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Recommended Mutual Funds for 2014
February 1, 2014

This is our detailed note on the Recommended Funds for 2014.


Author : Dr. Renu Pothen



Time for Long Term Debt Funds

fundsupermart- List of Recommended Mutual Funds

Categories Recommended Funds as on June 2013 Recommended Funds For 2014
EQUITY FUNDS
LARGE CAP ICICI PRUDENTIAL FOCUSED BLUECHIP EQUITY FUND ICICI PRUDENTIAL FOCUSED BLUECHIP EQUITY FUND
FRANKLIN INDIA BLUECHIP FUND FRANKLIN INDIA BLUECHIP FUND
BSL FRONTLINE EQUITY FUND BSL FRONTLINE EQUITY FUND
DSP BLACKROCK TOP 100 EQUITY FUND CANARA ROBECO EQUITY DIVERSIFIED
NA SBI MAGNUM EQUITY FUND
MIDCAP & SMALL CAP HDFC MID-CAP OPPORTUNITIES FUND HDFC MID-CAP OPPORTUNITIES FUND
IDFC STERLING EQUITY FUND IDFC STERLING EQUITY FUND
SBI EMERGING BUSINESS FUND SBI EMERGING BUSINESS FUND
DSP BLACKROCK SMALL AND MID CAP FUND MIRAE ASSET EMERGING BLUECHIP FUND
MULTI CAP UTI OPPORTUNITIES FUND UTI OPPORTUNITIES FUND
MIRAE ASSET INDIA OPPORTUNITIES FUND MIRAE ASSET INDIA OPPORTUNITIES FUND
RELIANCE EQUITY OPPORTUNITIES FUND RELIANCE EQUITY OPPORTUNITIES FUND
NA AXIS EQUITY FUND
NA IDFC PREMIER EQUITY FUND  PLAN A
CONTRA & VALUE ICICI PRUDENTIAL DISCOVERY FUND ICICI PRUDENTIAL DISCOVERY FUND
RELIGARE INVESO CONTRA FUND SBI CONTRA FUND
DIVIDEND YIELD BSL DIVIDEND YIELD PLUS TATA DIVIDEND YIELD FUND
INDEX FRANKLIN INDIA INDEX FUND BSE SENSEX PLAN FRANKLIN INDIA INDEX FUND BSE SENSEX PLAN
ICICI PRUDENTIAL INDEX FUND ICICI PRUDENTIAL INDEX FUND
HDFC INDEX FUND-SENSEX PLUS PLAN HDFC INDEX FUND-SENSEX PLUS PLAN
ELSS FRANKLIN INDIA TAXSHIELD FRANKLIN INDIA TAXSHIELD
CANARA ROBECO EQUITY TAX SAVER CANARA ROBECO EQUITY TAX SAVER
AXIS LONG TERM EQUITY FUND AXIS LONG TERM EQUITY FUND
ICICI PRUDENTIAL TAX PLAN ICICI PRUDENTIAL TAX PLAN
RELIANCE TAX SAVER ( ELSS ) FUND BNP PARIBAS TAX ADVANTAGE PLAN (ELSS)
GLOBAL JPMORGAN GREATER CHINA EQUITY OFF SHORE FUND JPMORGAN GREATER CHINA EQUITY OFF SHORE FUND
FRANKLIN ASIAN EQUITY BSL INTERNATIONAL EQUITY FUND PLAN A
DWS GLOBAL AGRIBUSINESS OFFSHORE FUND L&T GLOBAL REAL ASSETS FUND
BANKING RELIANCE BANKING FUND ICICI PRUDENTIAL BANKING & FINANCIAL SERVICES FUND
PHARMACEUTICALS RELIANCE PHARMA FUND SBI PHARMA FUND
INFRASTRUCTURE PINEBRIDGE INFRASTRUCTURE & ECONOMIC REFORM FUND STANDARD PLAN PINEBRIDGE INFRASTRUCTURE & ECONOMIC REFORM FUND STANDARD PLAN
DSP BLACKROCK INDIA T.I.G.E.R. FUND DSP BLACKROCK INDIA T.I.G.E.R. FUND
ICICI PRUDENTIAL INFRASTRUCTURE FUND CANARA ROBECO INFRASTRUCTURE
FMCG SBI FMCG FUND SBI FMCG FUND
TECHNOLOGY ICICI PRUDENTIAL TECHNOLOGY FUND ICICI PRUDENTIAL TECHNOLOGY FUND
SPECIALITY L&T INDIA SPECIAL SITUATIONS FUND NA
DEBT FUNDS
FLOATING RATE/FLOATER NA NA
NA NA
ULTRA SHORT TERM TEMPLETON INDIA ULTRA SHORT BOND FUND NA
AXIS TREASURY ADVANTAGE FUND NA
ICICI PRUDENTIAL FLEXIBLE INCOME PLAN NA
SHORT TERM TEMPLETON INDIA SHORT TERM INCOME PLAN TEMPLETON INDIA SHORT TERM INCOME PLAN
PINEBRIDGE INDIA SHORT TERM FUND STANDARD PLAN PINEBRIDGE INDIA SHORT TERM FUND STANDARD PLAN
DWS SHORT MATURITY FUND UTI SHORT TERM INCOME FUND
NA SUNDARAM SELECT DEBT SHORT TERM ASSET PLAN
RELIANCE REGULAR SAVINGS FUND DEBT OPTION RELIANCE REGULAR SAVINGS FUND DEBT OPTION
DYNAMIC BOND FUND BSL DYNAMIC BOND FUND BSL DYNAMIC BOND FUND
UTI DYNAMIC BOND FUND UTI DYNAMIC BOND FUND
DSP BLACKROCK STRATEGIC BOND FUND DSP BLACKROCK STRATEGIC BOND FUND
IDFC DYNAMIC BOND FUND PLAN B NA
SBI DYNAMIC BOND FUND NA
INCOME TEMPLETON INDIA INCOME BUILDER ACCOUNT PLAN A TEMPLETON INDIA INCOME BUILDER ACCOUNT PLAN A
CANARA ROBECO INCOME CANARA ROBECO INCOME
UTI BOND FUND BARODA PIONEER PUBLIC SECTOR UNDERTAKING (PSU) BOND FUND
GILT-SHORT TERM ICICI PRUDENTIAL SHORT TERM GILT FUND SBI MAGNUM GILT FUND SHORT TERM PLAN
GILT-LONG TERM BSL GOVERNMENT SECURITIES FUND LONG TERM PLAN BSL GOVERNMENT SECURITIES FUND LONG TERM PLAN
ICICI PRUDENTIAL LONG TERM GILT FUND IDFC GOVERNMENT SECURITIES FUND INVESTMENT PLAN PLAN B
HYBRID FUNDS
BALANCED HDFC BALANCED FUND HDFC BALANCED FUND
HDFC PRUDENCE FUND ICICI PRUDENTIAL BALANCED FUND
MIP DSP BLACKROCK MIP FUND DSP BLACKROCK MIP FUND
RELIANCE MONTHLY INCOME PLAN CANARA ROBECO MONTHLY INCOME PLAN
ASSET ALLOCATION AXIS TRIPLE ADVANTAGE FUND NA

