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10 must-have mutual funds for your portfolio

Last updated on: August 16, 2012 18:21 IST

10 must-have mutual funds for your portfolio

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Salil Dhawan, Investment-mantra.in

Mutual funds are one of the best investment instruments to create wealth over long run. Before we evaluate ten best performing mutual funds in which you can invest to create wealth over long run, we will evaluate what makes mutual funds good investment option:

Just about anyone can invest

Mutual funds can help investors to start investing even with a small amount. Even for a sum of Rs 1,000 an investor can start investing in a mutual fund.

Fund Manager at the helm

Investors in mutual funds who don't have specialisation as well as time to manage their investments in equity markets can opt for mutual funds managed by professional fund managers and enjoy the appreciation of wealth over long run. Generally for novice investors it is a difficult task to decide what stocks to buy, how much to buy and when to sell.

In case of mutual funds, professional fund manager manages your money. This is the person who decides what to buy for you, when to buy it and when to sell.

Diversification

A mutual fund is able to diversify across several companies thus diversifying your investments. With a small investment in mutual funds, you can buy stocks in some of the top Indian companies through a mutual fund, which may not be possible to do as an individual investor.

Liquidity

Apart from ELSS funds (which has a lock-in of three years), you can withdraw your money from a mutual fund on immediate basis.

Tax benefits

Under the current tax laws, you can get an annual income tax benefit of up to Rs 1 lakh if you invest in equity linked savings schemes, ELSS. However, the minimum term for these schemes is three years and you cannot withdraw your money before that time. ELSS mutual funds thus can provide you tax benefits and at the same time generate substantial returns.

Let us now evaluate the 10 consistent mutual funds across different fund categories:

Courtesy: Investment-mantra.in



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SBI Magnum Emerging Businesses Fund (G)

SBI Magnum Emerging Businesses Fund came up with a strong performance on the back of excellent fund management by its fund manager R Srinivasan. Though the fund remains a 'High Risk and High Return' fund the fund manager has managed the fund very well in times of high volatility in equity markets and has done exceptionally well to control the downside.

The investment objective of the fund would be to participate in the growth potential presented by various companies that are considered emergent and have export orientation/outsourcing opportunities or are globally competitive. The fund may also evaluate emerging businesses with growth potential and domestic focus.




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UTI Opportunities Fund (G)

UTI Opportunities Fund's excellent long-term track record to deliver steady returns with ability to limit the downside makes us introduce this excellent fund to you.

Launched in July 2005, UTI Opportunities Fund (G) is benchmarked against BSE 100 and is managed by Mr Anoop Bhaskar. The fund predominantly invests in stocks that are expected to outperform the broader market in the short or medium term by capturing new opportunities arising in growing sectors.

UTI Opportunities Fund (G) has established itself as a strong performer in large cap space (with a blend of mid cap too) which has traditionally been dominated by likes of DSPBR Top 100, Franklin India Blue chip, Fidelity Equity, HDFC Top 200 to name a few. With efficient portfolio management, the fund has a proven record of limiting downside as well as outperforming markets in a rally the fund has established itself across cycles.

Having said that opportunity funds give mandate to fund manager to churn the portfolio as and when they see next big opportunity in the market. So such a fund can face downside if perceptions go wrong. So this fund is termed as high-risk fund in the UTI fact sheet.




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Reliance Pharma Fund (G)

Reliance Pharma Fund is a dynamic asset allocation sector fund which aims to generate consistent returns by investing in all important segments of the pharmaceutical industry.

The fund focusses on low capital intensive sector that is least impacted by market volatility with good growth visibility and decent cash flows

Combination of large cap and mid cap companies to provide rapid growth along with some steady performers.

Investments are spread across all the important segments of the industry: Domestic business, international and CRAMS and includes deep value as well as high growth pharma businesses.

High allocation of 95 per cent to stocks as the outlook for the sector is good over the medium term. The recommended investment horizon is around 3-5 years.

Given relative certainty of growth in earnings, the sector is likely to benefit from change in investor sentiment in its favour.

Reliance Pharma Fund has reversed the notion that sectoral funds are more volatile than equity diversified schemes. Investors who have been patient with this fund have been rewarded handsomely. This is one more instance of the fact that investing systematically through SIP can work wonders for an investor even in case of sectoral funds. Investors can also consider investing in this fund as other equity diversified funds have very less allocation to pharma space and generally comprises of heavy weights from banking and financials, IT, oil and gas. 




