Dear reader, the final step of an investment plan is the product selection. The freefincal robo advisory template will provide the user with all necessary inputs from asset allocation, investment strategy and suggest product categories. To accompany the robo template, I would like to publish a handpicked list of mutual funds which will be updated on a monthly basis.
My wife suggested I call it the PlumbLine. Hopefully, it might help young earners and those new to mutual funds to find their bearings and stability to start their investment journey. Needless to say, the PlumbLine is free for all.
The freefincal mutual fund screeners will also continue to be posted on a monthly basis. This is for DIY investors to screen mutual funds with unique metrics. I could not publish it last month (August) due to a hard drive crash.
The PlumbLine will simply list one mutual fund per category (in some cases other good choices will be mentioned). This is a handpicked choice in the sense that it is both quantitative (steady performance and good downside protection) and qualitative (in the case of arbitrage and debt funds).
I do not look at star ratings, but I expect many from the list to be only 3-star funds with not too high or even low AUM. This is a nondescript list intended for the "slow and steady" investor.
I will provide a brief justification for each choice and will NOT provide additional justification if you question it. Plumbline is merely my opinion.
That said, please feel free to criticise the idea behind PlumbLine, or my choices, I shall be happy to learn. You can also mention funds that I can/should consider.
If any fund in the list changes colour: performance or investment strategy, I will replace them. If you are already invested in such funds, the onus is on you to take a call.
A mutual fund is not an insurance policy to pay regular premiums and expect returns. The performance has to be reviewed periodically and changes made. Neither PlumbLine nor I will help in this regard. If you cannot learn to do this, do not use this list and seek the services of a fee-only SEBI registered financial planner
The PlumbLine is offered to "complete" the robo advisory template. On its own, it has no meaning and unless you are able to look at it in the right perspective and context, it will not help you. The hope is that the robo template will try and provide such perspective which 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 future or have credit defaults issues, all I can do is to modify the list (if required). 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 ARE SUBJECT TO IGNORANCE RISKS AND MARKET RISKS. PLEASE READ AND UNDERSTAND ALL SCHEME RELATED DOCUMENTS BEFORE INVESTING.
Oh dear, I have rambled on for 500+ words. Without further ado here is ...
The PLUMBLINE for September 2017
1 Liquid funds: Quantum Liquid fund Direct option Growth.
Why? Does not chase after returns by taking on credit risk
When? Can be used for all durations and all occasions.
2 Short-term Gilt: DSP Black Rock Treasury Bill Fund Direct Option Growth
Why? Clear investment mandate:
"An open ended Money Market Mutual Fund Scheme in Income category, seeking to generate income through investment in a portfolio comprising of Treasury Bills
and other Central Government Securities with a residual maturity less than or equal to 1 year."
No credit risk. But can respond to rate movements, but will recover in 1-2 months.
When? Can be used for investment tenures above one year by conservative investors and for all durations by those with a little more risk appetite.
Note: Investment strategy can change as this fund has low AUM and is unattractive to many.
3 Equity Arbitrage
Want to know more about these funds? Try this:
(a) UTI Spread fund direct plan growth
Why? Pure arbitrage fund (aside from small short-term bond exposure, 10- 35% under normal circumstances when arbitrage opportunities are available)
The investment objective of the scheme is to provide capital appreciation and dividend distribution through arbitrage opportunities arising out of price differences between the cash and derivative market by investing predominantly in Equity & Equity related securities, derivatives and the balance portion in
"The entire derivatives position for the scheme will be taken with a view to hedge the corresponding equity exposures entirely. The scheme, under no circumstances, will take a directional/unhedged position in either equity or derivative instruments"
(b) ICICI Equity Arbitrage Fund Direct Plan Growth Option.
Why? If you don't mind up to 5% of direct (unhedged) equity.
When? Any duration above 1Y. Nav will be a bit volatile with small up and down movements. Can lose money over a few months or quarters. Do not expect too much returns.