-New Entrants   - Replacements

The month of January is eagerly awaited by our associates and investors as it is that time of the year when the iFAST Investment Advisory Division comes out with the list of recommended funds. This is the medium through which we inform our investors about the best funds in the industry that should be a part of their portfolio, and share information about any concerns that we see in any of the funds which were taken up for analysis. Although it is only in January that we release the recommended funds list, the  team starts working on the model from December onwards and we are as anxious as our investors to see the outcome of our model. Before getting into the details of the recommended funds for 2014, I would like to give a gist of how the funds actually make it to the final selection.

iFAST Recommended Funds Methodology

Initially, all funds available on the iFAST platform which are segregated into different categories depending on the investment strategies are taken as sample. Next, the funds in each category are filtered depending on two major measures: (i) The fund should have been in existence for at least three years and; (ii) Their corpus for the last 1 year should be at least INR 50 crore. This filtration is mandatory across all main categories of funds that include Equity, Debt and Hybrid. Once we finalize the sample, my team runs the sample funds through our model which is based on 3 parameters namely, (i) performance over a 5 year time horizon, (ii) Expense Ratio and; (iii) the ability of the fund to withstand a downtrend in the market. The resultant top 10 funds are then run through a subjective test which includes analyzing factors like the fund’s investment strategies, its sectoral and stock picks and whether they actively manage the portfolios or just follow a buy and hold strategy etc. in the case of equity funds. In case of debt funds, factors like credit quality, average maturity, modified duration together with the kind of strategies that the fund manager follows during different interest rate cycles is studied. As for the hybrid category, a combination of all these factors is employed to get to the final selection. Finally, an important exercise that we undertake before starting work on the recommended funds is to meet up with a majority of the fund houses to get acquainted with all the products that they have and the fund management’s views on the strategies.  As this is an open discussion, we raise all our concerns and demand answers with regard to their respective funds during this interaction. Hence, when we analyze the list of the top 10 funds in each category, the result of this discussion also tends to have a bearing on the final outcome. After a thorough analysis of all the above mentioned factors, we finally come out with the top performers in the respective categories which are then shared with our associates and investors so that they can take an appropriate call and invest wisely.

