Rama Krishna Vadlamudi June 18, 2010

Which is the most popular ice cream flavour in the world?

Not surprisingly, vanilla ice cream is still the most extensively consumed flavour
in the world with a share of more than 30 per cent cutting across all ages. When
we go to an ice cream kiosk, a variety of flavours are available on the platter. The
variety puts us in a dilemma. (It seems more than a thousand flavours are made
available by Baskin-Robbins, the leading ice cream manufacturer in the US.)
After looking at the choices for a few minutes, we end up buying mostly the
vanilla variety or at best a chocolate or a strawberry flavour.
Though picking up mutual funds (MFs) is not so easy; keeping it simple is the
best strategy as far as selecting equity MF investment is concerned, through a
selection of well-diversified equity MFs. The all-time favourites are the plain
vanilla version of equity MFs, i.e., well-diversified equity schemes providing
consistent & steady returns in all market phases.
There are more than 500 equity mutual fund schemes from 38 fund houses in
India. Picking up the right equity fund from a host of schemes to meet ones
investment objectives is apparently a difficult job, if not a Himalayan task.
(Please Read the Disclaimer given at the end of this article.)
 Rama Krishna Vadlamudi, BOMBAY June 18, 2010
www.scribd.com/vrk100 vrk_100@yahoo.co.in
MY BLOG: www.ramakrishnavadlamudi.blogspot.com

Diversified equity mutual fund schemes offer good diversification, sound money
management skills, experienced money managers, good investor-friendly
practices, advantage of thorough research teams and others. As such, investors
will be better off considering diversified equity mutual funds for their equity
portfolio within their overall asset allocation, risk profile and risk appetite.
For the benefit of my SCRIBD readers, Ive done some number crunching of
more than 500 diversified equity mutual funds to arrive at some good schemes
worth considering for an investment horizon of three to five years even when the
Sensex is hovering between 17,000 and 18,000. A number of factors have been
considered while selecting these funds. The important parameters considered
are: the experience of a strong fund management team, the track record of the
fund manager in different market cycles and the methodology and processes
followed by the fund house, among others.
The selected list is given in the next page:

CONTENTS PAGE
1) List of good and well-diversified equity mutual funds 3
2) Filters used while selecting the list of good equity MFs 4
3) Profiles of some top-notch mutual fund money managers 4
4) How to choose equity mutual fund schemes 7
5) Some caveats before investing in equity MFs 8

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LIST OF GOOD AND WELL-DIVERSIFIED EQUITY MUTUAL FUNDS

RISK NAV as on
Sl.No. NAME OF THE FUND LARGE/MID CAP GRADE 17.06.10
Rs
1 Birla Sun Life Frontline Equity Plan A Large 73%, Mid 27% Below Average 81.80
2 Canara Robeco Diversified Equity Large 63%, Mid 37% Average 51.36
3 DSPBR Equity Large 45%, Mid 55% Below Average 48.04
4 Fidelity Equity Large 70%, Mid 30% Below Average 32.62
5 Franklin India Bluechip Large 83%, Mid 17% Below Average 195.65
6 HDFC TOP 200 Large 80%, Mid 20% Below Average 190.75
7 ICICI Pru Dynamic Large 76%, Mid 24% Below Average 98.78
8 IDFC Premier Equity Plan A Large 10%, Mid 90% Below Average 29.23
9 Magnum Multiplier Plus SBIMF Large 49%, Mid 51% Below Average 79.12
10 Quantum Long-term Equity Large 63%, Mid 37% Below Average 19.73
11 Reliance Growth Large 46%, Mid 54% Average 455.03
12 Templeton India Growth Fund Large 51%, Mid 49% Below Average 111.41
13 UTI Opportunities Large 72%, Mid 28% Low 24.11
Notes: 1. All are growth plans and NAV is for growth plans all are open-ended schemes
2. All are diversified equity schemes
No. of
Sl.No. NAME OF THE FUND AAUM as on 31.05.10 CAGR* stocks
Rs crore 1-year % 3-year % 5-year %
Birla Sun Life Frontline Equity
1 Plan A 2,164 31.34 14.37 26.71 58
Canara Robeco Equity
2 Diversified 316 39.41 16.37 23.47 43

