Last Updated on February 12, 2022 at 6:25 pm
These are the freefincal handpicked list of mutual funds for Apr-Jun 2021. New and old investors can use it according to their specific needs. The list is called “PlumbLine” and was started in Sep 2017 for beginners to accompany the freefincal robo advisory template. This quarter, I have two new categories and consolidated some types for easier use.
The reader new to plumbline should read the following two sections carefully before proceeding to the fund names. Note for those familiar with the list: I recently asked for feedback in the FB group Asan Ideas for Wealth. I find that readers seem to want fund recommendations in every possible category. This is not the aim of the list. Here, the objective is to identify “some” funds for every possible investment duration as part of a diversified portfolio.
Most important! Plumbline is a mix of my opinions + skin in the game (where I invest) + quantitative picks (performance-based). It is not meant to satisfy everyone! It is intended to match up to my integrity.
If you want to select equity mutual funds by consistent performance alone or if you want to choose debt funds by the quality of their portfolio, then head over here: Monthly Fund Screeners for both equity fund screeners and debt fund screeners (new!).
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The debt fund screener is a new addition and primarily driven by all requests for fund recommendations in the PSU & Banking funds, corporate bond, medium duration category. When it comes to debt funds, people assume it is “safe” despite clearly stating risks when a recommendation is made. So it is better that I offer a way to screen than recommend one. The debt fund screener will also serve as a way to learn and understand debt funds.
Is Plumbline even relevant anymore? Why not just use index funds? Plumbline was/is only as relevant as you make it. Active or passive investing ultimately boils down to a choice. I have made my stance on this matter clear multiple times: I would prefer an actively managed hybrid fund (at least until there are index options here) instead of an equity index fund. When I say “I”, I refer to a grumpy uncle who will turn 46 later this year. My portfolio is the residue of my mistakes and at its current size, switching it index funds would only mean unnecessary tax. If personal finance is ultimately behavioural, then doing nothing unless necessary trumps anything else. I do have an “index portfolio”, at least IMO: My Stock Portfolio March 2021.
What you do is up to you. For a young learner, or for anyone who is just starting in equity MFs, passive investing is the simplest option. You have two choices, take my word for it (and the evidence I am offering) or live and learn and become a grump uncle like me.
So plumbline caters to both passive and active investors, both debt and equity investors, and that much relevance is ‘ok’ with me. Sometimes you need to be an active fund investor, more on that later.
What is Plumbline, and how should I use it?
A plumbline is an alignment device used to fix the vertical and, therefore, the horizontal. This list is called plumbline to indicate the need for fund choices to align with specific requirements.
1: PlumbLine is a boring list of mutual funds. Due to demand from readers, we update it every quarter. There are plenty of good mutual funds that are not part of Plumbline. If your funds are different, you are probably better off. Do not worry about it.
2: Do not use PlumbLine for confirmation of your choices! PlumbLine is meant for young earners and first-time investors after they have used the freefincal robo advisory template.
3: If tomorrow the funds in the list change, you will have to take a call on what you need to do, based on the fund performance from the date in which you invested. I cannot help you here other than talk about how to review.
4: This is a handpicked list and will be subject to my biases. I invest with a bias to get things done and analyze without bias to present facts. So please bear that in mind.
5: This is a goal-based list and not a category-based list. That is, you will not find one fund per category. It will be one-fund per need (goal and risk-taking ability)
Disclaimer: On its own, this list has no meaning, and unless you can look at it in the right perspective and context, it will not help you. The hope is that the robo template will provide such a perspective that it still has to be processed and interpreted by you. Finally, I am only human and more than capable of making mistakes.
Also, I am a below average investor and fund picker or analyzer. I am not a fan of looking into the fund portfolio. I prefer funds with a narrow investment mandate. I am sure you will agree that most of the picks are lame and obvious .and that this list is a no-brainer and nothing special. If the funds here stop performing in the future or have credit defaults issues, all I can do is modify the list (if required). Note: All statements about risk being low or high are relative to other types of funds and not absolute.
