Handpicked List of Mutual Funds April 2020 (PlumbLine)

A handpicked list of mutual funds (April 2020, second quarter) for both new & old investors to invest with a clear goal in mind.

Published: April 4, 2020 at 10:28 am

Last Updated on

This is the freefincal list of handpicked mutual funds for 2020 (second quarter). New and old investors can use it according to their specific needs. Called “PlumbLine”, this was started in Sep 2017 for beginners to accompany the freefincal robo advisory template. How the world has changed from Jan 2020 to April 2020! This edition of plumbline has come category changes hopefully making it easier for investors.

Do be sure to read the disclaimer and disclosure of which funds the author is invested in from this list and what for what purpose. If you are seeing this for the first time, please take a couple of minutes to understand what this list is, how it has been compiled and how you should use it. If you are aware of this list, please do not just look for changes to fund names!

What is plumbline and how should I use it?

My Handpicked Mutual Funds: PlumbLine A plumb line is used to fix the vertical and therefore the horizontal. This list hopes to help new investors do the same. Pic credit: Mr. atm

1: PlumbLine is a boring list of mutual funds. Due to demand from readers, it will be updated 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 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.

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!

Free e-book: Mutual Fund FAQ 100 essential Q & A for new investors!

Overnight mutual funds

To understand the basics, read: When to Park your money in overnight mutual funds. Also see: Overnight Mutual Funds also have risks! What investors need to know

  • Investment Duration one day and above!
  • Fund name L&T Cash Fund-Direct Plan-Growth Option (you can pretty much pick any fund in this category with reasonable AUM and low expenses)
  • Nature ultra-conservative!
  • interest rate risk: practically nil
  • Credit risk non-zero but quite small
  • Why? When I first recommended a fund in this category this had the highest AUM. However, things changed rapidly and many other funds have much more AUM. Clearly either the big investors have already moved from liquid funds to overnight funds months before the SEBI’s New Liquid Fund Rules or the AMCs suggested that they move. For example, End-Aug 2018 HDFC Overnight Fund had just 146 Crores. End-Sep 2018 it became 3186.61Crores! End- Aug it is 7126 Crores! End-Nov 10,686 Crores! The HDFC fund is still a touch more expensive.
  • Suitable for the super scared who want to park money for a short while
  • Returns You invest in this for safety, not for returns.

Liquid Fund

  • Investment Duration Few months and above
  • Fund name Quantum Liquid fund Direct Plan-Growth Option
  • Nature Conservative
  • 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). This was the only fund that was fully marketed to market. Now all liquid funds are. Meaning all funds will suffer a fall if there is a spike in interest rates.
  • Credit risk low
  • Why? Does not chase after returns by taking on credit risk (after SEBI recategorization, the differences among liquid funds could have reduced. Need to check)
  • Suitable for use for parking money
  • Returns a bit more than SB account
  • Con: There are funds with lower expense ratio. You can choose them, but be sure you understand where the fund will invest. See: How to Choose a Liquid Mutual Fund. Funds from SBI, HDFC and ICICI should also be reasonably safe as they have too much AUM at stake to take unnecessary risks.
  • Why is it rated two stars? (it was one in April 2019!) Do not chase after star ratings, especially liquid funds! It will come back and bite you.  Funds that have not suffered a credit event and yet have low star ratings typically tend to have a safer portfolio!!
  • Parag Parikh Liquid Fund is one-star rated. Look at its portfolio: 82% gilts, 15% cash and some safe A1+ bonds. As long as It maintains this kind of portfolio it can also be used. If they get worried about the star rating (and therefore lack of AUM) then it could be trouble as this means taking on more credit risk. So do stay alert.
  • Disclosure: Invested for emergencies (but only a very small amount)

At 366 Crores (Feb 2020) it is still quite small compared to AMCs with sisters in the Banking industry or

Equity Arbitrage

  • Duration 1Y and above
  • Fund name ICICI Equity Arbitrage Fund-Direct Plan Growth Option.
  • Nature Low 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. This is largely an equity fund
  • 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 There are small but complex risks involved, but if you choose the investment duration right, the main risk will be fund delivering lower than expected return. So expect less!
  • Suitable for use for parking money 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.
  • Why this fund?  Large AUM makes the AMC responsible in debt holding due to HNI participation. See holding history in previous plumbline edition. Tends to avoid credit risk and direct equity exposure.