3 DSPBR Equity 1,845 38.47 15.01 28.71 74

4 Fidelity Equity 2,860 40.66 12.34 25.41 61

5 Franklin India Bluechip 2,916 30.72 13.05 24.56 39

6 HDFC TOP 200 7,221 35.68 17.77 28.01 66

7 ICICI Pru Dynamic 2,160 42.89 12.81 27.91 47

8 IDFC Premier Equity Plan A 1,376 53.36 22.53 NA 34

9 Magnum Multiplier Plus SBIMF 1,133 36.11 11.97 27.21 43

10 Quantum Long-term Equity 53 46.47 15.97 NA 27

11 Reliance Growth 7,272 40.38 15.78 27.83 40

12 Templeton India Growth Fund 583 37.40 15.30 24.36 33

13 UTI Opportunities 1,421 27.50 17.59 NA 42

AAUM-Average Assets Under Management; Data Source: ValueResearchOnline

* CAGR-Compounded Annual Growth Rate as on June 17, 2010

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 Rama Krishna Vadlamudi, BOMBAY June 18, 2010
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Portfolio Concentration: From the above table, one can observe that some funds are
maintaining concentrated portfolios Franklin India Bluechip, IDFC Premier Equity
Plan A, Magnum Multiplier Plus, Reliance Growth and UTI Opportunities. Franklin India
Bluechip traditionally has a large cap tilt and keeps number of stocks in the portfolio to
the minimum. Even though its net assets are more than Rs 2,900 crore, the total number
of stocks in the portfolio are only 39. This is one fund that always sticks to its original
mandate. Reliance Growth is a midcap oriented fund. Its net assets are more than Rs
7,200 crore and the total number of stocks is only 40. Magnum Multiplier Plus (midcap
oriented fund) and UTI Opportunities (large cap oriented) also keep the total number of
stocks to the bare minimum. Mark Mobius, the fund manager of Templeton India Growth
Fund, traditionally maintains a concentrated portfolio in this fund (now only 33 stocks).
EXPENSES RATIOs of the funds are as follows: IDFC Premier Equity Plan A-1.19%;
Canara Robeco Equity Diversified-2.34%; Templeton India Growth Fund-2.29%; and the
remaining funds in the above table have expenses ratios between 1.80 and 2.00%.

FILTERS USED FOR SELECTION OF FUNDS

The following filters have been applied while arriving at the above set of funds:
1) The reputation of the particular fund house is considered before picking up
individual schemes of that fund house
2) Experience and long-term track record of the fund manager
3) Consistency of returns during bear phases as well as bull markets
4) Long-term track record of the fund, say, more than three/five years
5) Only growth plans of open-ended, diversified equity mutual fund schemes are
considered
6) Thematic, sectoral, fund of funds-FOFs and balanced funds are not considered
as the scope of this article is confined only to diversified equity mutual fund
schemes
7) Individual MF scheme size of more than Rs 100 crore (the only exception is
Quantum Long-term Equity Fund due to its good, steady and long-term
performance)
Quantum Mutual Fund charges heavy exit loads of up to four per cent if investors
redeem their units within one year from the date of purchase. This is to prevent frequent
churning of mutual fund schemes by some investors. Now, most of the mutual funds are
charging higher exit loads as the entry load is banned by SEBI.
You can choose a combination of the above schemes to meet your investment needs.
Stick to only three or four funds in extreme cases, five funds. More funds means more
trouble of tracking their performances and more paperwork for you!

PROFILES OF SOME FUND MANAGERS

The fund manager plays a major role in portfolio selection and construction,
diversification and risk containment in order to deliver superior returns for the investors.
Due to the advent of new fund houses, there is a big demand for good fund managers
who quit quite often for better opportunities. As such, its also important to select funds
based on the strength of investment processes of a particular fund house.

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 Rama Krishna Vadlamudi, BOMBAY June 18, 2010
www.scribd.com/vrk100 vrk_100@yahoo.co.in
MY BLOG: www.ramakrishnavadlamudi.blogspot.com
1. Apoorva Shah: Hes a fund manager with DSP BlackRock MF, formerly known as
DSP Merrill Lynch. He is a commerce graduate and did his MBA from IIM, Ahmedabad.

Hes performed well during different market cycles and the first three
funds given below have delivered superior returns for the investors.

He manages, DSPBR Equity, DSPBR Balanced, DSPBR Top 100 Equity, DSPBR Micro
Cap and a few other funds.
2. Kenneth Andrade: He is the Chief Investment Officer of IDFC Mutual Fund. He is a
commerce graduate from Bombay University. He was earlier with Standard Chartered
MF which was taken over by IDFC and renamed it as IDFC MF. He manages Enterprise
Equity, Imperial Equity and Premier Equity funds. He is known for protecting the
downside.