4 Debt: Ultra Short Term
Why? Minimises interest rate fluctuations with floating rate bonds. Maintains short term bond portfolio. The credit quality of bonds can down to AA and not below from what I have seen.
See this post for more details: Franklin India Savings Plus Fund – A Debt Fund For First-time Investors?
The fund did suffer for a few weeks during the 2013 bonds crash. But being short term it will recover fast.
When? All durations above 1Y.
5 Debt: Credit Opportunities Franklin Corporate Bond Fund Direct Plan Growth Option.
Why? & When? If you can stomach a few months of poor (negative) returns due to credit defaults but can stay invested for several years (10Y and above) then this fund which walks on fire is for you.
But did this not get into trouble? Hey, if you must take credit risk, take it with Franklin. They have the money to buy back junk bonds 🙂 Yes it did get into trouble and since this invests in long term bonds, this will take months to recover from credit defaults and also interest rate movements. But if your duration is long enough, then this should be acceptable ... to the informed investor.
There are relatively lower risk options available with the same fund house, you can consider those if you don't want these. More on these in the coming months.
6 Dynamic Bond funds: Not a fan of this category, but eyeing Quantum Dynamic Bond Fund Direct Plan Growth Option.
Why? Like the fact that it primarily takes on interest rate risk (but hopes to dynamically manage that) and will not invest in corporate paper.
When? Use it only for long term goals, at least 5Y+, preferably more.
7 Equity Tax planning: Franklin India Tax Shield Direct Plan Growth Option
Why? Quiet, consistent performer.
When? There is no need for ELSS mutual funds. Don't believe the media BS about ELSS being better than PPF. If you have EPF, use VPF for tax saving or PPF. My point is that you can save tax using the fixed income portion of your asset allocation tagged to your retirement goal. Of course, you can also use the equity portfolio for saving tax and if want to take this route, then this fund is a decent pick.
8 Balanced fund (equity oriented): HDFC Balanced Direct Plan Growth.
Why? Neither inconspicuous, nor a star, but a consistent performer with good downside protection.
How? Treat this as a pure equity fund. You can use the freefincal robo advisory template for specific asset allocation suggestions.
9 Equity multi-cap: Quantum Long Term Equity Direct Plan Growth Option (this can pick stocks from BSE 200, so don't mistake this for a large cap fund)
Why? Very good downside protection resulting in consistent performance.
How? You can use the freefincal robo advisory template for specific asset allocation suggestions.
10 Index funds
(a) Uti Nifty Index Fund Direct Plan Growth Option or HDFC Sensex Index Fund Direct Plan Growth Option
Why? If you wish to adopt a passive investing strategy (eliminate fund manager risks), and wish to track a less volatile large cap index
(b) ICICI Nifty Next 50 Direct Pan Growth Option
Why? If you prefer a volatile index fund (with unmanaged risk) that has a very good track record of beating actively managed funds in all categories.
11 Equity Large Cap:
Why? A large cap fund with predominantly large caps and an excellent track record with reasonable downside protection.
12 Equity Mid cap: Franklin India Prima Fund Direct Plan Growth Option
Why? Because in the mid-cap and small cap segments, it is crucial to choose consistent performers which no one is talking about. This fund has a decent track record and has managed to have a mid-cap tilt for most of its 23+ year existence. You need to give it time to work.
Also impressed with HDFC MId-cap opportunities doing well at an AUM more than 3 times that of Franklin Prima.
Canara Robeco Emerging Equity has even lower AUM than Franklin Prima (meaning it has stayed out of the lime light) but has a good track record.
13 Equity Small Cap: My two cents" Stay away from this category. It is not practical to try and compensate for our inability to invest more by taking on more risk.
There are other categories like debt oriented balanced funds (aka MIPs). I shall try and cover them next month.
Resources to review fund performance
Use this form to ask Questions ONLY (For comments/opinions, use the form at the bottom)
And I will respond to them in the next few days. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you. PLEASE DO NOT POST COMMENTS WITH THIS FORM it is for questions only.
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