.Recommended Funds for 2014

Last year when I was introducing my Recommended Funds for 2013, Dalal Street was in a party mood and we see a similar euphoria this year as well. The street could not hold onto last year’s party mood for long as both the domestic and global environment spoilt the jubilation. When UPA formed the government in 2004, we were growing at more than 9%, but the same set of economist-led team at North Block made sure that we grow at 4% after more than 9 years at the centre. Other macroeconomic indicators like IIP, CAD, inflation, and the currency created havoc in the economy. The biggest killer was the US FED Chairman’s announcement in May regarding the tapering of the bond buying programme which had a serious impact on both the equity and debt markets. However, the bad phase gave way to some positive sentiments with the government waking up from a long slumber and passing bills and legislations in a hurry. The State Elections in December clearly indicated that the country needs a bold government which can take decisive actions to propel the economy back to the 9% growth rates. Hence, even though the street has been chanting the “NaMo” Mantra, we would advice our investors not to get carried away by these noises but stay put, and continue taking an exposure into Indian equities as we maintain our neutral stance on them.

As far as fixed income is concerned, we had been advocating duration funds in the beginning of the year on the basis of our views on interest rates, but things went for a toss after the FOMC announcement on tapering. The knee jerk reaction from Mint Street to control the currency volatility saw the safest instruments in the debt category like liquid and ultra short term funds entering into a negative zone. These measures did not help the currency, but in turn made a lot of investors lose their faith in debt funds. We only have one thing to say to our investors: all categories of mutual funds including both equity and debt are subject to volatility and they should be aware about the same before taking an exposure into any of the funds. Gradually, things began to improve and by the time the erudite Rajan took over the reins at Mint Street, the debt market recovered from the mayhem witnessed in the month of July and the fixed income market moved into a positive zone. At this juncture, we will continue to maintain a conservative stance in fixed income and suggest only short term funds and dynamic bond funds to our investors. This is because we would also like to wait and watch what Rajan and team will be doing in the coming months.

Changes in the Recommended Funds

Our Recommended Funds for 2014 stand at 53 with 35 of them belonging to the equity category, 14 in the debt category and the remaining 4 in the hybrid category. As for the equity category, out of the 35 funds, 10 are replacements while 3 of them are new entrants. Specifically, we have decided to move out of 2 funds belonging to the DSP BlackRock Mutual Fund family namely DSP BlackRock Top 100 Equity Fund and DSP BlackRock Small and Mid Cap Fund. Although these funds had been going through short term volatility for some time now, we continued to recommend the same to our investors. This was due to the belief that every equity fund goes through a volatile phase and it is only a matter of time before they regain their lost glory. Hence, we had been telling our investors to be in the patient mode for some time. However, this time our model has severely punished these funds, as a result of which we are not advising any more fresh exposures into any of these funds. A piece of advice to our investors who have got into the funds recently: Hold onto it for some more time before pressing the exit button.  

There have been 2 big changes that have come up in the recommended funds this year. The first one is that Reliance Banking Fund which has been a part of our list since June 2009 when we first launched the iFAST Recommended Funds, has been replaced with ICICI Prudential Banking & Financial Services Fund. Secondly, we had started including a pharma fund in our list of recommended funds since June 2010 and Reliance Pharma Fund has always been our top pick. This year the fund had to be replaced with SBI Pharma Fund. We are aware about the fact that our investors had reposed a lot of faith in these 2 funds; and our advice to all of them would be to stay invested in these funds and not stop any of the ongoing SIPs into the same. We don’t have any serious concerns on these 2 funds as we believe that they are going through short term volatility as of now.

As far as the new entrants are concerned, the most promising fund in the multicap space i.e. IDFC Premier Equity Fund has been the favorite of many of our investors. It is only last year that we had started classifying this fund as a multicap, while in the previous years the fund belonged to the midcap space. The fund always used to be the top performer in whichever categories it was placed. However, we could not make it a part of our earlier recommended lists on account of its mandate that it will not accept lump sum investments. Though the mandate remains the same, we have decided to give thumbs up to this fund and hence Kenneth’s biggest bet makes an entry into our recommended funds list for the first time.