He remained cautious well before the bull market frenzy peaked in

January 2008 and he saved the blushes for his investors during the
meltdown of 2008.

3. Mahesh Patil: Hes an experienced fund manager with Birla Sun Life MF. Hes done
his BE and MMS from ICFAI.

He is managing equity funds Birla Sun Life Equity, Birla Sun Life
Frontline Equity, Birla Infrastructure and Birla Intl. Equity schemes.

His funds have delivered consistently well during all phases of the market movements.
4. Mark Mobius J: Dr Mobius is the Executive Chairman of the Templeton Asset
Management (Global). He specializes in Emerging Markets and manages billions of
dollars of investors money across the globe. He is one of the most influential and
powerful money managers in the world. He has done his MBA from Boston University
and Ph.D. from MIT.

He manages Templeton India Growth Fund from Franklin Templeton

Mutual Fund in India. In the last ten years, this funds has given superior
returns as compared to Sensex in every year except in 2005 and 2006.

5. Prashant Jain: He is the Executive Director and the Chief Investment Officer (CIO)
with HDFC MF. Hes remained with HDFC MF since 2002. Hes got more than 17 years
of rich experience with the mutual fund industry. Hes completed his B.Tech, IIT and
MBA, IIM. Hes renowned in the MF industry for his research-based methodology.

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 Rama Krishna Vadlamudi, BOMBAY June 18, 2010
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Hes delivered consistently good returns for the investors. The fund
manager is overweight on financials, pharmaceuticals and energy
stocks now. He doesnt usually keep huge cash levels in the schemes
even during bear phases. Hes known for his disciplined approach to
investing.
He now manages the following equity schemes, in addition to some MIPs HDFC
Equity, HDFC Top 200, HDFC Prudence (a balanced fund) and HDFC Infrastructure (a
closed-ended fund). The first three funds have delivered superior returns across all
market cycles keeping the long-term investors happy.
6. Sandeep Kothari: Hes a fund manager with Fidelity MF. Hes a chartered
accountant. He is a bottom-up stock picker and follows a fundamental approach while
investing in stocks. Fidelity is known for its downside protection in bear markets. Veteran
US fund manager, Peter Lynch, is an inspiration for them here.

The fund manager has delivered good returns from the above funds.
Now, the fund manager is overweight on financials, energy and health
care stocks. He doesnt hold much cash in his funds.

He manages the following equity schemes: Fidelity Equity with S Balakrishnan,

Fidelity Growth with S Balakrishnan, Fidelity Intl Opp (holds 4.96 per cent stake in
unlisted National Stock Exchange); and Fidelity Tax Advantage (ELSS tax savings
scheme). Fidelity Equity and Fidelity Tax Advantage funds have done very well in the
last two to three years providing consistent returns.
7. Sankaran Naren: He is a fund manager with ICICI Prudential MF. He manages ICICI
Pru Discovery, ICICI Pru Dynamic, ICICI Pru Growth, ICICI Pru Indo-Asia, ICICI Pru
Infrastructure jointly with other fund managers.

He had done his B.Tech from IIT, Madras and MBA from IIM, Calcutta.
The fund manager is bullish on RIL and Bharti Airtel, in addition to
sectors energy, financials and metals.

8. Sunil B.Singhania: He is a leading fund manager from Reliance MF, Indias biggest
mutual fund by assets average AUM of more than Rs one lakh crore. Hes done his
CFA (of the US) and FCA. Hes delivered decent returns as a fund manager with a large
fund with a corpus of more than Rs 7,200 crore, that is, Reliance Growth fund. He has
been managing this fund for the past five years.

Hes delivered superior returns for the above fund. Whats noteworthy is
that with such a large corpus, he maintains a relatively concentrated
portfolio in Reliance Growth fund.

