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Mirae Asset Large Cap Fund

Large-cap equity funds have struggled over the past several years
to even match their Z, let [--[-[[[‘alone outperform the indices.
But Mirae Asset Large Cap Fund (MALCF) is an exception.
Keeping its short-term underperformance aside for a moment, it has
done quite well in the long run, as compared to peers and its own
benchmark index. Gaurav Misra and Harshad Borawake jointly
manage the fund.
Its investment (of about 12-13 percent of its corpus) in mid and
small-cap stocks has helped bolster the fund’s performance. With a
corpus of nearly Rs 26,000 crore, MALCF is one of the largest
schemes in the category.

Canara Robeco Bluechip Equity Fund

At Rs 3,300 crore, Canara Rob Bluechip Equity Fund (CRB) has
a corpus size that’s much smaller than that of peers. But CRB
packs in quite a punch. Its five-year return of around 17 percent (as
of July 9, 2021) is the highest among actively-managed large-cap
equity funds. Shridatta Bhandwaldar has managed this fund since
2016 and has an impressive track record.
Bhandwaldar places a lot of importance to promoter integrity. Of the
100 stocks in BSE 100 index, he says there are at least 20-odd
companies he won’t ever invest in. He invests nearly 70 percent of
the scheme’s corpus in companies that he calls ‘compounders.’
These are companies with competitive business advantage and are
consistent in their growth across market cycles. But he keeps 30
percent aside for what he calls alpha generators – companies that
see a sharp jump in share prices when their value is unlocked.

Equity – Flexi-cap

Parag Parikh Flexi Cap Fund

Parag Parikh Flexi Cap Fund (PPFC) is one of the few India-
focussed diversified equity schemes that also invests in overseas
markets (almost entirely in the US markets and up to 35 percent of
the corpus). That is one key reason why it has been one of the
best-performing equity funds in its category in recent years. It
comes from a fund house that has deliberately kept its new scheme
launches to a bare minimum ever since it started its journey eight
years ago.
It doesn’t hesitate to deploy cash in falling markets, like it did in
March 2020 when equity markets fell sharply after COVID-19
pandemic was declared. That is also why the fund has done well in
rising as well falling markets.

Kotak Flexicap Fund

At a corpus size of over Rs 36,000 crore, Kotak Flexicap
fund (KFF) is the largest scheme in this category. Harsha
Upadhyaya has been managing the fund since 2013.
Despite being in the flexi-cap category, the fund’s portfolio tilts
towards large-cap stocks. It follows a top-down investment
approach. Upadhyaya first identifies the sectors he thinks that
would do well and then identifies the companies within. As a result,
the scheme has concentrated sector exposure.

Upadhyaya prefers companies that come with good corporate

governance and allocate their capital efficiently, and are available at
an attractive valuation.

UTI Flexicap Fund

Like many multi-cap funds, UTI Flexicap Fund (UFF) too changed
into a flexi-cap scheme, a new category created by SEBI last
year. Ajay Tyagi has been managing this fund since 2016.
Tyagi chooses growth stocks with high-quality businesses, strong
balance-sheets and cash flows, which can grow fast. He says
valuations only come last on his checklist. The portfolio isn’t
churned much, which suggests reasonable fund manager
conviction. Nearly 80 percent of the stocks remains in the portfolio
for five or more years.

The fund has a preference for value-oriented stocks, which explains

its slight underperformance between 2015 and 2018. But it
recovered soon, thanks to Tyagi’s stock picking skills and value
strategy making a strong comeback over the past year. It manages
to contain downsides.
Equity – Mid cap

Axis Midcap Fund

Most of Axis Mutual Fund’s equity schemes have consistently
outperformed peers and the market. Among mid-cap
schemes, Axis Midcap Fund (AMF) is a good pick. And here’s
why.
In 2018 and 2019, when mid-cap stocks didn’t do that well, AMF
was better at protecting downsides than most of its peers. It’s
Sortino Ratio (a key risk-adjusted return metric) was the highest in
its category. Shreyash Devalkar has been managing AMF since
2016.
Devalkar likes companies that have free cash flows, low debt-
levels, and good corporate governance. He also goes for mid-sized
companies in industries where there aren’t any large-sized firms.
His investments in larger companies in sectors such as plastic
pipes (Astral and Supreme Industries that delivered 182 percent
and 100 percent, respectively, over the last one year)
and Cholamandalam Investment and Finance Company (one-
year return of 148 percent return) and Sundaram Finance (102
percent) worked well.
AMF takes active cash calls. The fund has held up to 20 percent of
its assets in cash at times. Currently, it holds 65 percent in mid-
caps, 23 percent in large-cap companies and five percent in small-
cap firms.