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HDFC Equity Fund (G)

Though the fund lately has not performed up to the mark, it is quite capable to generate good wealth for its investors over long run.

HDFC Equity Fund has followed a consistent strategy in its existence of over 15 years. It is predominantly a large-cap oriented, actively managed, diversified equity fund.

HDFC Equity Fund's good point is that focus of the fund has always remained on investing in good quality and strong companies. While investing in growth, the fund doesn't want to overpay the growth and seeks to move out of growing companies when they become very expensive.

HDFC Equity is overweight on banking, public sector banks in specific. It is also overweight on oil companies. The fund is underweight on global cyclicals. The fund was initiated on January 1, 1995 has certainly earned our approval. Despite hitting the occasional roadblock, it is one of dependable funds around. The fund manager sticks to his guns and focuses on value and not on the direction of price movement. This may provide short-term pain to investors but investor should stick to their investments. Though at one time a very bold offering with less than 20 stocks, it now sports around 60 as the size of the fund has increased. 




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HDFC Mid Cap Opportunities Fund (G)

This small and mid cap fund aims to generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of small and mid-cap companies.

The fund provides an opportunity to invest in a diversified portfolio of small and mid sized companies with faster growth potential. It thus provides diversification to an investor's overall mutual fund portfolio. In spite of being a relatively newer fund, the fund has performed well in all market conditions. It has defied the general notion that mid and small cap funds tend to fall more in volatile markets. Fund has provided good downside protection to the investors when market tanked. The flexibility of hedging the portfolio through derivatives, and by adding debt/money market instruments and foreign securities helps to protect the down side to an extent.

Another positive aspect is that the fund is managed by one of the most experienced fund management and research teams with a track record of managing equity assets across market cycles. There is a strong emphasis on the risk management to mitigate the inherently greater volatility of a portfolio dominated by small and mid cap companies.



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ICICI Prudential Focused Blue-chip Equity Fund (G)

ICICI Prudential Focused Equity Fund, an open-ended equity scheme was launched in May 2008 with an aim to generate long-term total capital appreciation by investing in equity and equity related securities of about 20 large-cap companies. The scheme, without having any sector bias, seeks to capture the best opportunities that are available in the universe of 'large and well established companies'.

ICICI Prudential Focused Blue-chip Equity Fund follows the bottom-up approach to identify stocks that are available at a bargain price and have a promising potential for long-term growth. The fund focuses on fact that diversification is needed to reduce risk but too much diversification can result in diminishing returns. So the fund tries to strike a balance between minimum risk and maximum returns. The fund invests in large established companies which are relatively stable and strives to grow investor's wealth in long run. The fund focuses on large cap companies since they have a reputation for consistency and stability built on a long-standing track record. They are generally less volatile when compared to small and mid cap companies.




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Franklin India Blue chip Fund (G)

Franklin India Bluechip Fund is one of the oldest diversified equity schemes in India and among the largest as well. Launched in December 1993, Franklin India Bluechip Fund today ranks amongst the top 10 diversified equity schemes by size, with average assets under management of over Rs 3,000 crore.

Its size clearly reflects its popularity among equity investors. Over one-, three- and five-year timeframes, the fund has outperformed its benchmark, the BSE Sensex.

The fund's large-cap focus may pay off in the current market environment as such stocks have better earnings visibility and limited volatility. After the slowdown of 2008-09, large-caps from the Sensex, Nifty and BSE-100 baskets have done better than the broader market.

Franklin India Bluechip Fund's (FIBF) conservative investment approach makes it a more suitable investment option for those investors who don't want to take undue risks that are inherent in equity investments. It has emerged as an all-weather diversified equity scheme over the past two decades despite bouts of market turbulence.

One of its defining qualities is that the fund manager does not believe in the momentum game, and so he does not venture into the mid-cap space to deliver superior returns even during bullish markets. The fund's merit lies in protecting the downside and the ability to participate in market rallies earlier than others. FIBF is benchmarked against the BSE Sensex and has beaten the latter by quite a margin since its inception in 1993. It has also delivered superior long-term returns compare

Investors can consider adding the fund to their core portfolio based on its strong focus on large-cap stocks. Franklin India Bluechip Fund has the potential to bring stability to the overall portfolio and deliver stable long-term returns.