Ultra short term (low risk) (aka money market)

  • Duration 1Y and above
  • Fund name Franklin India Savings Fund-Direct Plan-Growth
  • Nature Conservative but expect day to day NAV ups and downs.
  • 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 27th March 2020)
  • Credit risk low-medium
  • Why? This will now invest only in money market instruments with low to moderate credit risk
  • Suitable for use for saving money and generating income
  • Returns Expect FD-like returns (lower tax if you want for 3Y)

Ultra short-term (high risk)

Update: April 23rd 2020: This fund has now closed down:  Franklin to wind up Six Debt MFs: Next steps for affected investors and this recommendation is no longer valid. It has been left as-is with a strikethrough. While some readers/users may be critical of this recommendation, I sleep easy in the comfort that a significantly higher number of readers have exited such funds after appreciating the risk pointed out here and in my review of the fund (the irony!).

I regret not foreseeing the possibility of a mass exodus from debt funds at least at the time of writing this post when the lockdown had started.  

On 16th April 2020, their FIxed Income CIO, Santhosh Kamath had published a “we are on top of things” note. (PDF copy is also available) One week later, they shut down funds because of liquidity problems!  Could they have not foreseen that liquidity will continue to be under stress? Perhaps it got worse beyond their imagination. We can only speculate and we are all experts in hindsight. In any case, I will have to repeal my favourable view of Franklin AMC. Yet another lesson learned.

  • Fund Type Debt: Ultra short-term (medium-high risk)
  • Duration 1Y and above
  • Fund name Franklin India Ultra Short Bond Fund – Super Institutional Plan Direct Plan-Growth Option
  • Hang on! Why are you still recommending this fund after it suffered a credit event (Voda Idea bonds)? Nothing has changed IMO. The risk associated with the fund was well known and clearly mentioned while recommending it. If investors ignore a “don’t play with fire” warning and get burnt, no point blaming the fire or avoid it. This is only for those who want to take on additional risk.
  • Lesson from the Vodafone issue: In all honesty, although Franklin did act according to the interests of its investors, it should have done a lot better. It included a clause to segregate portfolios in Dec 2019 and then partly marked down the bonds (allowing fresh investments at lower NAV) and days later created a segregated portfolio (when the bond was officially term junk)
  • IMO, they were proactive to write down Voda bonds but should have done so fully (avoiding the side-pocket), stopped new investments until the NAC recovered. They are lucky to still have an AUM of 15,000 Crores. In my book, the AMC has fallen a notch from when I initially held it. You live and learn in this business!
  • Nature: aggressive. This is a fund that walks on a wire (or fire!) and gives the impression that it is walking on water. Beware!
  • Warning: Risky fund! Don’t expect a joy ride! The default risk was present even before the bad news! If you wish to exit the fund because of a credit event or fear credit events, this fund is not for you
  • interest rate risk: low
  • Credit risk: high. Credit risk is a daily event for this fund! See below.
  • The Macaulay duration will only be about 6-7 months or lower. So low-interest rate risk and medium-high credit risk.  Read more: Why you need to worry about “duration” if your mutual funds invest in bonds
  • Suitable for use for saving money and generating income (but with risks).
  • Returns For the additional risk take, it is reasonable to expect it to beat FD returns (assuming no major default issue) Cons Min investment is Rs. 10,000. However, it may not always deliver.
  • The fund has experienced multiple bond rating downgrades (and upgrades) in the past. In fact, it is more or less a monthly event! This fund is not for everyone! Do not get lured by returns, invest and then repent!! This is a detailed review: Franklin India Ultra Short Bond Fund Review: When and how to invest

Two debt fund categories: Corporate Bond (high risk) with Franklin India Corporate Debt Fund and Credit risk (very high risk) with Franklin India Credit Risk Fund have been removed from this edition of plumbline.

The funds were removed as I felt the additional choice might confuse readers. This is a reasonably style-pure debt fund usage summary

  • park cash: liquid fund or overnight fund
  • short-term investing: liquid fund
  • medium to long term with min credit risk: Franklin Savings (will have reinvestment risk)
  • long term with no credit risk: Ten-year Gilt (see below). NAV will be super volatile.

