The stock market has risen sharply during recent months giving good returns to many investors. If you are a mutual fund investor with funds that have high equity exposure, you too must have seen your portfolio rising along with the stock market.
However, these are also times when investors who are putting fresh money into funds find themselves in quandary. The questions that they would be asking is what should be the investment strategy at this point and which funds could be good options to invest?
Investment advisors feel that this is time for caution and that mutual fund investors should veer more towards funds with exposure towards large-caps or that are multi-cap funds and avoid riskier small-cap funds.
“At this juncture, one should look at good schemes from balanced advantage, value, large cap and multicap funds. It is advisable to maintain a properly asset allocated portfolio. Also, one should not get into small-cap funds as it carries high risk. The P/E of small cap index is over 110 which is above normal level of P/E. similarly the investor should be bit more cautious investing in midcap as well as the P/E of midcap index is around 33,” says S Sridharan, Business Head, Financial Planning, Wealth ladder Investments.
Recommending an asset allocation is 70% in equity and 30% in debt, Sridharan’s top 5 fund picks that could give good returns with a holding period of 5 years are follows:
|Scheme Name||Category||% Allocation||1 year||3 year||5 year|
|BOI Axa Credit Risk-G||Debt-Credit Risk||20%||7.61||9.73||NA|
|Franklin India Equity Hybrid-G||Equity-Hybrid||20%||6.11||7.94||17.75|
|ICICI Pru Bluechip-G||Equity-Largecap||20%||10.16||11.27||19.31|
|Invesco India Contra-G||Equity-Value||20%||20.54||14.68||28.04|
Anand Dalmia, Co-founder Fisdom says that the investing plan at this juncture should be linked to the goals of an individual. “The trick of the game is to decide the amount you want to invest, link it to a goal or not (in case you want to just build wealth) and choose the right investment option,” he said.
Dalmia listed 5 fund options where investors can park their fresh funds or shift their existing investment and his justification for suggesting the schemes.
Kotak Standard Multicap: Kotak Standard Multicap is a fund that clearly stands out as a smart fund. With 75% in large-cap stocks with concrete governance and meaningful competitive advantage, it derives a growth-kicker to its portfolio from bets on certain midcap and smallcap stocks with interesting business & scalability models. Kotak Standard Multicap scores really-well on its risk-to-return metrics offering quite a bang for the buck.
ICICI Prudential Value Discovery: IPru Value Discovery struggled with the winners’ curse (where too much influx affected the overall performance of the fund), the interesting thing about this fund is that it might not be the best bull, but it sure knows how to tame a bear. The typical behind-the-scenes for this fund would be scraping for growth stocks at a bargain deal. The fund seems to place a premium on metrics like P/B ratios to unveil. We believe that the multicap mandate of the fund should help it maintain its contrarian-agility despite its heavy-weight AUM.
Birla Sun Life Frontline Equity: The fund’s portfolio turnover of ~73% in conjunction with the quality of stock-churns reflect the prowess with which tactical strategies are executed. We expect the fund to continue outperforming the benchmark and category peers like it has been doing for a long time now. Also, the risk-return metrics continue to be reasonable despite sharp market volatility.
L&T India Value Fund: L&T India Value Fund is an open-ended equity fund which comes under the moderately high-risk category. This fund follows a value strategy. It started off in a year when market was facing the difficulty but had shown consistent performance throughout every cycles. At present this scheme approximately is 40% in mid-sized companies and rest across large sized companies. In the last 3- 5 years the fund had given 16.4% and 26 per cent compared to category returns of 12% and 19%. Moderately high exposure towards Midcap makes this a risky fund for short term and conservative investors. Motilal OswalMulticap 35 Fund: This is a multicap fund with flexibility to invest in Large, Mid & Small cap stocks. It has concentrated portfolio of 35 stocks, suggesting that it has high conviction in the stock that it holds. The top 10 holding accounted for 65% for portfolio and has minimal exposure towards smaller market cap segment, therefore the risk is low. Only risk is concentration risk which is also reduced by choosing high quality stocks. This is done to ensure that the over diversification should not dilute portfolio returns.