Mutual funds are arguably the best investment options available for investors in terms of ease of investments and different risk/return paradigms available. Depending upon your risk profile and longevity of holding period, you can chose between various debt, equity and balanced funds.
1. ICICI Prudential Focused Bluechip Equity (Large-cap equity fund)
This is a pure large-cap fund. Given that mid-caps are overheated and likely to correct further, sticking to large-caps is a prudent move. Rolling ICICI Focused Bluechip’s returns for a three-year period over the past five years, the fund has been well ahead of both its benchmark (Nifty 50) and its category all the time. It’s not as volatile as other large-cap funds and it delivers better risk-adjusted returns (measured by Sharpe). It cherry-picks stocks and takes somewhat concentrated exposure to each. Its current portfolio is a mix of the beaten-down healthcare, energy, and financials.
2. Birla Sun Life Frontline Equity (Large-cap equity fund)
A quality large-cap fund, it beats the Nifty 100 index, the representative index for large-cap stocks, all the time in both the short-term and long-term. It is similarly consistent in beating category average. It takes some exposure of around 10% in mid-cap stocks too. It maintains a higher-than-average risk-adjusted return. While financials and energy are its biggest sectors, it also holds good exposure to automobiles and consumer durables, besides dark-horses healthcare and software.
3. Mirae Asset India Opportunities (Diversified equity fund)
This fund is the best in its category in terms of consistency in beating the Nifty 500 index and category average. “Being a diversified or multi-cap fund, it can provide a mid-cap exposure while keeping a control over risk. Its risk-adjusted return is also well above the category average. Its current portfolio balances both consumer sectors and cyclical ones, allowing it to make the best of all opportunities. On an average, the fund has delivered about 7 percentage points more than its category and benchmark, when rolling 3-year returns for 5 years,” says Acharya.
4. Franklin India Prima Plus (Diversified equity fund)
This fund is able to beat its category average and the Nifty 500 index almost all the time when 3-year returns are rolled over 5 years. It is especially good at containing downsides during market corrections. A diversified fund, it puts about 30% of its portfolio in mid-cap stocks on an average, giving you a measured mid-cap exposure. Its volatility is marginally lower than the category average, while its risk-adjusted returns are much better. Its current portfolio has a significant share of financials. It also has good exposure to beaten-down sectors such as telecom and healthcare.
5. Tata Balanced (Balanced fund)
Rolling this fund’s 3-year returns over 5 years has it beating the CRISIL Balanced Fund – Aggressive index all the time by an average margin of 7 percentage points. “Owing to a higher-than-average exposure to equity, and within that in mid-cap and small-cap stocks, the fund’s volatility is on the higher side. Its risk-adjusted returns, though, hold strong above the category. Over the past three months, the fund reduced gilt exposure and moved into money market instruments to be on the safe side and await market movements. On the equity front, it holds a diffused portfolio. It is betting on financials, energy, and construction tempering this cyclical tilt through defensive and now contrarian software and pharma,” says Acharya.
6. Birla Sun Life Dynamic Bond (Dynamic bond fund)
This fund is consistently better than its category. It posts above-average returns and has among the best risk-adjusted returns of its category. With volatility being inherent in a dynamic bond fund, this fund has managed to keep its volatility lower than most peers. The fund has maintained an average maturity of 17-18 years for most of 2016, reaping good returns from the bond yield rally. With some steam still left, the fund can continue to deliver well. It also manages the transition of a falling rate cycle to a stable rate cycle very well, and sticks to short-term instruments at such times, allowing it to benefit when rates begin rising again.
7. HDFC Medium Term Opportunities Fund (Income fund)
This income fund is an option for those who cannot take volatility in their returns and prefer a steady approach. It predominantly takes exposure to top-rated corporate bonds, and delivers a chunk of its return through accrual (interest), and through occasional capital appreciation opportunities. It still manages to deliver above-average returns compared to other income funds that take some amount at least of credit risk. Its risk-adjusted return is close to the best in its category.
8. UTI Treasury Advantage (Ultra-short term fund)
This fund is an option for those with a short-term requirement of around one year. An ultra-short term bond fund, it keeps its average return well above its category. “Rolling the fund’s one-month returns daily over the past five years shows that it has never delivered losses unlike some ultra-short term bond funds. Its volatility is much below average. While it has some amount of its portfolio in lower-quality papers of below AAA, it is less than many of its peers. With interest rates steadily falling, this credit exposure can allow better return generation in the short term. The fund’s risk-adjusted return is much better than the category’s average,” informs Acharya.
9. HDFC Balanced (Balanced fund)
This fund holds a great record of delivering benchmark and category-beating returns across market cycles. It maintains an average equity exposure of 66-70%. While the equity holding is on par or sometimes less than peers, it also moves into mid-caps during market upswings to deliver better returns. Despite this mid-cap exposure, the fund still delivers strong risk-adjusted returns, holding above the category. On the debt side, the fund actively played the duration space throughout last year, gaining from the rally. Gilt holding has been reduced a bit of late, with a move into corporate and money market debt. In the 1, 3, and 5-year periods, the fund has beaten the CRISL Balanced Fund – Aggressive index by an impressive margin of 3-9 percentage points.
10. ICICI Prudential MIP 25 (Debt-oriented fund)
This fund scores well on staying ahead of other debt-oriented funds, which it manages nearly all the time going by its 3-year rolling return over five years. Based on this rolling return, the average margin by which it beats its benchmark CRISIL MIP Blended index is also strong at around 2 percentage points. “The fund puts around 22-25% of its portfolio in equity, going even higher sometimes. This and the active calls it makes in its debt holdings makes it more aggressive than other MIPs. Its risk-adjusted return holds above the average. It has significantly pared down its duration call, bulking up on accrual through corporate debt instead,” observes Acharya.
(Disclaimer: Past returns are not indicative of future performance. Mutual fund returns are subject to market risks. Please read the Scheme Information Document and Statement of Additional Information carefully before investing.)