I WILL NOT BE IN ANY WAY RESPONSIBLE FOR YOUR INVESTMENT CHOICES, CAPITAL GAINS OR LOSSES. If a PlumbLIne fund is present in your portfolio, it means nothing. If none of your funds is present in the PlumbLine list, it means nothing. MUTUAL FUNDS (and mutual fund recommendations) ARE SUBJECT TO IGNORANCE RISKS AND MARKET RISKS. PLEASE READ AND UNDERSTAND ALL SCHEME RELATED DOCUMENTS BEFORE INVESTING.
FAQ on Plumbline
1. Why are X, Y or Z funds not part of Plumbline —> Plumbline is my list. Don’t expect me to make a list that matches your expectations.
2. The funds you have listed are not even 4-star funds —> I don’t care. Star ratings are injurious to your mental and fiscal health. Comparisons are injurious to peace of mind, and Plumbline is just plain bad.
3. Plumbline does not feature the top funds from your monthly screener —> Yeah, because I do not always consult it. Plumbline is a qualitative + quantitative assessment of a funds investment strategy, mandate and performance.
4. I find your list is biased and partial to certain funds and certain AMCs –> Okay then, thank you for not using it.
5. If you are a new mutual fund investor, download this Free e-book: Mutual Fund FAQ 100 essential Q & A for new investors!
Liquid Fund
- Investment Duration Few months and above
- Fund name Quantum Liquid fund Direct Plan-Growth Option, Parag Parikh Liquid Fund
- Nature Conservative; these funds invest in short-term bonds up to 91 days in maturity.
- Interest rate risk: low (can give losses if RBI rate is suddenly increased by a huge amount, but will recover in days – the lastest such event was in Mar 2020).
- Credit risk: low
- Suitable for Use for parking money
- Returns a bit more than SB account
- Caveats: Debt fund portfolios change each month; while both funds tend to avoid credit risk, investors can occasionally check the credit quality of the portfolio
- Disclosure: Invested in quantum liquid for emergencies.
- Also, see: Can I use liquid funds for long-term goals with equity MFs?
Equity Arbitrage
- Duration 1Y and above (never use for shorter-term)
- Fund name ICICI Equity Arbitrage Fund-Direct Plan Growth Option.
- Nature: These are hybrid fund now! They can invest up to 35% in bonds! The majority of the portfolio (65% plus) is arbitrage like “cash and carry arbitrage” (linked below). The funds have debt fund-like volatility by construction. Volatile for less than a year. Quarterly returns can be negative. Volatile when the market is turbulent.
- Interest rate risk: low Applicable to bond part of the portfolio.
- Credit risk low (applicable to bond part of the portfolio)
- Warning: After the SEBI recategorization, arbitrage funds only need to hold 65% in derivatives. Rest are in bonds. So these funds can be subject to credit and interest rate risks.
- Other risks Uncertain periods like after a crash could reduce arbitrage opportunities and returns. If you choose the investment duration right, the main risk will be the fund delivering a lower than expected return. So expect less!
- Suitable for parking money, medium-term goals and generating income. See: Generating tax-free income from arbitrage mutual funds.
- Returns Expect about 6% ish pre-tax.
- Con: You need to understand how the product work. Try this How Arbitrage Mutual Funds Work: A simple introduction.
- Disclosure: ICICI Equity Arbitrage is part of the debt portfolio for my son’s education goal. My wife also separately uses it as part of our emergency fund.
This is the credit rating profile history of ICICI Arbitrage. You will get a spot of AA bonds. If that bothers you, then you not should invest in this.
Money market/ Ultra Short-term
- Duration 1Y and above
- Funds Franklin India Savings Fund-Direct Plan-Growth, ICICI Pru Money Market Fund See Review: When & how to use it. HDFC Money Market Fund.
- If you want to go what is doing the rounds on social media about Franklin wanting to exit, avoid it. The only “risk” in this is you will all your money back, and you have to pay on it earlier than intended – that is all!
