How to use the Mint30 basket3 min read . Updated: 19 Jul 2018, 11:19 AM IST
Decide your debt and equity allocation, then split your equity investment across a core and satellite approach
Though there are 30 schemes that we think are investment worthy, a good portfolio need not have more than 5-8 schemes across fund types and asset classes.
Decide your debt and equity allocation, then split your equity investment across a core and satellite approach. The core schemes are your rock-solid, long-term performers that come with a good track record—you can stay invested in them for a long time. Depending on your risk profile, this should be about 60-70% of your portfolio. The satellite portion can be used to add the returns kicker or a flavour through thematic or infrastructure funds, or funds that show a promising track record but are relatively new.
Also Read: Mint30 best mutual funds to choose from
If you new to equity, start by investing in schemes that invest significantly in large-caps, and later diversify into mid-caps. Ideally, you should have 3-4 multi-cap funds, including large-cap or exchange-traded and index funds as a proxy for large-caps, up to two mid- and small-cap schemes, and 1-2 tax-saving equity funds. Only then, if you have the risk appetite and want a returns kicker, go for thematic and sector funds, but you won’t find them in Mint30 anymore. You could have short-term bond funds for short- to medium-term goals. Corporate bond funds, which invest in high-rated instruments and come with a duration of 1-3 years, can be used as a proxy for short-term bond funds.
Also Read: Methodology of Mint30
Before you start investing through Mint30, have an emergency corpus of about 3-6 months of expenses in a mix of liquid and short-term debt funds.
Why schemes exit Mint30
If you had invested in a Mint30 (earlier Mint50) scheme and can’t find it now, there could be two reasons for it. Either something went wrong with the scheme to merit its ouster or a new one made a compelling case to be added. While we try to ensure that a minimum number of schemes go out, some of the calls we make are bound to go wrong. Which is why you should diversify even within a category. This year, there is one more reason why schemes went out of our list.
Just because your scheme is not a part of Mint30 does not mean you must sell it. Not all schemes that are outside Mint30 are bad. See if it is doing a bit better than the broad market index or its own benchmark index and what this trend has been for the past few years. If your fund has underperformed, redeem and then choose out of Mint30.
Two data points should interest you. For equity-oriented schemes, there’s portfolio turnover. It tells you the extent to which your fund manager churned the portfolio in the past year. It’s calculated by taking the lower of the sale or purchase (in terms of value) and dividing it by the total net assets of the scheme. Typically, a turnover ratio of 100% means the fund manager has churned the entire portfolio, at least once in the past year. Ideally, lower the turnover ratio, longer the fund manager is said to have held the stocks, showing conviction. But some schemes churn the portfolio frequently as a strategy. They claim that since large-sized companies are tracked by many, churning gives them an edge. There is nothing wrong in a strategy as, at the end, everything boils down to returns. But ideally, pick a fund whose turnover ratio is lower.
Also Read: Mint50 is now trimmed down to Mint30
We have given the duration for debt-oriented schemes. Interest rates and bond prices move in opposite directions. If you want to see your fund’s sensitivity to interest rates, one way is to look at its modified duration. Most fund houses disclose this in their monthly fact sheets. Expressed in years, this number tells you how much your fund would get affected if rates (your bond fund’s yield) were to move up or down by 1%. Typically, long-term bond funds have a higher modified duration and vice-versa.
Also Read: 30 best mutual funds to choose from
Active versus passive
In Mint30, it is possible to see passive funds such as UTI Nifty Index Fund and ICICI Prudential Nifty Next 50 index fund show lower returns than actively managed funds at different points in time. Typically, in sharp-rising markets, passive funds underperform actively managed funds. But this doesn’t matter because a passive fund’s mandate is not to outperform the index, but to mimic it.
Also Read: Which are India’s best mutual funds?