Kotak Emerging Equity Fund

Kotak Emerging Equity Fund (KEEF) invests at least 65 percent
of its assets in midcap stocks and the rest in shares of large and
small-cap companies.
KEEF is one of the largest schemes in this category managing Rs
14,000 crore. But a large size hasn’t affected its allocation to mid
and small-cap stocks. It has invested at least 90 percent of its
equity portion in such firms, as against the overall category average
of 84 percent.

KEEF held 58-70 stocks in its portfolio over the last five years,
making for reasonably diffused holdings. Unlike most of the funds in
the mid-cap category, it has not taken active cash calls and has
been nearly fully invested (average cash holding was 3.7 percent
for the last five years).

Pankaj Tibrewal has been managing the fund since 2010. He likes

companies with low levels of debt. Focusing on companies that
are leaders within the sectors they operate in has worked well,
such as electrical wires, cables, bearings, tiles, capital goods or
infrastructure,” he says. Some of the stocks worked well for him in
these space over the last one year are Supreme
Industries (around 100 percent), APL Apollo Tubes (348
percent), JK Cement (115 percent) and Kajaria Ceramics (156
percent).
DSP Midcap Fund
Steady performance across time frames and the ability to protect
downsides make DSP Midcap Fund (DMF) a good pick. DMF is
also among the least volatile mid-cap funds, as measured by
standard deviation, a key risk metric. Vinit Sambre and Resham
Jain manage this fund.
Sambre maintains a low portfolio turnover ratio (among the least in
the category) that measures how frequently the fund manager
churns the holdings. DMF holds about 40-45 shares, as against the
category average of nearly 60 stocks.

DMF missed the opportunity to gain from the broad-based rally in

the last one-year, given its relatively defensive portfolio positioning
in light of the COVID-19 pandemic. Barring such short-term
glitches, DMF has been a long-term winner.

The scheme takes active cash calls (up to 10 percent of portfolio

corpus), which helps it to cut losses in falling markets. Currently,
DMF holds 67 percent in mid-caps, 16 percent in large-caps and 12
percent in small-caps.

Invesco India Midcap Fund

Just going by past performance, Invesco India Midcap Fund (IMF)
may not be your first pick in the category. But don’t mistake this
fund’s consistency for lack of mojo. And its corpus size is just about
Rs 1,707 crore.
Pranav Gokhale and Neelesh Dhamnaskar have been jointly
managing this fund since 2018. Gokhale says that they look for
niche businesses. Companies must have a healthy balance sheet.
Integrity of the promoter and management is important.

Its investments in the financial services sector have always been

lower than what the others in the category allocate. Though it did
limit the scheme’s upside during phases when bank stocks did well,
it helped to contain the volatility during corrections. This is a low-risk
mid-cap fund.

Equity – Small cap

Axis Small-cap Fund

Axis Small-cap Fund (ASF) does well in rising and falling markets.
In 2018 and 2019, when small-cap stocks saw a sharp correction,
ASF contained the fall better than most others. For instance, in
2018, the NAV of small-caps funds fell 17 percent on an average.
ASF’s value declined just 9 percent.
Like AMF, ASF too takes active cash calls. At times the scheme
holds up to 26 percent of its corpus in cash so that scheme is
cushioned in case of heavy market falls, when mid-cap indices fall
like nine pins.  ASF scores on the Sortino ratio.

Anupam Tiwari has been managing this fund since 2016.

