Top Mutual Funds of 2014

Finding the best equity fund to invest in like finding needle in a haystack“, remarked my colleague. Which are the top or the best mutual funds as on Jan 2014.  Sadly there is no one answer. It’s like finding which bollywood actor is Number 1? if you check latest Time Celebx  (nov 2013)Hritik Roshan beat the Khans and Kapoor to be number 1. But a month earlier he was at number 4. While Salman khan has been at number 2 or 3.   What I mean to say is that it is difficult for someone to be consistently be at the top. There are also flavors or the seasons or fads. For investing in mutual funds, we need a mutual fund which is from a good fund house, has good fund manager,good performance both short term and long terms, have seen the various market cycles and is consistent.

Questions , Questions before the investor

It’s not easy choosing a equity mutual fund because of choices, lot of noise,information overload  surrounding the mutual fund industry.

  • Time frame of investment : How long is your investment for? 3 years, 5 years, 
  • Frequency of investment : How often will you be investing,  lump sum or through Systematic investment plan say monthly ? 
  • The category : What category of fund do we want to invest in ? Large Cap, Mid cap, Small Cap, Diversified or Balanced, Sector funds
  • Performance, ratings : Which fund has performed well, what are the ratings.
  • Other factors : What is fund size, who is fund manager etc.

We went through various websites to find good mutual funds to invest in, such as Top mutual funds from Mint Mutual Fund Schemes to invest in, MoneyControl’s Mutual Fund schemes to invest in  , ET Top 100, Valueresearch India’s finest funds for hit portfolio, Morningstar Best Performing funds . Most of these top funds (such as Mint 50, ET 100) choose from Valueresearchonline’s top rated funds. There was no common fund which we could zero down to.  Given below are Large cap and Large Cap and Mid Cap Funds. Reason for comping up with the list was to start a discussion on which funds can one invest. We have given links to funds on Valueresearchonline for our readers to investigate these funds further.

Large-cap Mutual Funds

Large cap funds invest in some of the biggest companies, which are well represented in the more frequently tracked indices such as the Sensex and the Nifty, are less volatile to market swings compared to other diversified equity funds. These funds mirror the performance of the economy and are geared to handle market cycles better. But they do not deliver exceptional returns in a rising market. The performance of actively managed funds comes out  far superior than passively-managed funds. The 5-year trailing returns indicate that over 50 per cent of the actively-managed funds have delivered superior returns than Nifty. The gap in the two widens when one looks at long-term performance. For instance, over a 10-year period, from the universe of 32 funds, the average of the actively-managed funds posted 22.58 per cent returns compared to the average return of 17.94 per cent delivered by passive funds for the same period. Some of  funds which have made it to Top Mutual funds list of various websites are :

Franklin India Bluechip  : Consistent performer over the past 16 years with a CAGR of 21% against 12% of its benchmark – S&P BSE Sensex which makes it a perennial favourite. It is primarily a large-cap fund which focuses on investing in companies with strong financials, quality management and market leadership. Irrespective of market conditions, it has stuck to its mandate of investing in large-cap companies. . Follows time-tested strategy of value and growth stock picking. Managers are Anand Radhakrishnan (6.8 years), Anand Vasudevan (2.9 years)

ICICI Pru Focused Bluechip  : It is a large-cap diversified equity fund with a concentrated portfolio of 20-25 large caps picked from top 100 stocks by market capitalisation on NSE. The fund manager follows a growth style of investing. It has a good mix of concentration and diversification as it uses a combination of bottom-up and top-down investment approach. It is known to take an aggressive position in high conviction stocks, which has helped in outperformance. Quality of companies has ensured steady performance of the fund. Follows its benchmark weightages. In five years, the fund has given 23% against its benchmark CNX Nifty returns of 16%. Manager is Manish Gunwani (2.0 years)

UTI Equity  :  This fund has a chequered past, but has done very well in recently.  The fund has beaten its benchmark S&P BSE 100 every two-year in the past seven years. It has diversified portfolio and the fund has been known for its first-rate stock selection in the last seven years. Manager is Anoop Bhaskar (6.7 years)

BNP Paribas Equity : The fund struggled in 2008 and 2009. Since then, it has been impressively following a well-articulated strategy to focus on companies with superior earning growth. To this end it chooses companies with pricing power for their competitive advantage or entry barriers. This has translated into a diverse portfolio of quality large caps and few quality mid-caps. This has led to a resilient portfolio during market downturns which also does well in a rising market. Manager is Shreyash Devalker since last 2.3 years.

