Table 1: Changes in Recommended funds

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

• performance over a 5 year time horizon
• expense ratio
• ability of the funds to withstand the downtrend in the markets

Once the ranking is done on the basis of the said methodology, funds with a track record of less than 2 years are removed and the top 2 funds are then studied for their investment strategy during bullish and bearish phases, portfolio action by the fund manager in terms of sectoral allocation and other parameters like asset allocation, asset size, and in the case of fixed income credit quality, average maturity, etc.

Our Recommended Funds list was first introduced in June 2009 and since then there have been some funds which have been in our list in all the last 4 reviews. These include HDFC Top 200 Fund, HDFC Equity Fund, ICICI Prudential Infrastructure Fund and Reliance Banking Fund (Equity Categories), Reliance Short Term Fund, Birla SunLife Dynamic Bond Fund (Debt Category) and HDFC Prudence Fund and DSP Rock Balanced Fund (Hybrid Category).

Changes in the Equity category

In the equity category, the major change has been in the diversified category, which has been divided into large cap and multi cap segments. The diversified category has funds which either invest only in large cap stocks or invest across market caps. This segregation helps investors identify which are the large cap funds, and which funds are multi cap. Conservative/moderately conservative /balanced investors as per their risk profile would prefer large cap funds since they are less volatile and have also shown outperformance during a long time horizon. However, aggressive and moderately aggressive investors, who are willing to take risks, should look at multi cap funds, wherein fund managers move across market caps depending on the opportunities available in the market.

As far as the funds in this category are concerned, we have removed DSP Rock  Top 100 Equity Fund and have moved in ICICI Prudential  Focused Bluechip Equity Fund and Franklin India Bluechip Equity Fund. However HDFC Top 200 Fund continues its innings in the new list of recommended funds as well.

In the multi cap category, HDFC Equity Fund remains in our recommended list and an addition of 2 funds namely, Fidelity Equity Fund and UTI Opportunities Fund have been made. In the midcap & smallcap funds we have removed DSP Rock Microcap Fund and Reliance Growth. The DSP Rock Microcap Fund became an open-ended fund on June 25, 2010 and an analysis of the same will be a bit skewed. As far as Reliance Growth Fund is concerned, since it has more than ~ 50% of its portfolio concentrated in the large cap space, we think it appropriate to move it from the midcap space. Hence 2 new funds, i.e., HDFC Mid-Cap Opportunities Fund and DSP Rock Small and Midcap Fund find a place in the recommended funds.

In the Contra & Value category, we have removed UTI Master Value Fund, since its ranking has gone down to the 10^th position and we have stayed with ICICI Prudential Discovery Fund. For the Dividend Yield category, we continue with our existing recommended fund, i.e., UTI Dividend Yield Fund.

As far as Index Funds are concerned, HDFC Index Fund Sensex Plus Plan has been removed as it has more than 10% allocation to stocks outside the BSE Sensex, as a result of which the tracking error will be higher in this fund as compared to its peers. In its place Franklin India Index  Fund- BSE Sensex Plan and ICICI Prudential Index Fund have been added. For the Global Funds category, Fidelity International Opportunities Fund and Tata Growing Economies Infrastructure Fund Plan A have been removed and new funds, i.e., Mirae Asset China Advantage Fund and Principal Global Opportunities Fund have been included. Since we are positive on the emerging economies and believe that countries like China will be the main drivers of global economic growth in 2011, we consider these 2 funds to be the best bets in the said category.

For the ELSS category, we continue with our existing funds, i.e., HDFC TaxSaver Fund and Fidelity Tax Advantage Fund. As for sector funds, in the FMCG space, Franklin FMCG Fund has been replaced by Magnum Sector Funds-Umbrella-FMCG Fund, while for the Technology sector, DSP Rock Technology.com Fund has been removed and ICICI Prudential  Technology Fund has been added. Finally, ICICI Prudential Infrastructure Fund, DSP Rock India T.I.G.E.R.Fund, Reliance Banking Fund and Reliance Pharma Fund continue to be the best bets in their respective categories.

Changes in the Debt CATegory

Some of the funds in the Debt Category had to be removed because the information like YTM and average maturity are not publicly disclosed. Most of the HDFC Funds in the debt category were impacted due to this reason. For the Floater Funds category, HDFC Floating Rate Income Fund Long Term Plan has been replaced with Canara Robeco Floating Rate Fund along with the already existing fund, Birla SunLife Floating Rate Fund Long Term Plan. In the Ultra Short Term Funds category, Reliance Money Manager Fund and LICMF Income Plus Fund were removed and in its place Birla SunLife Ultra Short Term Fund, BNP Paribas Money Plus Fund and DWS Ultra Short Term Fund were added.

For the Income category, BNP Paribas Flexi Debt Fund has been removed due to its underperformance for some time now while Birla Sunlife Dynamic Bond Fund continues to be our top pick. In the Short Term Funds category, Reliance Short Term Fund continues to be the best performer, however Templeton India Short Term Income Plan has been included in this  category as it has been able to deliver high returns in spite of taking a bit of credit risk. As for Gilt funds, both Short term and Long term, ICICI Prudential Gilt-Treasury and ICICI Prudential Gilt-Investment have replaced Birla SunLife Gilt Plus Liquid Plan and Birla SunLife Government Securities Fund Long Term Plan.

Changes in the Hybrid Category

Our top picks in the Balanced funds category, i.e., HDFC Prudence Fund and DSP Rock Balanced Fund remain the same. As for MIPs, HDFC Multiple Yield Fund Plan 2005 has been replaced with HDFC MF Monthly Income Plan-Long Term Plan, while Reliance Monthly Income Plan continues to be the top pick in the current review as well.

 Conclusion