Ten-year Gilt: 

  • Duration Strictly long term: More than 10Y, preferably much longer
  • Fund name  SBI Magnum Constant Maturity Fund. ICICI Prudential Constant Maturity Gilt Fund – Direct Plan has a much lower AUM but a more inviting expense ratio (0.17%, compared to 0.33% for the SBI fund)
  • 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 minimise credit risk events but are willing to take on interest rate risk and willing to actively rebalance the portfolio at least once a year
  • Suitable for Use as a debt component for very long-term goals
  • 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.

Equity Tax planning

  • Duration There is no need for ELSS mutual funds., but if you must use, use only for long-term goals with proper asset allocation.
  • Fund name Aditya Birla Sun Life Tax Relief ’96 – Growth – Direct Plan or DSP Tax Saver Fund-Direct Plan Growth Option
  •  Nature ABSL fund has multi-cap tilt. DSP fund has large cap tilt!
  • Performance Update:  Using the Consistent Equity Mutual Fund Screener (Mar 2020) both these funds have a good track record wrt NIfty 200 TRI.
  •  Suitable for Use only if you have a proper asset allocation and if you cannot exhaust 80C with your expenses and fixed income instruments. Read more: Making the best use of section 80C for tax saving: an example
  • First-time tax saver? That is if you have just started earning or just moved into taxable income bracket this FY you can consider Parag Parikh Tax Saver Fund. This is a new fund with a similar investment style to Parag Parikh Long Term Equity Fund.
  • Why? Why not?! In any case, you need to learn how to review a fund. Check out:

Balanced fund (equity-oriented) or Aggressive Hybrid

  • Duration Treat all such funds as pure equity funds, so strictly long-term. Use robo template for allocation
  • Fund name
    • HDFC Hybrid Equity fund Direct plan growth option formerly HDFC Balanced or
    • Franklin India Equity Hybrid Fund formerly Franklin India Balanced Fund or
    • ICICI Equity & Debt fund
  • Nature The HDFC Fund is a bit more conservative than the other two. See change below.
  • Risk Only a bit lower than diversified equity funds
  • Why? The HDFC fund is neither inconspicuous, nor a star, but a consistent performer with good downside protection. Franklin Balanced is an inconspicuous consistent performer but going forward will not have large cap tilt. ICICI fund has been included because of this review: ICICI Prudential Equity & Debt Fund (ICICI Balanced) Performance Review
  • Disclosure: I am invested in HDFC Hybrid Equity for retirement

Multi-Asset

  • Duration Treat all such funds as pure equity funds, so strictly long-term. Use robo template for allocation
  • Fund name
    • ICICI Multi-Asset Fund
  • Read Review: ICICI Prudential Multi-Asset Fund Review
  • Nature Neither conservative nor aggressive
  • Risk Only a bit lower than diversified equity funds
  • Why?  This fund will combine multi-asset allocation with market timing like ICICI Balanced Advantage. Should be suitable for new investors and those who are risk-averse.
  • Disclosure:  Use this for my son’s education goal.

Multi-cap

  • Duration Strictly long-term with proper asset allocation. Use robo template for allocation
  • Fund name  Parag Parikh Long Term Equity Fund
  • Why? Very good downside protection resulting in consistent performance Who should use? Only those with low expectations, patience. Not suitable for star rating fans and daily portfolio “trackers”
  • Disclosure: I invest in both funds (& HDFC balanced for my retirement).
  • Performance Update: Quantum Long Term Equity Value Fund-Direct Plan-Growth Option has just gone through a poor stretch of underperformance. This is worrying as it has failed to beat the Sensex over the last 7Y. I would recommend new investors to choose the Parag Parikh fund. Existing investors can either exit or give it a little more time if they can afford to. I have still not exited, but have reduced exposure for details see: My 2019 Audit
  • With the market imbalance almost removed, I expect funds like QLTE and ICICI Val Discovery to do better in the future.