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IDFC Premier Equity Fund (G)

The scheme seeks to generate long-term capital growth from an actively managed portfolio of predominantly equity and equity related instruments. It is a growth-oriented fund that looks for companies with businesses models that are growing faster than the listed environment. The tag line for the fund is that it is an unrestricted-go-anywhere equity fund.

IDFC Premier Equity Fund Plan A focus is on buying great companies at low valuation with a longer term perspective. The scheme portfolio would seek to acquire small and medium size business with good long term potential, which is available at cheap valuation. Such securities are identified through disciplined fundamental research keeping in view medium to long-term trends in the business environment.

The scheme endeavours to accumulate long term investor wealth by opening subscriptions to units during periods when stocks are available at reasonable valuations. By doing so, the fund managers prevent short term money from flowing into the fund which can prove detrimental to the interest of long term investors.

However where there is the prospect of great wealth to be made, there is also the reality of risk. The fund very well realises that some of the companies may not make it on account of competitive pressure, execution risk, trend changes among other risks.

The fund has attempted to identify emerging themes and segment leaders which have a strong correlation to the growth of the economy. The fund is invested close to 90 per cent with the balance in cash. The investment process and diversification have not undergone any radical shifts. The focus remains on buying into emerging businesses and taking call on the entrepreneur/organisation to ride through successfully the growth curve of the business cycle.



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UTI Dividend Yield Fund (G)

UTI Dividend Yield Fund's excellent long-term track record to deliver steady returns with ability to limit the downside makes us introduce this excellent fund from UTI AMC. Over one-, three- and five-year time frames, the fund has managed to outpace its benchmark -- BSE 100.

UTI Dividend Yield Fund is positioned as a conservatively managed equity fund. The fund portfolio primarily comprise of stocks which are high dividend yielding (on historical basis) or potential high dividend yielding stocks. The fund has a good mix of companies across various sectors. The fund is well suited for investors with medium to low risk profile and with a long-term investment horizon. The fund aims to distribute regular dividends to its investors.

This diversified large-mid cap oriented fund with conservative-style of funds management is suitable for all equity investors. Smart bottom up stock picking and sector allocation has always worked for the fund. The fund invests in companies with strong balance sheets, cheap valuations, high dividend yield etc. lowering the probability of loss in adverse market conditions. UTI Dividend predominantly takes exposure to large-cap stocks, while also taking relatively higher dividend yielding stocks from the mid-cap pack.

The fund contains downsides well during market falls and manages to deliver as much as its benchmark when markets race ahead. It is, therefore, more suitable for conservative investors. The fund would be an ideal choice during periods marked by high volatility such as the present one. This fund is best for investors who want decent returns with good downside protection



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Birla Sun Life MNC Fund (G)

Birla Sun Life MNC Fund seeks to provide investors a well-diversified portfolio of MNCs in growth driven sectors like FMCG, pharmaceuticals, auto and ancillaries, etc. The fund invests exclusively in securities of multinational companies in order to achieve long-term growth of capital with relatively moderate levels of risk.

Multinational companies (MNCs) generally have strong parentage and global experience & technology, backed by professional management. Such synergies translate strengths into superior products and services, making these companies an ideal choice for long-term. MNC funds have generated spectacular returns over last three years and have managed to beat the category average returns of diversified equity funds and also the BSE 200. Moreover, they have fared well across the time frames and outpaced category average returns of diversified equity funds over 3, 5, 7 & 10 years.

Furthermore, they have exhibited much lower volatility as compared to that of diversified equity funds and the BSE 200. The standard deviation, which is a measure of risk, suggests that the MNC funds have been less risky and their higher Sharpe Ratio denotes that the risk-adjusted returns have been superior.

Birla Sun Life MNC fund is one of the best performing funds in its category. This fund is being managed by Ajay Garg.

The fund invests exclusively in securities of multinational companies in order to fuel growth in the long term. Birla Sun Life MNC Fund is a mid cap fund which means most of your money will be invested in medium sized companies. The fund can be part of your satellite portfolio due to its huge exposure to mid cap stocks. Mid sized stocks can give kicker returns as they turn into large stocks but this happens not so frequently.




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