Mutual funds for long term investors -- I
Mutual funds for long term investors -- II
Mutual funds for long term investors -- IV
Mutual funds for long term investors -- V
We hope you must have enjoyed reading the first two parts of this five-part series on top 25 mutual funds by Value Research that you can consider for long term investment.
Today we present the next five: HDFC Tax Saver, ICICI Prudential Power, JM Basic, Kotak 30 and Magnum Contra.
# 11: HDFC Tax Saver -- Old war horse
Equity: Tax planning
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Information: www.hdfcfund.com NAV: Rs 175.268 (28/09) Entry Load: 2.25 per cent for investment less than Rs 5 crore Exit Load Nil Expense Ratio: 2.14 per cent Launch: March '96 Plans: Growth, Dividend Min Investment: Rs 500 Benchmark: S&P CNX 500 Portfolio Manager: Vinay R Kulkarni |
This fund has a knack for making the competition look silly. Its rating has never gone below four stars in its rating history of 100 months. Since November 2004, it has steadfastly held on to a five-star rating. Known for its astute stock picking and stellar performance, it has also shown resilience while protecting the downside time and again.
But despite being a compelling tax-saving option, it has stumbled a bit lately. Vinay Kulkarni took over form Dhawal Mehta in November 2006. The timing could not have been worse.
The market dipped in the fist quarter of 2007 and the new fund manager had the task of living up to his predecessor's astuteness and investors' expectations. During this time period, the fund dropped to the last quartile of the category, losing 8.62 per cent vis-à-vis an average peer's loss of 6.45 per cent.
Once at the helm, Kulkarni made a couple of visible changes to the portfolio.
Exposure to auto and construction stocks was significantly lowered while notable positions were built in sectors like energy, banking and services. The increased investment in Reliance Industries and banking stocks proved rewarding but the higher allocation to technology has dented performance.
Though held in high regard, as far as the category of tax-planning funds is concerned, the fund is not completely out of the woods. But going by its great performance history and the reliability of the fund house, this fund remains a keeper despite its recent setback. Just be more watchful over the coming months.
# 12: ICICI Prudential Power -- Middle path
Equity: Diversified
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Information: www.icicipruamc.com NAV: Rs 98.65 (28/09) Entry Load: 2.25 per cent for investment less than Rs 5 crore Exit Load: Nil Expense Ratio: 2.04 per cent Launch: Sep '94 Plans: Growth, Dividend Min Investment: Rs 5,000 Benchmark: S&P CNX Nifty Portfolio Manager: Anand Shah |
This fund isn't shooting out the lights but has put up a respectable return. Its 13-year performance is suggestive of a decent record with neither a blockbuster performance, nor a massive blow-up. Only one year (2000) did it land in the bottom quartile.
The fund's focus on fundamentals is its strength. It would be rare to come across any unheard names in its portfolios. If they did appear, it would be in miniscule proportions.
Since the fund refuses to chase momentum plays that have the tendency to fall as dramatically as they rise, it steered clear of real estate stocks which had been in fashion in the last couple of years. This is precisely why the fund doesn't set the charts on fire, but neither does it give its investors sleepless nights.
Although this is encouraging, instability at the helm rarely benefits investors. The high degree of churn in fund management continues to worry. Under Anand Shah's leadership (since January 2007), the portfolio has become more focused with under 35 stocks, as against the earlier count of 50.
Consequently, the concentration in the top three holdings has also gone up from 15 per cent to over 20 per cent. But once you realise that these holdings include Reliance Industries, Bharati Airtel and ICICI Bank, any apprehensions on this front disappear.
Its theme of core and feeder industries is more diverse than what appears at first blush. Its inclusion of sectors as diverse as energy, transportation, financial services, infotech, healthcare, electricity, media and hotels, give it a more diversified slant. The large-cap tilt along with its concentrated portfolio and broad theme make it an appealing option.
# 13: JM Basic -- Mercurial rise
Equity: Diversified
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Information: www.jmfinancialmf.com NAV: Rs 29.9254 (28/09) Entry Load: 2.25 per cent for investment less than Rs 3 crore Exit Load: 0.5 per cent for redeemed. 182 days & investment < Rs 3 crore, 0.5 per cent for redeemed. 91 days & investment Rs 3 crore & above Expense Ratio: 2.5 per cent Launch: Jun '05 Plans: Growth, Dividend Min Investment: Rs 5,000 Benchmark: BSE Basic Industries Index Portfolio Manager: Asit Bhandarkar |
JM Basic has left behind its days of mediocrity and is unabashedly trouncing the competition. As on October 10, 2007, its year-to-date return was 65.37 per cent, a lead of around 32 per cent above the category average.