 

Index fund (large cap top 50/30)

  • Duration Strictly long-term with proper asset allocation. Use robo template for allocation
  • Fund name
  • Risks No downside protection
  • Who should use? 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) – high risk

  • Duration Strictly long-term with proper asset allocation. Use robo template for allocation
  • Fund name UTI Nifty next 50 direct plan growth option or ICICI Nifty Next 50 Direct Plan Growth Option or Reliance Junior Bees. See: What is the best way to invest in Nifty Next 50 Index?
  • Risks Can be extremely volatile, so tread with caution
  • Who should use? 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

Index Fund Blend (large + midcap)- medium risk

  • Duration Strictly long-term with proper asset allocation. Use the robo template for allocation. 50% Nifty 50 + 50% Nifty Next 50
  • Fund name   50% of one fund in Category 14 and 50% one fund in category 15. 
  • 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?  Only those who appreciate the benefits of Index investing and will not chase after stars or compare with peers. See: Will large-cap mutual funds struggle to beat Nifty 100 Equal Weight Index?

Index Fund Blend (large + midcap)- low risk

Large Cap

Balanced Advantage (Dynamic Asset Allocation)

  • Duration Strictly long-term with proper asset allocation. Use the robo template for allocation. Use a core part of the equity portfolio.
  • Fund name ICICI Balanced Advantage Fund Direct plan Growth Option
  • Risks low (compared to aggressive hybrid funds)
  • Why  This has a fantastic track record with low volatility. See: ICICI Prudential Balanced Advantage Fund: Performance With Low Volatility

Midcap

  • Duration Strictly long-term with proper asset allocation. Use the robo template for allocation. Do not exceed 40-50% within the equity portion.
  • Fund name Franklin India Prima Fund-Direct Plan Growth Option; HDFC Mid-cap Opportunities; L& T Midcap; 
  • Risks Aggressive
  • Why Because in the mid-cap and small-cap segments, it is crucial to choose consistent performers which no one is talking about. The Franklin 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.
  • If you have doubts about the HDFC fund, check out the recent review: Should I Exit HDFC Mid-Cap Opportunities Fund?
  • L&T Midcap has an excellent 1,2,3,4,5 year track record according to the Mar 2020 fund screener. Those worried about the large AUM of the HDFC fund can consider this.
  • Performance Update: Both Franklin Prima and HDFC Mid cap have slipped in performance. As of now, they shall remain in the list due to their long term record (see reviews below) but could be removed in the next edition.
  • Compelling Alternatives: L& T Midcap (see review below) and Kotak Emerging Equity (see review). Both have >65% rolling return outperformance and downside protection consistency wrt NiftyMidcap150TRI over 1,2,3,4,5 years. (Mar 2020)

 

 

Smallcap

 

 

Handpicked List of Mutual Funds April 2020 (Summary)

This is a summary. I have picked one fund from each category. This choice is not in any way better than the other alternatives in the category.

  1. L&T Cash Fund Direct Plan Growth Option
  2. Quantum Liquid fund Direct Plan Growth Option
  3. ICICI Equity Arbitrage Fund Direct Plan Growth Option
  4. Franklin India Savings Fund Direct Plan Growth
  5. SBI Magnum Constant Maturity Fund
  6. Aditya Birla Sun Life Tax Relief ’96 – Growth – Direct Plan
  7. HDFC Hybrid Equity fund Direct plan growth option
  8. ICICI Multi-Asset Fund Direct plan growth option
  9. Parag Parikh Long Term Equity Fund Direct Plan Growth Option
  10. UTI Nifty Index Fund Direct Plan Growth Option
  11. UTI Nifty next 50 Direct plan Growth Option
  12. Axis Nifty 100 Index fund Direct plan Growth Option
  13. ICICI Balanced Advantage Fund Direct plan Growth Option
  14. L&T Midcap Fund Direct Plan Growth Option

Closing Remarks

If you are a new mutual fund investor, download this Free e-book: Mutual Fund FAQ 100 essential Q & A for new investors!

To understand the debt fund choices, you need to learn more about interest rate risk, credit rating risk, floating-rate bonds, etc. You can download this free e-book if you are interested: Free E-book: A Beginner’s Guide To Investing in Debt Mutual Funds. It is not enough if you know how to choose a fund, it is important to review its performance. If you wish to know how to do this, see: How to review a mutual fund portfolio. You only need 1/2 funds to build a well-diversified equity portfolio.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
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