- There is nothing else wrong with this Franklin fund. In fact, the fund has managed to stay afloat despite a 74% drop in AUM from Nov. 2019 (Rs. 5071 Crores to Rs. 1308 Crores in Aug 2020). This is a sign that at least the money market segment of the Indian debt market is reasonably liquid. I appreciate that very few investors would choose Franklin now; hence alternatives are provided.
- Nature Conservative but expect day to day NAV ups and downs due to demand-supply fluctuations. These funds invest in the money market – where cash is the commodity. The bonds are short-term in nature (low-interest rate risk); credit risk is relatively low, but defaults are possible.
- Interest rate risk: low (due to investors pulling out from the debt market, the fund fell about 1% from 11-25th March, but when RBI removed excess liquidity by buying bonds and lowering rates by March 27th 2020)
- Suitable for saving money, generating income, for short-medium term goals
- Returns Expect FD-like returns (lower tax if you want for 3Y)
- Disclosure: Not invested as it is not necessary for my needs.
Ten-year Gilt
- Duration Strictly long term: More than 10Y, preferably much longer with proper asset allocation and periodic rebalancing. Only for those comfortable with severe NAV fluctuations (no risk, no extra reward!).
- Fund name SBI Magnum Constant Maturity Fund. ICICI Prudential Constant Maturity Gilt Fund – Direct Plan
- Read Review: A Debt Fund With Low Credit Risk for long term goals!
- Nature Invests in close to 10Y government bonds and some low-risk short term bonds
- interest rate risk: very high
- Credit risk low!
- Why? If you wish to minimize credit risk events but are willing to take on interest rate risk and willing to rebalance the portfolio at least once a year, actively.
- Suitable for Use as a debt component for very long-term goals; however, one cannot stay invested in these funds right before we redeem!
- Returns Should be close to long term FD average (but can suffer if there a long period of no rate cut or rate hike). NAV can gradually fall over months or can suddenly shoot up or down.
- Disclosure: Not invested as it is not necessary for my needs (My NPS has a good deal of gilts). See Ten years of investing in the NPS: Performance report.
- Also, see: Can we invest via SIP in gilt mutual funds for the long term? and
- Can we get better returns by timing entry & exit from gilt mutual funds?
Gilt Long-Term
Many readers have asked why a gilt fund can invest in GOI bonds across maturity is not being recommended. Such a fund would be susceptible to fund manager risk if they read the market supply and demand incorrectly. However, if such a risk is acceptable to you, you can consider funds like
- ICICI Pru Gilt Fund Direct Plan-Growth Option
- SBI Gilt Fund Direct Plan-Growth Option
- Suitable only for long-term goals. For first-time investors, 10Y or more. The NAV will fluctuate pretty rapidly here, too but a bit less than the 10Y gilt category.
- Each fund in this category would have its own style. So it is important investor study the investment style history from factsheets before investing. I Will post a detailed review of the above funds.
- Disclosure: I started investing in the ICICI Gilt fund recently. See: Why I partially switched from ICICI Multi-Asset Fund to ICICI Gilt Fund.
“International” Equity
Personally, I am happy with the effective 10% international equity exposure I get from Parag Parikh Long-term equity fund. Most people who want “international equity” for “diversification” are simply chasing a bunch of US stocks’ past performance.
Including another type of asset class in the portfolio (international equity is another asset class because of currency risks) requires regular rebalancing regardless of tax. If you put a gun to my head and want a fund in this category…
- Motilal Oswal S&P 500 Index Fund Direct Plan-Growth Option See: What return can I expect from this?
- Avoid all other ETFs, fund of funds investing in ETFs or actively managed funds domiciled in Luxembourg or the Cayman Islands!! To understand better, check out the reviews linked below.
- SBI International Access ‐ US Equity FoF Review
- Kotak International REIT FOF: What return can I get from this? Ok, this is a REIT, but hey, I got a chance to plug it!
- Franklin India Feeder: Franklin U.S. Opportunities Fund Review
- PGIM India Global Equity Opportunities Fund Review: Should You Invest?
- Axis Global Equity Alpha Fund of Fund Review: Should You Invest?