Tiwari increased exposure to construction and software, which

boosted the portfolio’s return significantly. Many of the stocks more
than doubled over the last one year, such as Brigade
Enterprises (122 percent), KNR Construction (130 percent), Tata
Elxsi (363 percent) and COFORGE (178 percent).
SBI Small-cap Fund
Prudent stock selection and efficient cash calls have helped SBI
Small-cap Fund (SSF) deliver robust returns in rising markets and
fall less than its peers during declines. R. Srinivasan has been
managing this fund since 2009.
Srinivasan focuses on generating healthy returns. Prior to SEBI’s
re-categorization exercise of June 2018, he used to hold a highly
concentrated portfolio of about 22-30 stocks. After the re-
classification exercise, and with a subsequent rise in its corpus (Rs
9,091 crore as of June 30, 2021), SSF is much more diversified.
The total number of stocks has now gone up to 50. But individual
stocks rarely account for any more than 6 percent of the assets.
Its investments in companies such as Elgi Equipments, Hawkins
Cooker, Relaxo Footwear and Alembic contributed to its returns.
Equity – Tax-savings

Canara Robeco Equity Tax Saver

Unlike the peers in the ELSS category that have been enjoying the
comfort of managing a less active portfolio (they follow buy and hold
strategy) on account of the three-year lock-in, Canara Robeco
Equity Tax Saver Fund (CRETS) churns its portfolio very actively. It
is evident from its churning ratio of 160 percent, which is far higher
than the category’s 70 percent over the last three years. A higher
churning ratio also helps the fund mitigate the high-conviction or
concentration risk in a portfolio.

Cheenu Gupta and Shridatta Bhandwaldar jointly manage this fund.

They prioritize promoter integrity while picking stocks. The fund
managers invest nearly 50 percent of the scheme’s corpus in
companies that they call ‘compounders.’ These are quality
businesses, which have consistently done well in the past, and are
expected continue that way over the next 2-3 years. But they keep
25 percent aside for what they call alpha generators– companies
that are cyclical or firms that are expected to do well because of
changes in the business environment. They invest the remaining 25
percent in emerging businesses.

Kotak Tax Saver

Kotak Tax Saver (KTS) rounds up our ELSS picks. Harsha
Upadhyaya has been managing the fund since 2013. As a fund
manager at the helm for more than seven years now, he ensures
that the portfolio strategy remains consistent. That’s good news.
Upadhyaya selects businesses with better corporate governance,
efficient capital allocation structure and those available at an
attractive valuation. A three-year lock-in allows him to invest in
fundamentally strong stocks, but those that could suffer from short
bouts of volatility. He has invested around 55-60 percent of the
scheme’s corpus in large-cap stocks and the rest in mid and small-
cap shares.

The scheme has done well in rising and falling markets.

Equity – Focus
Axis Focused 25 fund
Axis Focused 25 fund (AF25) can hold up to 25 stocks in its
portfolio. It follows a flexi-cap approach of investing across large,
mid and small-sized companies.
Jinesh Gopani, who heads the AMC’s equity fund management,
has been in charge of this scheme since 2016. To reduce the fund’s
risk levels on account of concentrated holdings, he invests about
half the corpus in low-volatility stocks. The remaining portfolio gets
invested in cyclical and emerging themes that give a return-kicker to
the fund. AF25 generally avoids government-owned companies.
Despite a focused portfolio, not more than 20 percent gets invested
in a single sector. Over the last three years, it increased exposure
to large-caps while pruning its small-cap holding and moderating its
mid-cap allocation. This helped funds to gain from the choppy
market condition.

His deft stock-picking has paid off; the fund’s risk-adjusted returns
have been among the highest in this category.

SBI Focused fund

SBI Focused fund (SFF) follows a bottom-up approach and is
managed by R Srinivasan since 2009. He also heads the fund
house’s equity division. Like AF25, the scheme invests in
companies across market capitalisation.
Like many focused funds, SFF doesn’t follow a benchmark index.
The strategy is risky, but Srinivasan’s stock picking skills have
ensured that the fund remains steady on its path.

Before SEBI’s re-categorisation exercise, SFF invested

predominately in mid and small-cap stocks. But ever since it
formally became a focused fund, it almost exited its small–cap
positions, brought down its mid-cap holdings and added large-cap
stocks. Currently, more than half of its assets lie in large-caps.

In the past two years, SFF has added exposure to foreign (mostly
US) securities (currently around 7 percent of the portfolio). Such
exposure has given a kicker to returns.

