.Members are free to invest in any fund of theirchoice.
If you like to invest in other categories ofmutual funds – Sectoral Funds, Balanced Funds,Hybrid Funds, Other Debt Funds etc., you arefree to do so from our site. Our algorithm doesnot cover these categories of mutual funds,because we don’t like to compromise onsimplicity.
Valueresearchonline.comMoneycontrol.com
For further research inputs, alternate views &SIP return calculations.
How did we determine our top picks
In general several investors view mutual fund recommendations with suspicion, becausethe advice giver is often influenced by the lure of commissions. We are a commissionfree platform, and don’t earn even a rupee from your investments. Which is why, in theinterest of absolute transparency, we are openly sharing our fund selection process. Weare always trying to improve our fund selection, so we welcome Ideas from everyone.
25Mutual
Fund Houses
290Diversified Equity Schemes
267In existence for > 1 year
73Corpus > Rs. 1,000 cr
20Weighted SIP Performance
Top 5
We recommend investments in Diversified Equity Mutual Funds. We don’t like thematic orsectoral funds because their performance tends to be cyclical. We also don’t like hybridfunds; instead we recommend allocation to debt funds to create an ideal asset allocation.
We like funds with a track record of at least 1 year. That allows meaningful analysis ofperformance.
Funds with a large corpus implies a certain amount of investor confidence. It also allows afund manager to adequately diversify his holdings.
We looked at the SIP performance of the 73 shortlisted funds over a 3 year period. Furtherwe assigned weights to different time periods - 10% (6 months), 20% (1 year), 30% (2years), 40% (3 years). This created a bias for funds which have delivered good returns overa sustained period of time, and at the same time those which are showing a turnaround.
EQUITY MUTUAL FUNDS - SHORTLISTING
From the Top 20 performing funds, we selected 5 funds to create a balanced portfolio:2 Large Cap Funds, 2 Multi Cap Funds, 1 Mid Cap Fund
The objective was to curate a list of the Top 5 Equity Mutual Funds which constituted a balanced portfolio – without excessive bias to a sector or market capitalization.
Transparent
Un-Biased
Data Driven
8
Stages of filtration # of funds in every stage
Criteria Used
How did we determine our top picks
EQUITY MUTUAL FUNDS - SELECTION
PICKED: Highest Ranked Mid Cap Fund
PICKED: Highest Ranked Large Cap Fund
PICKED: Second Highest Ranked Large Cap Fund
PICKED: An existing pick from our previous algorithm (Dec 26, 2015)
Rank Top 20 Schemes using weighted SIP between June 1, 2013-May 31, 2016 Fund Type
1 DSP BR Micro-Cap Fund - Direct (G) Small Cap
2 SBI Magnum Midcap Fund - Direct (G) Mid Cap
3 Franklin India Smaller Companies Fund - Direct (G) Mid Cap
4 Franklin India Prima Fund - Direct (G) Mid Cap
5 Reliance Small Cap Fund - Direct (G) Small Cap
6 Sundaram Select Midcap - Direct (G) Mid Cap
7 DSP BR Small And Mid Cap Fund - Direct (G) Mid Cap
8 SBI BlueChip Fund - Direct (G) Large Cap
9 Franklin India Prima Plus - Direct (G) Large Cap
10 Birla Sun Life Advantage Fund - Direct (G) Large Cap
11 L&T India Value Fund - Direct (G) Multi Cap
12 Franklin India High Growth Companies Fund -Dir (G) Multi Cap
13 Birla Sun Life Equity Fund - Direct (G) Multi Cap
14 Sundaram S.M.I.L.E Fund - Direct (G) Small Cap
15 Motilal Oswal Most Focused Multicap 35 Fund-Dir(G) Multi Cap
16 ICICI Pru Value Discovery Fund - Direct (G) Multi Cap
17 Franklin India Bluechip Fund - Direct (G) Large Cap
18 SBI Magnum Multiplier Fund - Direct (G) Large Cap
19 Franklin India Flexi Cap Fund - Direct (G) Multi Cap
20 Birla Sun Life Frontline Equity Fund - Direct (G) Large Cap
1. We don’t select Small Cap Funds in our Top 5 because they tend to be extremely volatile
2. We have a bias for funds which were previously a part of our Top Picks because we want to limit portfolio churn
3. We have a bias toward larger, more established fund houses
4. Investors are encouraged to study these funds and make their own fund selection
PICKED: An existing pick from our previous algorithm (Dec 26, 2015)
Reason for selection
9
How did we determine our top picks
102Ultra Short Term & Liquid Funds
97In existence for > 1 year
30Corpus > Rs. 5,000 cr
10Weighted
Performance
Top 5
We recommend investments in Ultra Short Term & Liquid Funds as they have lessersensitivity to interest rate fluctuations. As a result, returns are more predictable. Longerduration debt funds tend to be more volatile to interest rate changes.
