Table 1 : changes in recommended funds

METHODOLOGY

Recommended Funds are based on our in-house methodology which focuses on 3 parameters:

• Performance over a 5 year time horizon
• Expense Ratio
• Ability of the funds to withstand the downtrend in the markets

The funds are currently ranked on the basis of the above-mentioned methodology.

Thereafter, the top 2 or 3 funds (depending on the category) are analysed taking into consideration other factors as discussed below.

The equity funds are evaluated based on several parameters:  

• investment strategy during bullish and bearish phases
• portfolio allocation by the fund manager in-terms of sectoral and stock picks
• asset size and others

• credit quality,
• average maturity,
• modified duration, etc.  

In the current year, we have increased the number of recommended equity funds from 22 to 28, debt funds remain in the range of 8-10 and we continue with 4 funds in the hybrid category. This year has also seen some fund houses like IDFC Mutual Fund, Religare Mutual Fund and AIG Global Asset Management Company making an entry into our recommended funds list for the first time.

Equity Funds
The Indian Market, which was down by ~ 24% in INR terms, was the worst performer in 2011.This was on account of domestic factors like stubborn inflation, continuous rate hikes, dip in corporate profitability, all of which have had an adverse impact on the growth momentum, in addition to global uncertainties. In the year gone by, all fund categories (both diversified and sectoral) with the exception of FMCG, have ended in negative territory. The volatility in the markets has led to panic amongst investors. The existing investors are wondering, “Should I stop my existing SIPs!” or the ones who have been waiting at the sidelines ask us, “Is it the right time to enter the markets?” Hence, when we have reviewed the recommended funds list, we have maintained a consistency in the funds as a major change in the list from 2011, would only have created more confusion amongst our investor base.

The changes that have been made in the different categories are given below:

Large-cap category:
We have removed HDFC Top 200 Fund and replaced the same with DSP BlackRock Top 100 Equity Fund. However, Franklin India Bluechip fund and ICICI Prudential Focused Bluechip Equity Fund remain our favourite picks for this year as well.

Mid-cap and small-cap category:
HDFC Mid-Cap Opportunities Fund and DSP BlackRock Small and Mid Cap Fund continue their innings in the new list of recommended funds. In addition to this, we have a new entrant into the midcap space, namely IDFC Sterling Equity (SEF) Fund, which was earlier called IDFC Small and Midcap Equity Fund. Although this is the first time that a fund from the IDFC stable gets featured in our list, it would be appropriate to let our investors know that in all our previous analysis, IDFC Premier Equity Fund had always topped the charts in the mid-cap space and continues to do so, however this fund has never made it to the recommended list as investments in the same are only possible through the SIP route.

Multi-cap category: 
Fidelity Equity Fund and UTI Opportunities Fund stay put as the top performing funds for this year as well. However, HDFC Equity Fund has been removed and is being replaced with Mirae Asset India Opportunities Fund.

Contra & Value space:
We have made an addition, i.e., Religare Contra Fund along with our recommended Value fund, ICICI Prudential Discovery Fund.

Dividend yield category:
UTI Dividend Yield Fund continues to remain as the favorite pick for all seasons.

Index funds category:
HDFC Index Fund - Sensex Plus Plan, which was removed from the recommended list last year as the fund had the mandate to invest 10% to 20% of the portfolio in companies outside the SENSEX which could lead to high tracking errors. However, the consistency in performance of this fund over a long time-horizon brings this fund back into our recommended list for 2012. However, Franklin India Index Fund-BSE Sensex Plan and ICICI Prudential Index Fund continue to be our favourite bets for 2012 as well.

ELSS category:
We have added 3 new funds namely, Franklin India Taxshield, Canara Robeco Equity Tax Saver and Religare Tax Plan, along with the 2 already existing funds, i.e., HDFC Taxsaver Fund and Fidelity Tax Advantage Fund.

Global Funds:
On the global front, our positive stance on China makes Mirae Asset China Advantage Fund our top pick for 2012 as well. However, Principal Global Opportunities Fund has been replaced with Franklin Asian Equity Fund. Our positive view on the Asian markets gives us the confidence that the new fund will be a good investment option for our investors. A new entrant in the global category is DWS Global Agribusiness Offshore Fund.

Sector Funds:
As far as the sectoral funds are concerned, in the infrastructure space, ICICI Infrastructure Fund continues to be the best fund for this year too,while  DSP BlackRock  India T.I.G.E.R. Fund has been replaced by AIG Infrastructure  and  Economic  Reform Fund. On the FMCG side, ICICI Prudential FMCG Fund has been removed and in its place, Magnum Sector Funds Umbrella-FMCG Fund has managed to enter the list, while on the technology front, ICICI Prudential Technology Fund has been replaced by Franklin Infotech Fund. However in the banking and Pharma space, the funds from Reliance continue their innings in 2012.

Debt Category
In 2011, we were bullish on the fixed income space and had advised our investors to look at FMPs, Ultra Short Term funds and Short Term Funds. All the categories in debt posted positive return with impressive performance being shown by the Ultra Short Term and Short Term funds which delivered returns in the range of 8.5%-8.8%. This year, we are of the opinion that RBI will start loosening the monetary policy once inflation moderates and fiscal deficit improves. In the current scenario, we are advising our investors to continue to look at Short Term funds and also, slowly start taking exposure to long-term funds.

There have only been minor changes in the debt category as can be seen in Table 1.

Ultra Short Term segment:
Birla Ultra Short Term Fund has been removed and replaced with Templeton India Ultra Short Term Fund, while BNP Paribas Money Plus Fund and DWS Ultra short Term Fund continues to be in the list for this year as well.

Short Term Funds:
Templeton India Short Term Income Plan continues to be our favourite pick, while Reliance Short Term fund has been replaced with DWS Short Maturity Fund.

Income category:
ICICI Prudential Income Plan, whose portfolio is a balance of corporate bonds and gilt securities is the new addition along with our already existing recommended fund,i.e, Birla Sun Life Dynamic Bond Fund.Finally,all the funds in the Floating rate, Gilt-short term and long term continues to be the same as in 2011.

Hybrid Category
The funds in the hybrid category took a hit in 2011 on account of the volatile behavior of the market indices. As far as our recommendations go for this category, in the balanced space, DSP BlackRock  Balanced Fund has been replaced with HDFC Balanced Fund. Hence in the current list our top picks will be HDFC Prudence Fund, which will be for aggressive investors and HDFC Balanced Fund for conservative investors.

Finally, as for the MIP category, HDFC MF MIP Long Term Plan has been replaced with Birla Sun Life Monthly Income, while Reliance Monthly Income Plan continues to top the chart this year as well.

CONCLUSION
This is the fifth time that our Recommended Funds List is undergoing a review since it was first launched in June 2009. Although the review will be done only once in a year, a performance update of the funds will be given on a half yearly basis. All the funds included in the recommended list are definitely the best in their respective categories and investors should select them on the basis of their risk taking capacity and their goals.

At this juncture, when markets are range bound, we advise our investors to stay calm and continue with their SIPs and enter markets whenever there is a dip. Finally, a piece of advice to all our investors  who started an SIP in any of our funds which were recommended  in 2011, if the same has been removed in the current review, there is nothing to panic, just stay invested for some more time, track the performance and then take an exit call. Investors need to always keep in mind that long-term investments will yield the desired results.