As we see the Securities and Exchange Board of India (Sebi) slugging it out with the Insurance Regulatory and Development Authority on the issue of making unit-linked insurance plans (Ulips) as transparent and accountable as mutual funds (MFs), it’s hard to imagine that just about a decade back the MF industry’s reputation was tarnished when the erstwhile Unit Trust of India (UTI) collapsed.
At the time, the government of India took over UTI’s flagship scheme, US-64, along with all its assured-return schemes. The remaining schemes were hived off into UTI Asset Management Co. Ltd, which became a Sebi-registered MF. It was a time when everybody was wary of MFs.
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Nine years and a growth of Rs6,48,189 crore in assets under management later, MFs are in the news again. Today, they are hallmarks of transparency and how well a savings instrument is regulated. Of course, UTI AMC is India’s fourth largest fund house, but that is besides the point. But it you keep all the noise aside, are MFs worth your time and money?
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Sip by sip
Back in January, we curated MF schemes across categories (except liquid and ultra short-term bond funds) and came up with a list of 50 schemes that we felt you should pick and choose from. Of these, 36 were equity-oriented—they invest at least 65% in equity instruments. Of the 36, 12 funds have been around for 10 years or more. There are more funds that are over a decade old, but not all of them are a part of Mint50.
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If you had invested Rs1,000 in any of these 12 funds every month through a systematic investment plan (SIP), you would have gained 20-33% returns. Balanced funds or moderate allocation (equity) funds, as Morningstar India calls them, returned around 24% as these funds invest 65-70% in equities and the rest in debt. However, large-cap and equity-linked saving schemes that can invest their entire corpus in equities have returned 30% through SIP, with funds such as HDFC Equity returning 32.62%. Though a bulk of schemes in the MF industry may have underperformed their benchmark indices, a bunch of schemes stand out and if you are a patient investor, you will be rewarded.
What’s in, what’s out
We don’t want to churn the portfolio since it’s been only three months since the last Mint50 was out. However, two minor changes are warranted.
In the short-term bond funds category, Birla Sun Life Short Term Fund moves out because effective 20 April, this fund has been renamed as Birla Sun Life Ultra Short Term Fund. Though the objective of the fund remains the same, it’s best to use it if you wish to park—and not invest—your money for up to three to five months, keeping in tune with the fund’s strategy. The scheme’s average maturity as on March-end was about 62 days and it has been consistently managing a portfolio for a very short duration. This is way below the category average of short-term bond funds, whose average maturity as of now is 16 months.
At present, ultra short-term funds have an average maturity of 96 days.
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Existing investors who wish to opt for a short-term fund can switch to Birla Sun Life Dynamic Bond Fund whose average maturity as per its latest portfolio is around 287 days. In place of Birla Ultra Short Term Fund, we are including ICICI Prudential Short Term Fund in Mint50.
Templeton India Growth moves into the “core” category of large-cap funds. This was among India’s first schemes that followed a value-styled approach of investing. In volatile equity markets or when markets appear to be on a high as is the case at present, dedicated value-oriented funds bode well for your portfolio.
On the cards?
We are keeping our eye on two other funds. Franklin India Bluechip Fund (FIBF) seems to have got its mojo back. Once considered a front-runner in the large-cap space, the scheme had lost its lustre in the interim.
The fund was managed by K.N. Sivasubramanian for around 15 years. The fund house strengthened its fund management team; it added more analysts and brought in Anand Radhakrishnan (from its portfolio management services team) to manage FIBF, effective April 2007.
Its holdings in healthcare and fast-moving consumer good sectors protected its downfall in 2008 and its exposure in banks and capital goods helped it ride the markets in 2009. The fund benefited from its holdings in companies such as Hero Honda Motors Ltd, Asian Paints Ltd and so on.
The other fund we are tracking is Principal Monthly Income Plan Plus. It can invest up to 25% in equities and the rest in debt instruments. This fund is the only one of the two funds (out of a total of 38 funds in this category) that has not skipped a single dividend (monthly dividend option) between 2005 and 2009. The quantum of dividends don’t tell much about the fund’s performance and funds can’t assure dividends. So, while it is okay for a monthly income plan (MIP) to skip an occasional dividend on account of choppy markets, a good dividend track record bodes well for MIP investors. However, much of the fund’s success has come under its previous fund manager’s regime (debt portion); we need to see evidence of continuity from the new fund management.
Watch this space for quarterly updates on Mint50.