The fund's recent performance wouldn't mean much if it weren't indicative of something more. It is. Sandip Sabharwal took over as CIO (Equity), JM Mutual Fund, in December 2006 (fund manger Asit Bhandarkar joined at the same time). Together, their turnaround of the portfolio was nothing short of dramatic.
The problem of domination by few sectors was dealt with by broadening the investment mandate. So besides energy and petrochemicals, it now includes power generation and distribution, electrical equipment supplies, metals, construction material and construction.
Hindustan Construction, IVRCL Infrastructures, Nagarjuna Construction, Action Construction and Punj Lloyd all came in under the fresh mandate.
The portfolio was also beefed up from a meager 12 stocks (November 2006) to 27. While this has done well to mitigate the risk, the allocation to large caps decreased.
Bharat Electronics, Siemens and Suzlon made way for smaller stocks like Bharti Shipyard, Kalpataru Power, Thermax, Cummins India, Greaves Cotton, MIC Electronics and Apar Industries.
This isn't a fund for the cautious. Its risk lies in its limited investment universe. Sectors like banking, pharmaceuticals or technology will never find a place here. So though it is hard to argue with it excellent results, it may be too narrow a choice for some investors. Consider it in conjunction with your overall portfolio and risk appetite.
# 14: Kotak 30 -- Decent record
Equity: Diversified
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Information: www.kotakmutual.com NAV: Rs 87.758 (28/09) Entry Load: 2.25 per cent for investment less than Rs 5 crore Exit Load: 1 per cent for redd. 180 days and investment Expense Ratio: 2.29 per cent Launch: Dec '98 Plans: Growth, Dividend Min Investment: Rs 5,000 Benchmark: S&P CNX Nifty Portfolio Manager: Krishna Sanghvi |
No one has ever accused Kotak 30 of being the most exciting offering out there. But this four-star rated fund has managed to build a steady long-term record of decent returns.
The year 2004 was the best in its performance history and the only one when it landed in the top quartile. Its returns of 37 per cent placed it ninth in the category of 81 funds. In the subsequent two years, it beat the category average by a comfortable margin.
The name could be a misnomer though. It is not an index fund benchmarked against the Sensex. It's simply reflective of a portfolio restricted to 30 stocks (any stocks). Often the assets are well spread, but at times the fund manager does take concentrated bets.
Of late, the fund's overweight position in the technology sector has been brought down from over 25 per cent to 15 per cent. Currently the fund is betting big on the energy sector which accounts for 19.46 per cent of the assets.
The fund essentially has a growth focus with a strong large-cap bias. The mid-and small-cap exposure varies from negligible to none.
Not an aggressive churner, stocks like Larsen & Toubro, Reliance Industries and Deccan Chronicle have been there for a considerable length of time.
Others like BHEL, ONGC and State Bank of India have been in the portfolio intermittently, but with reasonable continuity.
Though a fund manager switch took place in January this year, Krishna Sanghvi has not strayed from the strategy of investing in a small, focused portfolio of large-cap stocks.
# 15: Magnum Contra -- Curvaceous
Equity: Diversified
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Information: www.sbimf.com NAV: Rs 49.37 (28/09) Entry Load: 2.25 per cent for investment less than Rs 5 crore Exit Load: 1 per cent for redeemed 180 days and investment < Rs 5 crore Expense Ratio: 1.96 per cent Launch: July ' 99 Plans: Growth, Dividend Min Investment: Rs 2,000 Benchmark: BSE 100 Portolio Manager: Pankaj Gupta |
Magnum Contra has consistently managed to stay ahead of the curve. The fund outperformed the category in every quarter since 2003. It emerged as the second and third best fund in 2004 and 2005 and was pretty impressive last year too.
It has the third highest risk adjusted return in its category, ie for every unit of risk undertaken, the fund gives you more bang for your buck. When the market slips, it tends to fall much less than the category average as well.
But don't get misled by the name. When it was true to its calling, its stock picks and sector moves made it an awfully bold choice. But somewhere down the road it shed its contrarian image.
However, we don't see it as a sign that it has run out of gas. In all fairness, the contrarian instinct does surface now and then; the fund's moderate stance in technology and financial services, for instance, or its significant holding of metal stocks.
Kudos to the fund manager for maintaining status quo on its auto holdings (Tata Motors and Maruti Udyog) when the tide turned against the sector after the first interest rate hike in December 2006.
The fund has struck a fine balance between riding on consensus sectors and taking contrarian bets. The end product is a blended portfolio of growth and value stocks.
While still holding on to its multi-cap orientation, the portfolio has expanded form 31 odd scripts to 57. As long as the fund manager finds value in the stocks, he continues to hold them and does not resort to aggressive churning.
We continue to think that this is a topnotch pick.
Mutual funds for long term investors -- I
Mutual funds for long term investors -- II
Mutual funds for long term investors -- IV
Mutual funds for long term investors -- V
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