PlumbLine October 2017: a handpicked list of mutual funds

Readers may be aware that last month I had introduced a handpicked list of mutual funds and called in PlumbLine to accompany the freefincal robo advisory template. I was all set to write this months post, when SEBI announced its mutual fund classification rules, to be implemented by year-end. So I wanted to wait until the reclassification is complete as at least 1/2 funds from PlumbLine can be expected to change color – merged with another with a change in investment strategy. I mentioned this a couple of posts ago and many readers asked me to continue PlumLine and make changes to it as AMCs react to the SEBI ruling. Hence this post. I discuss the impact of the SEBI ruling for each fund in the list.

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Before we begin, I would like to clarify  three things:

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One: PlumbLine is a boring list of mutual funds. It will NOT change from month to month unless there is a significant change in the fund’s strategy or dip in performance or some other special situation. So please do not look forward to it. Also, 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.

Two: There were two types of criticisms to PlumbLine. One was that a DIY blog should not be doing this. I appreciate this. Readers who feel this way, say so because they value what freefincal stands for. I am lucky.  However, I see PlumbLine as a necessary “closure” to the robo template. I don’t expect you to understand and I also don’t know how else to express this.

Three: The second criticism was that PlumbLine is biased towards certain AMCs. This, I find amusing. Of course, it is biased towards certain amcs because it is a handpicked list. It contains my personality quirks aside from quantitative performance. If you want me to do an analysis, then yes, being open-minded is a must. PlumbLine represents the way I would choose funds for specific goals. So it will be biased. Being an investor and being an analyst are two different things. Take it or leave it. I am not going to be open-minded just for the sake of it or because some people criticise it. I am made of sterner stuff.

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.

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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: John Morgan

The PLUMBLINE for October 2017

I had justified each choice in the September edition. So I will just get on with it.

1 Liquid funds: Quantum Liquid fund Direct option Growth.

When? Can be used for all durations and all occasions.

Impact of SEBI fund classification: None.

2 Short-term Gilt: DSP Black Rock Treasury Bill Fund Direct Option Growth

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.

Impact of SEBI fund classification: Highly likely to be affected. If you are an investor, stay put and wait. Consider this only after the AMC re-orientation is complete. Such a pity if this goes away. It is also possible that there may be no more pure short-term gilt funds. Let us wait and watch.

3 Equity Arbitrage UTI Spread fund direct plan growth or ICICI Equity Arbitrage Fund Direct Plan Growth Option

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.

Impact of SEBI fund classification: None

4 Debt: Ultra Short Term Franklin India Savings Plus Fund Direct Plan Growth

When? All durations above 1Y.

Impact of SEBI fund classification: Franklin has another Ultra short-term fund, but this is primarily a floating rate fund. So it is likely to survive. Read more: How Floating Rate Debt Mutual Funds Reduce Interest Rate Risk The bond duration may change though.

5 Debt: Credit Opportunities: This will now be called Credit risk funds and Franklin Corporate Bond Fund-Direct Plan Growth Option should feature here.

When? Long term, ~10Y+

6 Dynamic Bond funds:  Quantum Dynamic Bond Fund Direct Plan Growth Option.

When? Use it only for long term goals, at least 5Y+, preferably more.

Impact of SEBI fund classification: None

7 Equity Tax planning: Franklin India Tax Shield Direct Plan Growth Option

Impact of SEBI fund classification: None

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.

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Impact of SEBI fund classification: Only either this or HDFC Prudence can survive if SEBI does not relent. We will have to wait and see.

9 Equity multi-cap: Quantum Long Term Equity Direct Plan Growth Option

Impact of SEBI fund classification: None

10 Index funds: ICICI Nifty Next 50 Direct Pan Growth Option

Impact of SEBI fund classification: None

11 Equity Large Cap: Franklin India Bluechip Fund Direct Plan Growth Option

Impact of SEBI fund classification: Unlikely. It is a flagship fund and should not be disturbed.

12 Equity Mid cap: Franklin India Prima Fund Direct Plan Growth Option

Impact of SEBI fund classification: Unlikely. Also a flagship fund

13 Equity Small CapStay away

Resources to review fund performance

How to review a mutual fund portfolio

How to Review Your Mutual Fund SIPs

A Tool To Compare Mutual Fund Performance The Right Way!

How to handle Mutual Fund Underperformers

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Use this form to ask Questions or reg. the robo template 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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10 thoughts on “PlumbLine October 2017: a handpicked list of mutual funds

  1. Thank you for the post. I have started looking forward to your “Plumbline” posts. Not for fund recommendation or changing my allocations but just to get various perspective and how everyone categorise their fund selections. So thank you again.

  2. I think SEBI should not force mergers of existing schemes. Its too tax inefficient from an investors point of view. Just dont allow new funds from an amc if it already has atleast one fund in an existing category. Alternatively exempt people from paying capital gains tax on this ( which the government may not agree to). Either ways would be sad if some of these schemes go for example either of the hdfc balanced funds or the dsp blackrock treasury bill fund.

  3. Hi Pattu another good one on the Blog. “Stay away from Small Cap” is a good option, but for a larger time frame is there any option that the list can provide one out of the existing small caps noting that recent SEBI mandate paves way for clear classification as far as the fund names are concerned

  4. Pattu, a great initiative. Congrats for Plumbline-it would be a real boon for new investors, not withstanding even for experienced ones.

    Any reason you have not covered MIP category?

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