Hybrid – Aggressive

Canara Robeco Equity Hybrid Fund

Canara Robeco Equity Hybrid Fund (CREHF) invests 65-80
percent of its assets in equity, while the rest is deployed in debt
instruments. CREHF has been one of the least volatile in this
category. The scheme’s low volatility has led to superior risk-
adjusted returns when compared to those of peers over the long
term. That’s what this category aims to achieve due to its debt
holdings.
It has consistently beat the average returns given by large-cap
funds over the long run.

On the equity side, CREHF follows a multi-cap approach, with bias

for large-caps. The fund manager mainly chooses quality
businesses with superior management execution strategies. These
filters keep the risks low.

On the debt side, the fund follows a blend of accrual and duration
strategies. It is one of the few schemes in the category that invest
exclusively in the highest-rated debt instruments.

DSP Equity & Bond Fund

In addition to CREHF, we also like the DSP Equity & Bond Fund
(DEBF), which has been a solid performer. Atul Bhole manages the
equity portfolio and Vikram Chopra looks after the debt portion. Its
corpus size is Rs 6,966 crore as on June 2021
For a hybrid fund, the scheme is quite diversified with its equity
portion is spread over 60-65 stocks. To keep the risks in check,
nearly two-thirds of the equity assets are invested in large-caps and
the rest in mid and small-cap stocks.

Bhole considers only good businesses with management

competency and growth prospects, rather than valuations, first.
Bhole prefers to be conservative given the scheme’s nature and
target segment. On the debt side too, Chopra keeps the risks to a
bare minimum; he sticks to highly-rated debt instruments with
shorter maturity profiles.

Debt – Short-Term

ICICI Prudential Short Term Fund

As mandated by SEBI, short-term debt funds must maintain a
portfolio duration of between one and three years. These funds are
meant for investments done with a 2-3 year time horizon. ICICI
Prudential Short Term Fund (ISTF) is one of our chosen schemes
for this purpose.
The fund is managed actively to ensure reasonable returns, without
compromising on portfolio quality. Apart from investing in g-secs
(government securities) opportunistically, it invests up to 20 percent
of its assets in AA rated and equivalent securities.

Fund manager Manish Banthia says that although the scheme

invests in AA rated assets, the fund house’s in-house risk
management team monitors the holdings closely. ISTF has around
7 percent exposure to perpetual bonds. Banthia insists that the AT1
holdings are of those banks that the fund house is comfortable with
in terms of the existing capitalisation, quality of assets and ability to
raise capital.
Despite many uncertainties and a tough environment over the past
couple of years amidst defaults of many companies, ISTF did well
to avoid poor securities and credit stress.

At Rs 20,015 crore (as on June 30, 2021), ISTF is the second-

largest scheme in its category at present. Its portfolio is well-
diversified with over 200 debt securities; the most it has invested in
a single corporate group is 4.6 percent (as of Feb 2021).

HDFC Short Term Debt Fund

For the past few years, HDFC Mutual Fund has delivered well on
its debt schemes. HDFC Short Term Debt Fund (HSTF) makes it
to MC30.
HSTF maintains the portfolio duration between one and three years.
It invests over 80 percent of its corpus in the highest rated
instruments; around 6-10 percent gets allocated to AA rated and
equivalent papers. Despite being hit by the IL&FS crisis in 2019, the
scheme recovered. Its holding in IL&FS was just 0.5 percent. And
although it holds around 4.8 percent in AT-1 bonds, we don’t think
that’s any problem for the scheme.

Axis Short Term Fund

Axis Short Term Fund (ASTF) has been a consistent performer
that doesn’t take credit risk. Aside from investing in highly-rated
bonds, it allocates to g-secs too, to earn some extra returns.
Other than miniscule exposure to Dewan Housing Finance
Corporation, the portfolio has consistently been clean. And ASTF
recovered its dues from the company. Like many other debt funds,
it has some investments (around 2 percent) in AT1 bonds, but fund
manager Devang Shah says there is no risk as they are issued by
good-quality banks.
Despite having a conservative portfolio, the fund has given healthy
returns and outperformed the category average over the past one,
three and five-year time periods.

If interest rates rise remain steady and or even rise, an allocation to

short-term funds bodes well, as they are less volatile than medium
to long duration debt schemes.

