Mutual funds for long-term investors - I
Mutual funds for long-term investors - II
We are into the penultimate part of the top 25 mutual funds analysed by Value Research. These are the funds that investors can consider for the long term.
The five funds featured today include Magnum Global, Magnum Taxgain, Principal Tax Savings, ICICI Prudential Balanced and Reliance Vision.
Individual needs may vary so view them in conjunction with your overall portfolio and risk profile.
# 16: Magnum Global: Changing track
Equity: Diversified
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Information: www.sbimf.com NAV: Rs 52.13 (28/09) Entry Load: 2.25% for investment less than Rs 5 crore Exit Load: 1% for redd 180 days and invest Expense Ratio: 2.05% Plans: Growth, Dividend Min Investment: Rs 2,000 Benchmark: BSE 100 Portfolio Manager: Vivek Pandey, Ritesh Sheth
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It's hard to know what to do with this fund.
From a fairly dismal track record, it was the best performer in 2004 and the second best in 2005. Last year too it had a great run. But with the recent increased diversification, low concentration levels and huge asset base, this mid-cap fund is in uncharted territory.
And this year, it is struggling to live up to its performance standard.
From large-cap bias, it began to aggressively invest in mid-and small-cap stocks in 2004. The move paid rich dividends. During the three-year period from 2004 to 2006, the fund generated better returns as compared to its category in every quarter.
The fund's strength has been its ability to pick trends, invest aggressively and ride through the momentum to make huge gains. So while other fund mangers balked at dabbling in real estate plays during their high rise in 2006, this one caught on to Ansal Properties and infrastructure aggressively.
And it was handsomely rewarded for its courage. Some of its other profitable picks include Dishman Pharmaceuticals, Sintex Industries, India Cements, Infotech Enterprises and Jai Prakash Associates.
Its earlier focus of 30-35 stocks has given way to 70, none of which account for more than 5 per cent. This could be the fall-out of its large asset base which has crossed Rs 1,700 crore.
Its five-year returns of 64.95 per cent (annualised) rank it way ahead of the category's 51.19 per cent. But its year-to-date and one-year returns are below the category average.
Though we still think it's a keeper, potential investors may want to wait for signs of improvement.
# 17: Magnum Taxgain Veteran player
Equity: Tax Planning
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Information: www.sbimf.com NAV: Rs 55.6 (28/09) Entry Load: 2.25% for investment less than Rs 5 crore Exit Load: Nil Expense Ratio: 2.00% Launch: March '93 Plans: Growth, Dividend Min Investment: RS 500 Benchmark: BSE 100 Portfolio Manager: Jayesh Shroff, Sudhanshu Asthana
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It's hard not be bullish on Magnum Taxgain.
Though it tarnished its image during the tech collapse of 2000 and was among the bottom performers for three successive years, it worked hard to regain its composure.
Its stellar performance in 2003 was nothing short of a re-birth, and since then the fund has never looked back. It has been ranked No 1 for three consecutive years from 2004-2006.
Along the way, Magnum Taxgain has matured in its fund management. Though historically it has a reputation of losing more than the category average in bearish markets, of late it has displayed an ability to efficiently mange market crashes.
In the quarter of June 2006, the fund lost just 11 per cent compared with the category's loss of 15.35 per cent. And, in the quarter of March 2007, it lost only 4.06 per cent compared to the 6.45 per cent drop in the category.
Since January this year, the fund has consciously reduced its exposure to the construction sector, which has come down to 7.62 per cent (September 2007) from an earlier high of 16 per cent (December 2006). The concentration of technology holdings has also reduced.
There have been other developments too that have reduced the amount of risk assumed by the fund. Small caps, till about a year back, accounted for a quarter of the fund's allocation. This has now reduced to just 6 per cent and given way to large caps.
Owing to its superb performance record and the more recently acquired abilities to protect the downside, we recommend the fund as a core holding in your tax planning portfolio.
# 18: Principal Tax Savings: High order
Equity: Tax planning
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Information: www.principalindia.com NAV: Rs 98.75 (28/09) Entry Load: Nil Expense Ratio: 2.4% Launch: Mar '96 Plans: NA Min Investment: Rs 500 Benchmark: S&P CNX Nifty Portfolio Manager: R Srinivasan
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The four-star fund made investors sit up and take notice last year, when it delivered a return 13 per cent higher than the category average. With a corpus of just Rs 198 crore, Principal Tax Saving maintains a portfolio of 35-40 stocks.
The assets are distributed in such a way that no single holding accounts for 25 per cent of its assets. The portfolio is well-diversified at the sector level as well. Currently, financial services is the top sector holding, accounting for 16.2 per cent, followed by metals (14 per cent) and services (13.22 per cent).
Despite a well balanced portfolio, Principal Tax Savings is more daring than most members of its group. Till the last quarter of 2005, the fund was dominated by large-cap stocks only to be gradually displaced by smaller ones.
The fund manager does not restrain from dabbling in some of the lesser known names, and that too in significant proportions. With a 45 per cent allocation, he confidently takes small-cap wagers. At Rs 3,000 crore, the average market cap of its portfolio is amongst the lowest in the tax-saving category.
His daring moves have not let him down. The fund has consistently beaten the category average over the one-year, three-year and five-year period. This year (as on October 10, 2007), it delivered returns of 38.37 per cent to steer clear of an average peer by over 6 per cent.
Interested investors should remember that this is meant to be a bold offering. With a chunk of its investments in small-cap stocks, some nasty surprises cannot be totally ruled out.
# 19: ICICI Prudential Balanced Showing spark
Hybrid: Equity-oriented
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Information: www.icicipruamc.com NAV: Rs 40.23 928/09) Entry Load: 2.25% for investment less than Rs 5 crore Exit Load: Nil Expense Ratio: 2.18% Launch: Oct '99 Plans: Growth, Dividend Min Investment: Rs 5,000 Benchmark: Crisil Balanced Fund Index Portfolio Manager: Pankaj Kaji, Deven Sangoi
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ICICI Prudential Balanced has hit a few potholes, but it still has potential.
Investors shouldn't be overly concerned about the fund's recent underperformance. The fund held some names that didn't execute well this year and also lost out on the rally in the basic and engineering segment. But the fund manager deserves credit for his timing in metal stocks and his deft manouevre in the tumultuous technology space.
Infosys is a case in point, which it sold in February 2007 and picked up at a significant discount in August. The fund has also benefited immensely from its telecommunication holdings.
Investors may well remember how the fund lost tremendously during the tech bust, (-) 46.25 per cent for the year ended March 2001. But now the fund sticks to diversification across sectors and lack of concentration in any sock. It also has a serious large-cap tilt with 2/3rd of its portfolio in large caps.
The fund has remained in the top half of the category year after year, but you won't find it at the head of the pack. What you can expect it to do is contain losses in a downturn.
Since 2004, the fund has performed better than the average peer during market slumps. Over the June 2006 quarter the fund contained losses to (-) 6.36 per cent as against the category's loss of (-) 7.97 per cent.
During the slump in the March 2007 quarter, the fund regressed by (-) 3 per cent while the category was set back by (-) 3.23 per cent. Apart from this there has been a marked improvement in portfolio rebalancing over the past eight months, with an average 73.7 per cent allocation to equity.
# 20: Reliance Vision: Aggression pays
Equity: Diversified
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Information: www.reliancemutual.com NAV: Rs 235.29 (28/09) Entry Load: 2.25% for investment < Rs 2 crore, 1.25% for investment in the range of Rs 2 crore and above but less than Rs 5 crore Exit Load: 1% for redd 180 days and inv.
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