Equity Tax planning
You would initially need about 50-60% of equity for a goal that is more than ten years away. If you choose the new tax regime or if you can accommodate Rs. 1.5 lakh of investments in the 50-40% fixed income component of the portfolio, ELSS mutual funds are not necessary!
- Duration Use only for long-term goals with proper asset allocation. The following recommendations (except the Parag Parikh fund) are purely quantitative based on consistent performance.
- Fund names Aditya Birla Sun Life Tax Relief ’96 – Growth – Direct Plan or DSP Tax Saver Fund-Direct Plan-Growth Option or Parag Parikh Tax Saver Fund* or Mirae Tax Saver Fund Direct-Plan Growth Option
- * This is a relatively new fund with a similar investment style to Parag Parikh Long Term Equity Fund. Also, see ELSS Mutual Funds: Seven Consistent Performers.
- Suitable for Use only if you have a proper asset allocation and cannot exhaust 80C with your expenses and fixed income instruments. Read more: Making the best use of section 80C for tax saving: an example.
- Disclosure: Not invested as it is not necessary for my personal situation.
Hybrid Funds (equity-oriented)
- Duration Treat all such funds as pure equity funds, so strictly long-term. Use the robo template for allocation.
- HDFC Hybrid Equity fund Direct plan growth option
- ICICI Equity & Debt fund
- Mirae Asset Hybrid Equity Fund
- Funds from Canara Robeco and SBI also have a good track record
- Risk Only a bit lower than diversified equity funds, so treat them as pure equity.
- Why? The HDFC fund is neither inconspicuous nor a star but a consistent performer with good downside protection. ICICI fund has been included because of this review: ICICI Prudential Equity & Debt Fund (ICICI Balanced) Performance Review
- Also, see Three excellent aggressive hybrid mutual fund performers.
- Disclosure: I am invested in HDFC Hybrid Equity for retirement
- Those who are confused about choosing between active and passive funds can choose hybrid funds (agg hy, or bal. adv.) – at the very least, they get a bit lower volatility.
- Fund name ICICI Multi-Asset Fund
- Nature equity-oriented hybrid fund with a little gold
- Disclosure: Use this for my son’s education goal.
- If used as a portfolio core holding, this provides a small exposure to gold in a tax-efficient manner.
- Fund name ICICI Balanced Advantage Fund Direct plan Growth Option
- Nature: Direct equity allocation will be tactically varied. The volatility is a bit lower than the above fund but should be treated as “pure equity.”
Flexi-cap/ Large midcap/Multi-cap
- Duration Strictly long-term with proper asset allocation. Use the robo template for allocation.
- Using the latest equity fund screener, I can see about 10-12 large and midcap and flexi-cap (old multicap) funds that have consistently outperformed the benchmark over 3,4,5 year rolling return periods. So if you want more choices, you can look there!
- Fund name Parag Parikh Long Term Equity Fund
- Why? Excellent downside protection resulting in a consistent performance. Who should use it? Only those with low expectations, patience. Not suitable for star rating fans and daily portfolio “trackers.”
- Disclosure: I invest in Parag Parikh Long Term Equity Fund for my retirement and Quantum Long Term Equity & HDFC Hybrid Equity.
- Note about Quantum Long Term Equity: The fund was earlier listed in this category. After going through an extended period of underperformance because of market imbalance, it sees a resurgence now. Few investors will have the patience to wait, so it has been removed from this listing but not from my portfolio. With the market imbalance almost removed, I expect funds like QLTE and ICICI Val Discovery to do better in the future. You can see an update here: How my retirement portfolio has performed in 2020: personal finance audit.
Index funds (large cap top 50/30)
- Duration Strictly long-term with proper asset allocation. Use the robo template for allocation.
- UTI Nifty Index Fund-Direct Plan-Growth Option or
- HDFC Sensex Index Fund-Direct Plan-Growth Option or
- HDFC Index Fund-NIFTY 50 Plan(G)-Direct Plan
- Risks No downside protection
- Who should use it? If you wish to adopt a passive investing strategy (eliminate fund manager risks) and wish to track a less volatile large-cap index.