Debt – Banking & PSU

Nippon India Banking & PSU Debt Fund

Nippon India Banking & PSU Debt Fund (NBPDF) has been a top
quintile scheme in its category across timeframes. Banking and
PSU debt funds invest at least 80 percent in bonds issued by
banks, government-owned firms and municipalities. The balance is
invested in government securities (g-secs) and corporate bonds.
Over the last two years, the fund has invested only in the highest
AAA rated instruments issued by government-owned firms and
banks. But it also tactically invests around 20 percent in g-secs to
use interest rate movements to its advantage. The fund also invests
a small portion in private corporate firms that come with strong
financials, such as Sundaram Finance and Bajaj Housing Finance.
The fund has avoided Additional Tier-1 (AT1) bonds. A modified
duration of 1.5-3.5 years makes this fund far less volatile to sudden
interest rate movements. With close to 91 securities in the fund (Rs
6,410 crore corpus), it’s fairly diversified.
Kotak Banking and PSU Debt Fund
Kotak Banking and PSU Debt Fund (KBPDF) avoids bonds
issued by private-sector firms. Instead, it sticks to securities issued
by banks, State-owned firms and g-secs.
But it does invest around 13 percent of its assets in AA and
equivalent rated securities to earn a returns kicker. Additionally, it
has held around 9 percent in AT1 bonds. But Lakshmi Iyer, chief
investment officer-fixed income and head of products, says that
these have been issued by banks with strong financials.

Apart from investing in the highly-rated bonds, the scheme has also
reduced its risk levels by ensuring a non-concentrated exposure. As
per its Jan 2021 portfolio, the most it has invested in a single
corporate group is 8.7 percent.

IDFC Banking and PSU Debt Fund

True to the fund house’s aversion to taking credit risk, IDFC
Banking and PSU Debt Fund (IBPF) has consistently held a high-
quality portfolio. Almost its entire portfolio comprises AAA and
equivalent rated instruments over the last three years. This
mitigates the overall credit risk in the portfolio. It also avoids AT1
bonds.
However, the fund does hold g-secs and bonds issued by private
sector firms, within SEBI’s overall limit. But fund manager Anurag
Mittal has stuck to high-quality private sector firms such
as Sundaram Finance and Reliance Industries.
IBPF follows a roll-down strategy, which ensures that the
portfolio’s duration progressively comes down over a period of
time. Its modified duration has decreased to 1.6 years from 2.4
years over the last 12 months.
To compensate for its conservative approach, it allocates slightly
more to its top holdings, going up to 12 percent for individual
securities.

Debt – Corporate Bond

Sundaram Corporate Bond Fund

Corporate bond funds carry low credit risk, as they are mandated to
invest at least 80 percent of their assets in AA+ and higher rated
instruments.

Sundaram Corporate Bond Fund (SCBF) has consistently

invested nearly all of its corpus in AAA securities for the past five
years. Its fund managers Dwijendra Srivastava and Sandeep
Agarwal invest in securities issued by government-owned firms and
private sector companies that come with strong financials. And it
prefers those that come with up to a three-year maturity.
Corporate bond funds such as SCBF held their ground in the wake
of the credit crisis. After liquid funds, this is the second biggest
category among debt schemes.
SCBF has managed to avoid credit events. It allocates 10-20
percent in government securities depending on the interest rate
outlook. At a corpus size of Rs 1,144 crore (as on June 30, 2021),
the scheme is well-diversified with close to 51 securities.
Maintaining the right maturity profile and sticking to securities
whenever the spreads are attractive have helped the fund
outperform its category across timeframes.

HDFC Corporate Bond Fund

HDFC Corporate Bond Fund (HCBF) is the second largest fund in
its category with assets of close to Rs 26,698 crore (as on June 30,
2021). Multiple credit events have led to flight-to-safety moves
among debt fund investors. And larger fund houses with a good
brand names such as HDFC AMC have benefitted from increased
inflows. And HCBF has rewarded investors with its good
performance.
Despite SEBI’s minor leeway that allows schemes to invest up to 20
percent in lower-rated assets, HCBF has consistently deployed
nearly all its corpus in highly-rated (AA+ and above) securities. Its
prudent risk control strategy helped HCBF navigate the debt fund
crisis, successfully. Anupam Joshi has been its fund manager since
2015.

