Last Updated on September 27, 2023 at 5:24 pm
Readers may be aware that in September 2017 I had introduced a handpicked list of mutual funds and called it PlumbLine to accompany the freefincal robo advisory template. While we are still waiting for AMCs to fall in line after SEBI announced its mutual fund classification rules, this month, I focus on simple ways to review a funds performance.
1: 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.
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 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.
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Simple ways to review a mutual fund
There are many articles/tools available at freefincal to review the performance of a mutual fund or a fund portfolio. There are quicker ways to review a fund performance using the right online information.
1: Choose the right fund category for the right need. This is the most important process, not just in fund selection, but in fund review! You cannot do this without an understanding of risk! Read more : When to choose what mutual fund?. If you made the right choice, you don’t have to worry about NAV movements every day (if you had the confidence in your choice)
2: Understand the story of The Blind Men and the Mutual Fund! The same fund can give different investors different returns depending on when they started investing. Therefore, fund reviews make sense only from the date in which you started investing.
3: Any fund portal that plots NAV in an interactive chart, will allow you to check the fund performance from the date you invested and you can also check its performance for the last year or more, on a dynamic basis. Check this video to see how this can be done.
4: Fund reviews and portfolio reviews are inward looking and not outward looking. That is, there is no point worrying about star ratings, peer reviews, twitter nonsense etc.
These are the questions I would ask:
- Has the fund performed in line with my expectations? This means, I should have a set of expectations in the first place!! I must know the position of the fund in my portfolio, what purpose does it serve. What return do I expect from the asset class as such over a period of time? An asset allocation is also necessary. The robo template will help you in this regard.
- After a reasonable period, say 3Y or 5Y, has the fund manager beat the index consistently? You can use the above-mentioned sliding feature as a quick check and then use the tool to analyse the performance consistency of mutual funds
- Has the fund manager justified her fee by protecting my investment during market downturns? Use the Equity Mutual Fund Rolling Upside/Downside Capture Calculator to find this.
- In the case of a debt fund, keep an eye on the credit quality of the bonds in the portfolio or if the fund manager has added bonds of longer tenure (corporate or gilt) from time to time. Trust only the fund factsheets from the amc website for this.
As long as the performance is reasonable, I will not change my funds. Expecting a fund to be a topper (top 3, 5 or even 10) at all times is plain stupid and childish. PlumbLine will not work for such investors.
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
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.
The PLUMBLINE for November 2017
I had justified each choice in the September edition. So I will just get on with it.
Monthly Income funds (debt oriented conservative or aggressive)
I have received a few request to add a fund in this category. While I am still looking (not as hard as I should!), I am not sure there is any need for such funds. The monthly “income” from such funds is a misnomer and if it is in the form of a dividend, a 28.875% tax is deducted at source. This is regardless of tax slab and cannot be reimbursed via ITR. So I could construct a portfolio with 10% equity or 25% equity with a separate equity fund. I have a little more control.
Does this argument not apply in the case of equity-oriented balanced funds? Perhaps it does, but I would prefer to treat them as conservative equity funds. And I get tax benefits on the debt part.
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 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
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.
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:
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 Cap: I would stay away
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