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 Rama Krishna Vadlamudi, BOMBAY June 18, 2010
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His other funds include Reliance Banking, Rel. Diversified Power, Rel. Infrastructure and
Rel. Long-Term Equity (closed-ended). The fund manager has been showing a tendency
to hold large cash holdings of 10 to 20% in his funds. Reliance MF protected investors
during last years bear phase with high cash levels. But, the fund house could not deliver
superior returns in 2009.M
UTUAL FU
HOW TO CHOOSE EQUITY MUTUAL FUNDS
Before investing in an equity mutual fund, please check the following parametres:
1) Sustainable Performance: Consider the performance of the fund during several
time periods in a bear market as well as a bull market. Dont consider only the
recent performance. Take into account the returns over three/five year time
periods.
2) Suitability: The investment objective of the fund must match with the objective of
the individual investor. Mid-cap funds may not be suitable for some risk-averse
investors. Likewise, investors with higher risk appetite may like to invest in mid-
cap oriented funds.
3) Fund Managers Track Record: Watch the track record of the fund manager
across various funds and different fund houses (if any)
4) Diversification: Check for the number of stocks and concentration of the
portfolio. Too large a number of stocks or too less may not provide optimal
returns for the investors in the long run.
5) Risk parameters: Look for Sharpe Ratio which is statistical tool measuring
risk-reward ratio. This ratio measures the amount of excess return for each unit
of risk taken by the fund.

For a detailed article on picking up good equity mutual funds, just click:UTUAL
FUN http://www.scribd.com/doc/20712330

Some Caveats before investing in equity mutual funds

1) Read the Scheme Information Document (SID) and Statement of Additional
Information (SAI) thoroughly before investing
2) MF performance is subject to market risk. During 2008, some good funds had
lost only 40 to 45 per cent against the loss of around 50 to 52 per cent by the
market. However, there are some funds which managed to lose more than 85 per
cent of their NAV in just one year!
3) After selecting a few good schemes, watch the performance of the schemes
against their benchmarks, peers or general market
4) Lesser number of funds the better: The tendency of investors is to overload on
a number of schemes. They confuse mutual funds with stocks. Every mutual fund
holds usually between 40 to 60 different stocks and offers good diversification.
As such, its not advisable to hold more than three or four mutual fund schemes
in ones portfolio.
5) At the same time, avoid overloading schemes from the same fund house

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 Rama Krishna Vadlamudi, BOMBAY June 18, 2010
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6) In general, avoid sectoral or thematic funds unless youre an expert stock picker
with high risk appetite or youre too sure about the performance of that particular
sector.
7) Time you keep your money in the market is more important than TIMING the
market
8) The longer the time horizon of your investments, the lesser the risk
9) Regular investments in the market during the bull as well as the bear phases will
give better returns for long-term investors
10) Check out the portfolio of stocks owned by the fund, assess the strength of the
portfolio and the extent of churning by the fund manager
11) Find out whether the fund is having too much exposure to a particular sector.
Well-diversified funds need to have true diversification; otherwise, the fund will
entail higher risks for investors
12) Investors should invest a part of their savings or surplus as per their asset
allocation. Asset allocation is a process whereby every investor shall allocate
(depending on their own risk appetitie, risk profile, age, time horizon, investment
objective, etc) funds to different asset classes, like, fixed deposits, PPF/NSC,
equities, mutual funds, real estate, gold and others; in addition to life insurance
and medical insurance
13) Before jumping into equities or equity mutual funds, consult your certified
financial advisor and get his/her advice based on your investment objectives and
needs
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Data source: ValueResearchOnline Photo Courtesy: BBC

Some other funds which have good track record and reputation are: Birla Sun Life
Dividend Yield Plus, DSPBR Top 100 Equity, Frankllin India Prima Plus, HDFC Equity,
ICICI Prudential Discovery, Kotak Opportunities, Magnum Contra, Principal Large Cap,
Reliance Regular Savings Equity, Sundaram BNP Paribas Select Midcap, Tata Equity
PE, Tata Pure Equity, Templeton India Equity Income and UTI Dividend Yield.

If one is interested in investing in Exchange Traded Funds, one can consider the
following two ETFs based on NSE indices: Nifty BeES ETF & Junior Nifty BeES.

www.scribd.com/doc/20422760

www.scribd.com/doc/22215706

AUTHORS DISCLAIMER: This should not be construed as a recommendation by the author. The
author holds a small stake in a few mutual fund schemes and as such its safe to assume that the
author has a vested interest in general market going up. The views of the author are personal.
Readers or investors must consult their certified financial advisor before taking any decision on
their equity investments and the investment should be in line with their risk profile & risk appetite
and their general market perception. Any equity investment should be within their overall ASSET
ALLOCATION, which is extremely vital.

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