HCBF aims to generate returns mainly through interest accruals,

Joshi tells us. Allocating some portion to an active duration strategy
helps the fund to gain from interest rate movements.

Equity - Passive

Nippon India ETF Nifty BeES

Nippon India ETF Nifty BeES (N50B) is India’s oldest exchange-
traded fund (ETF) that originally belonged to Benchmark MF. It is
also among the most liquid ETFs.
N50B invests its entire corpus in Nifty 50 stocks, that too in the
same proportion as the benchmark. An ETF’s tracking error is
typically lower than that of an index fund. But many ETFs suffer
from low liquidity and this pushes up the impact cost; investors don’t
always get the price that’s closest to the scheme’s net asset value
(NAV). Here is where N50B scores. It’s the most liquid ETF in the
Indian markets. You need a demat account to invest in ETFs.

UTI Nifty Index Fund

If you do not have a demat account, then you can invest in UTI
Nifty Index Fund (UBIF). Launched in 2000, this was India’s first
Nifty-based index fund.
It invests in stocks of the Nifty 50 in exactly the same proportion as
they lie in the benchmark index. UBIF’s tracking error has
consistently been the least among index funds. Its expense ratio is
also low, which bodes well for a passively-managed fund. At a
corpus size of about Rs 4,211 crore, it is one of the largest in its
space.

ICICI Prudential Nifty Next 50 Index Fund

The Nifty Next50 index is one of the most consistent and among
the best-performing diversified indices around. It consists of the 50
most liquid companies outside the Nifty 50 index. If you like to
eliminate fund manager risks and reduce the chances of
underperformance, then a combination of Nifty 50 and Nifty Next 50
index funds is good enough for your large-cap allocation.
ICICI Prudential Nifty Next 50 index fund (INN50) has been a
consistently delivering index fund.
Over the last 10-year period, the Nifty Next 50 TRI delivered 14.5
percent returns. The Nifty 50 TRI gave 12 percent. Although the
Nifty Next 50 index can be a bit more volatile than the Nifty 50
index, the former has been more consistent. A look at how major
diversified indices have performed in each of the past 10 calendar
years tells us that in four of these 10 years, Nifty 50 gave the
maximum return of all the indices, but also fell four times. The Nifty
Next 50 index scored the maximum return once, but also gave the
least returns just twice.

Motilal Oswal NASDAQ 100 ETF

In the past two years, international funds have become popular.
And many fund houses have rolled out a variety of foreign
schemes: those that invest in the US or European stocks, emerging
markets, specific countries or even companies bound by a common
theme.
Typically, your first international fund ought to be one that invests in
the US because of the variety of companies available and their
liquidity. Motilal Oswal NASDAQ 100 ETF (MNAS100ETF) is an
ideal vehicle in this regard. It invests in companies that are part of
the NASDAQ 100 Index. There are companies across computer
hardware, and software, telecommunications, retail/wholesale trade
and biotechnology industries in there.
The fund also gives you an opportunity to invest in companies
whose products we use almost every day. Apple, Microsoft,
Alphabet, Intel, Facebook, Amazon, Tesla, Comcast and Paypal are
some examples. The index has a low correlation to Indian equities.
This can smoothen the volatility of your portfolio returns. And
investing in foreign currency is also a good way to save up for your
child’s foreign education, if that is one of your goals. The only
concern about the NASDAQ 100 index is that around 44 percent of
its allocation is to technology stocks. But overall, there is good
diversification. Its expense ratio is low, at 0.56 percent.

Nippon India Gold BeES

Gold plays an important role in our portfolio, as the asset class
helps us diversify beyond equity and debt. And Nippon India Gold
BeES (Gold BeES), India’s oldest gold ETF, is just the fund we
recommend.
Gold ETF is a cost-efficient and convenient way for investment
purposes. These are mutual fund schemes aiming to track the
domestic physical gold’s price. After rising through 2019 and 2020,
gold prices fell more than four percent from their August 2020
highs. Don’t invest in gold from a returns perspective, but more as a
hedge against inflation. Gold fortifies your portfolio periods of
slowing economy.