Index Fund Blend (large + midcap)- higher risk
- Duration Strictly long-term with proper asset allocation. Use the robo template for allocation. 50% Nifty 50 + 50% Nifty Next 50
- Fund name (NIfty 50) As above.
- Fund name (NIfty Next 50) UTI Nifty next 50 direct plan growth option or ICICI Nifty Next 50 Direct Plan-Growth Option See: What is the best way to invest in Nifty Next 50 Index?
- That is, 50% of a Nifty (or Sensex) fund and 50% of a Nifty Next 50 fund (let us call this the Nifty Blend 50:50).
- Who should use it? Only those who appreciate Index investing benefits and will not chase after stars or compare with peers. See: Will large-cap mutual funds struggle to beat the Nifty 100 Equal Weight Index?
- Warning: Do not expect double-digit returns from Nifty Next 50 index funds!
Index Fund Blend (large + midcap)- lower risk
- Duration Strictly long-term with proper asset allocation. Use the robo template for allocation. 70–80% of Nifty 50 + 30-20% of Nifty Next 50
- Fund names: As above.
- That is, 70% (or 80%) of a Nifty (or Sensex) fund and 30% (or 20%) of a Nifty Next 50 fund (let us call this the Nifty Blend 70:30 or 80:20).
- Who should use it? Only those who appreciate Index investing benefits and will not chase after stars or compare with peers. See: Will large-cap mutual funds struggle to beat the Nifty 100 Equal Weight Index?
- Those who wish to invest in less than 25% of Nifty Next 50 can consider Axis Nifty 100 Index fund. Read the review here: Axis Nifty 100 Index Fund Impressive AUM but is it expensive?
- Also, see: Can I use these two index funds for retirement instead of Nifty, Nifty Next 50?
- Why? See: Combine Nifty; Nifty Next 50 funds to create large, mid cap index portfolios.
- Why no active funds? Because Only Five Large Cap funds have comfortably beat Nifty 100 and there is no point in using an active large cap fund anymore
Midcap & Small Cap
It has become difficult to recommend midcap funds small cap funds because very few manage to beat the Nifty Next 50 (which does not suffer from concentration risk like the Nifty or Sensex – links below). Besides, If you hold a single multicap fund that conforms to the new SEBI rule of 25% midcap and 25 smallcap, then you do not need any funds in these two categories!
Also, the recently published (June, Sep, Oct 2020) mid cap and small cap fund comparison with NIfty Next 50 makes me wonder if it is worth chasing after active funds in these segments too.
- Only these 3 Small Cap MFs have outperformed Nifty Next 50 consistently.
- These four midcap mutual funds have outperformed Nifty Next 50 consistently.
- Duration Strictly long-term with proper asset allocation. Use the robo template for allocation. Do not exceed 40-50% within the equity portion. That is, your total midcap + smallcap allocation should not exceed 40-50% of your total equity allocation. For eg: 60% large cap + 30% midcap + 10% small cap.
- At least in the case of small cap funds, additional tactical buying and selling may be necessary for lower risk (not higher returns): A tool for tactical buying and selling using moving averages. Do not blindly invest SIP in the case of small cap funds: Do not use SIPs for Small Cap Mutual Funds: Try this instead!
As per the March 2021 mutual fund screener, these funds have consistently outperformed Nifty Midcap 150 TRI (more than 70% return outperformance consistency and downside protection consistency*) over every possible 3,4 5 year periods bet Jan 2013 and Dec 2020. Plumbline has never recommended small cap schemes. The midcap names below should be seen as “matter of fact” only and not as recommendations.
- DSP Midcap Fund – Direct Plan-Growth
- Invesco India Midcap Fund – Direct Plan-Growth Option
- L&T Mid Cap Fund-Direct Plan-Growth
- Kotak Emerging Equity Scheme – Growth – Direct
Closing Remarks
The fund names mentioned above are of little use if your investments are not aligned to goals and if you do not know how to evaluate them in a structured manner. We recommend that investors first identify their goals, choose a suitable asset allocation plan, and consider investments. Here is an example: How Avadhoot Joshi evaluates his investment portfolio.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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