We like funds with a track record of at least 1 year. That allows meaningful analysis ofperformance.
Funds with a large corpus implies a certain amount of investor confidence. It also allows afund manager to adequately diversify his holdings.
We looked at the performance of the shortlisted 30 funds over a 3 year period. Further weassigned weights to different time periods - 10% (6 months), 20% (1 year), 30% (2 years),40% (3 years). This created a bias for funds which have delivered good returns over asustained period of time, and at the same time those which are showing a turnaround.
From the Top 10 funds, we selected 5 funds keeping quality of holdings and modifiedduration in mind.
DEBT MUTUAL FUNDS - SHORTLISTING
The objective was to curate a list of the Top 5 Debt Mutual Funds, which provided a high degree of safety and protection from volatility.
10
Stages of filtration # of funds in every stage
Criteria Used
25Mutual
Fund Houses
How did we determine our top picks
DEBT MUTUAL FUNDS - SELECTION
PICKED
NOT PICKED: Minimum investment amount is Rs. 10,000. The scheme has witnessed a drop in AUM over the last year
Selection & Reason for omissionRank Top 10 Schemes using weighted returns between June 1, 2013 & May 31, 2016
1 Franklin India Ultra-Short Bond - Direct (G)
2 ICICI Pru Ultra Short Term Plan - Direct (G)
3 Birla Sun Life Cash Manager - Direct (G)
4 UTI-Treasury Advantage Fund - Inst - Direct (G)
5 ICICI Pru Flexible Income Plan - Direct (G)
6 Reliance Money Manager Fund - Direct (G)
7 SBI Ultra Short Term Debt Fund - Direct (G)
8 Reliance Liquid Fund - Cash Plan - Direct (G)
9 HDFC Cash Mgmt - Treasury Advantage - Direct (G)
10 Birla Sun Life Cash Plus - Direct (G)
PICKED
NOT PICKED: Modified duration of over 1 year, makes scheme susceptible to interest rate volatility
NOT PICKED: Minimum investment amount is Rs. 10,000. More than 5% investments in unrated securities.
PICKED
PICKED
NOT PICKED: More than 5% investments in unrated securities
PICKED
11
How did we determine our top picks
25Mutual Fund Houses
55Tax Saver Schemes
49In existence for > 1 year
11Corpus > Rs. 1,000 cr
10Weighted SIP Performance
Top 5
For tax saving purposes, we recommend investments in Tax Saver Mutual Funds over PPF,Insurance & Tax Saver FDs. Shorter Lock-ins and higher potential returns are the greatestadvantages that this category of mutual funds offer.
We like funds with a track record of at least 1 year. That allows meaningful analysis ofperformance.
Funds with a large corpus implies a certain amount of investor confidence. It also allows afund manager to adequately diversify his holdings.
We looked at the SIP performance of the 11 shortlisted funds over a 3 year period. Furtherwe assigned weights to different time periods - 10% (6 months), 20% (1 year), 30% (2years), 40% (3 years). This created a bias for funds which have delivered good returns overa sustained period of time, and at the same time those which are showing a turnaround.
TAX SAVER MUTUAL FUNDS - SHORTLISTING
From the Top 10 performing funds, we selected the top 5 funds
The objective was to curate a list of the Top 5 Tax Saver Mutual Funds.
12
Stages of filtration # of funds in every stage
Criteria Used
How did we determine our top picks
TAX SAVER MUTUAL FUNDS - SELECTION
PICKED
Reason for selectionRank Top 10 Schemes using weighted SIP between June 1, 2013-May 31, 2016
1 Birla Sun Life Tax Relief '96 - Direct (G)
2 AXIS Long Term Equity Fund - Direct (G)
3 Franklin India Taxshield - Direct (G)
4 DSP BR Tax Saver Fund - Direct (G)
5 HDFC Long Term Advantage Fund - Direct (G)
6 Sundaram Tax Saver - Direct (G)
7 L&T Tax Advantage Fund - Direct (G)
8 Reliance Tax Saver (ELSS) Fund - Direct (G)
9 SBI Magnum Tax Gain Scheme - Direct (G)
10 ICICI Pru Long Term Equity Fund - Direct (G)
PICKED
PICKED
PICKED
PICKED
13
For suggestions & comments
14
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