As for the debt category, one of the changes that we have made is that from this year onwards, we will not have any recommended Ultra Short Term Funds. This is owing to our belief that since these funds are only used as a vehicle to park the surplus required for a short time period, it does not make sense to run them through a model whose parameters are based on a 5-year time horizon.

As far as debt funds are concerned, UTI Short Term Income Fund and Sundaram Select Debt Short Term Asset Plan are the new entrants in the Short Term category. In the income category, Baroda Pioneer Public Sector Undertaking (PSU) Bond Fund, being a relatively small fund, surprisingly replaced UTI Bond Fund which is one of the biggest players in this category. Finally, our all-time top picks in Gilt-short Term and Long Term Categories, ICICI Prudential Short Term Gilt Fund and ICICI Prudential Long Term Gilt Fund, which have been a part of our recommended funds list since 2011 have given way to SBI Magnum Gilt Fund Short Term Plan and IDFC Government Securities Fund Investments Plan B.

This note will not be complete without our views on the fund houses that have entered our recommended funds list this year. 2014 seems to belong to ICICI Prudential Mutual Fund which has got the maximum number of funds in our recommended list. Though the fund management team saw a few high profile exits in the last few years, the superb performance of the funds is a clear indication that the processes at the fund house are robust. The other 2 fund houses that are competing for the top slots are SBI Mutual Fund and Canara Robeco Mutual Fund. SBI Mutual Fund’s reign at the top is a clear indication that Navneet Munot and his team is working hard to regain the lost glory of a fund house which was once a household name amongst mutual fund investors. Canara Robeco Mutual Fund first entered our recommended funds list in 2011 with Canara Robeco Floating Rate followed by Canara Robeco Equity Tax Saver in 2012 after which the income fund – Canara Robeco Income featured in our list in 2013. There has been no looking back for this fund house with a total of 5 funds entering the recommended funds list this year. Another surprise entrant into our recommended funds list this year is Tata Mutual Fund, one of the oldest survivors in the industry. The dividend yield fund from the Tata stable has made sure that the veteran gets into our list for the first time this year. The Chennai Express seems to be on track and here we are referring to Sundaram Mutual Fund, whose equity funds were once a part of every investor’s core portfolio. They are slowly recouping as can be seen from our model. However, the fund house seems to be getting its bets right in the debt space, as a result of which Sundaram Select Debt Short Term Asset Plan has become a part of our recommended short term funds.

Anoop Bhaskar and his UTI Opportunities Fund has been a part of our recommended funds from 2011 and continues to beat all the model parameters this year as well. While for a change, it is UTI Mutual Fund’s debt team led by Amandeeep Chopra that is slowly making an inroad into investor portfolios this year with their short term and dynamic category funds clearing all the filters in our model.

There is always a debate in the industry regarding domestic and foreign fund houses. The exits in the last 2 years are creating confusion in the minds of investors if they should go ahead with the foreign fund houses or not. iFAST Investment Advisory Divison has never made a distinction between the 2 while recommending funds, because we believe that “survival of the fittest” is best applied in the mutual fund industry. If Fidelity and Morgan Stanley decided to take an exit route, then we should also remember that others like Schroders and Invesco are placing their faith in the domestic market. In this space, we have been very positive on Mirae Asset Mutual Fund and PineBridge Investments. Since 2012, Mirae’s flagship fund - Mirae Asset India Opportunities Fund has been a part of our recommended funds list while this year their midcap fund, Mirae Asset Emerging Bluechip Fund has competed with the goliaths in the industry to become the best performer. Gopal Agrawal and his team continues to put good performance on the table year after year and it is only a matter of time before  investors start making these funds a part of their core portfolio. Finally, in our last year’s note we had written about the transition that happened at PineBridge Investments and the confidence that we had placed in the fund house. Although we introduced PineBridge Infrastructure & Economic Reform Fund in our recommended funds in 2012, it was their short term fund that we placed a big bet on and it turned out to be the best performer during times of huge volatility in the model. We consider this fund to be our find and are happy to see it being accepted across the investor community in the last 1 year.

Conclusion

2014 will be filled with noises right from NaMo in Delhi to Yellen in the US and it is not possible to stay immune to all of it. Our advice to investors is to stay invested in their portfolios and not lose faith. They always need to keep in mind that though the market might react to any sudden news, it also calms down in a few days.

We wish all our investors a Happy and Prosperous 2014!

Please feel free to get back to us on research.ind@ifastfinancial.com if you have any queries on any of our funds.

 


iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.


 


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