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Throughout the year, on several
occasions, Outlook Money tells you to invest in mutual funds.
And now we come to you to say it one more time. Rational thinking
says that the equity markets cannot go much higher than the
current levels. Yet, who knows?
With each milestone that the Sensex crossed in the past year,
experts claimed that a big correction was due. Even today,
stockmarket experts do not see much steam in the markets for
the next one year.
Yet, on November 22, the Sensex closed at another all-time
high of 13,706.53. By the time you read this, don't be surprised
if there has been another high. So, what do you do?
Multiple investment options are at your service, but none
are as regulated or sharply focused on you, the small investor,
as mutual funds.
10 Top Mutual Funds*
DSP ML Opportunities Fund
Franklin India Flexi Cap
HDFC Equity Fund
HDFC Top 200
Prudential ICICI Dynamic Fund
Reliance Vision
SBI Magnum Contra
SBI Magnum Global 94
Sundaram BNP Paribas Leadership
Sundaram BNP Paribas Select Midcap
Click on each fund to find out why you MUST buy it.
*The fund names are in alphabetical order and not in order
of any ranking.
Outlook Money gives you a list of 10 diversified equity schemes
that must form a part of your core portfolio. Why 10? Because
putting all your eggs in one basket is risky and it is necessary
to diversify across schemes. Because 10 is an easy number
of schemes to monitor; it is difficult to manage too many.
Because if Nobel laureate Harry Markowitz showed the risk
reduction benefits of holding a diversified portfolio, academicians
Evans and Archer, showed that most of the risk reduction due
to diversification takes place with the aggregation of eight
to 10 securities.
How we chose the 10: To come up with the 10, we considered
diversified equity schemes with a two-year track record and
crunched their risk-adjusted returns.
We took the one-year rolling returns (an average of one-year
returns over the past two-year period) and divided it by their
downside risk - the possibility of a scheme giving negative
returns - to get their RAR.
We left out sectoral schemes, as these are the riskiest of
all equity schemes and merit frequent churning depending on
your sector view. We also left out thematic funds, as they
are less diversified than plain-vanilla diversified equity
schemes. They work best when part of your satellite portfolio.
Next, we looked at a set of qualitative parameters. For instance,
our list of 10 schemes comes from fund houses with good pedigree
and a long-term track record. Schemes that have witnessed
frequent fund management changes were avoided. We also avoided
excessive fund house concentration, though HDFC and Sundaram
BNP Paribas Mutual Funds have two each of their schemes in
our list.
Two schemes that have made it to our list are a slight deviation
from the above. While one has a lower RAR, the other is a
little less than two years old. Despite this, we feel you
must own them; we'll tell you why once we get to them.
Our schemes are not necessarily the 10 best performing schemes
in the past year. Our focus is to give you 10 schemes that
we think will perform well in the next two to three years,
using a healthy mix of numbers and qualitative parameters.
While it's good to own these schemes, you need not own all
of them. Depending on the amount you want to invest, you may
pick and choose from the list. Read more about each scheme
to see which fits you the best.
Just holding is not enough: Your job is not done once you
buy into a mutual fund. It's imperative that you consistently,
not day-to-day, but, say, once in a month or two, monitor
your scheme's performance.
Remember, you invest for the long term. So ignore short term
blips. But if your scheme consistently underperforms its benchmark
index, it's time for you to look around for better options.
Also, watch out for a change in fund management. The past
two years has seen a lot of churn of fund managements. When
fund managers change, styles and, at times, even fund strategies
change. So watch out. You may want to give a year's time to
the new fund manager to perform. If he does not match up to
his predecessor, it is time for you to move out.
For now, it's time for you to move in. Over the next few pages,
in no particular order, we present the 10 schemes we think
you should own.
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