Returns (%)

Name of fund

 Rating

Expense

Ratio (%)

1-Month 3-month

1-Year

3-Year

5-Year

10-Year

Net Assets

(Cr)

BNP Paribas Equity

4 star

2.85

-1.40

2.07

5.24

6.24  16.56 -

167

Franklin India Bluechip

4 star

2.16

-2.84

4.92

0.61

 2.95  19.48 15.74

4,958

ICICI Pru Focused Bluechip Equity Reg

5 star

2.30

-2.01

4.49

6.66

 6.24  23.01 -

4,70

5

UTI Equity

4 star

2.08

0.06

5.47

5.44

 5.59  20.68 15.10

2,386

CNX Nifty

-2.78

2.68

3.30

1.46 16.50 12.07

Large-and-midcap Mutual Funds

Funds in this category have a large cap bias along with a limited exposure to mid and small cap stocks. While large cap allocation of these funds provides downside protection to the portfolio, exposure to mid and small cap stocks gives it an extra edge to generate superior returns.
Birla Sun Life Frontline Equity : Stock-picking at discounted rates. In the past five years. it has given 21% as against its 17% returns of benchmark S&P BSE200 in the same period. Has given reasonably good performance even in downturns. The fund is largely tilted in favour of large-cap stocks, with a small exposure to mid-caps. The fund targets the same sectoral weights as BSE 200 hence performance deviation against the benchmark is comparatively lower and has a diversified portfolio
Franklin India Prima Plus : Prefers companies with high corporate governance standards. Has consistently performed better than its benchmark. Focus on companies with proven records and earnings growth potential.
ICICI Prudential Dynamic :  This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.t has the flexibility to take cash calls. This helps safeguards the capital from erosion during downturns
Quantum Long Term Equity The fund invests in BSE 200 companies. The buy and hold approach is followed in its truest sense as stocks such as Infosys, Tata Steel, ING Vysya, ONGC and TCS have been there in the portfolio since the fund’s launch, its turnover ratio is one of the lowest . It has a high exit load for redemptions itlevies exit load till first 2 years of the investment,  up to 4% if redeemed before 6 months 3% for redemption between 181 – 365 days, 2% for redemption between 366 – 540 days 1% for redemption between 541 – 730 days. Not just that, ta marked departure compared to other funds which don’t have any exit load after the first year of investment. Note, it is the only fund in the country which is sold directly.
Performance of the suggested funds along with some other funds which we found coming up in top 10 list are given below.
Returns (%)
Fund Rating Expense Ratio 1-month 3-month 1 Year 3 year 5 year 10 year Net Assets
Birla SL Frontline Equity 4 Star 2.48 -0.93 4.89 5.26  5.97  20.97 18.05 3,586
Canara Robeco Equity Diversified Reg 4 Star 2.73 -0.70 3.73 1.45  5.70  22.19 16.36  634
Franklin India Prima Plus 4 star 2.28 -0.52 6.88 1.75  5.95 19.25 17.53 1,949
HDFC Equity 3 Star 2.18 -1.38 9.91 -1.14  1.58  22.19 18.28 10,249
ICICI Pru Dynamic Reg 5 Star 2.24 0.44 8.96 11.78  7.41  21.57 19.09 3,573
Mirae Asset India Opportunities Regular 5 Star 2.69 0.53 8.92 6.57  7.16  25.27 - 309
Quantum Long Term Equity 5 Star 1.25 -2.85 4.89 3.70  5.43  23.67 - 201
UTI Opportunities 5 Star 2.18 -0.64 3.62 4.32  7.11  22.53 - 3,565

Stock Market, Economy, Sector

The equity mutual funds performance is tied to performance of stock market which is tied to that of economy. Even within the stock market there are some sectors which do well and some which don’t. Let’s take an overview on what may effect the Economy and the sectors .
Economy
 2014 will be a volatile year with plenty of uncertainty and unfolding of events and will suffer from what is called as VUCA which stands for volatility, uncertainty,complexity and ambiguity.
  • On the domestic front, factors such as high inflation, depreciating rupee , government policies and general elections will effect.  Nation wants a stable government that will make decisive moves on reforms and execution of economic polices.
  • Gradual withdrawal of the economic stimulus by the US Federal reserve which got kicked off on Dec 19. While India and e merging markets are better prepared to deal with it than in July-Aug of 2013 when currencies plummeted and stock and bond markets suffer it could impact everything from the inflow of foreign funds into India, the value of rupee , international commoidity prices etc.
Sectoral Outlook
In the equity performance of  Mutual funds that you would invest in would depend on which sectors, companies the fund invests in. One of the major reason for HTDF Too 200 not doing well is having a large exposure to Banks which have not performed well. DSP BlackRock Equity Funds: Down, but not Out explains why these funds failed to impress last year due to the wrong positioning of their portfolio and the illiquidity of the market compared to the size of their portfolio.  Socheck the portfolio of the mutual fund scheme to see which sectors it is betting on. The overview of various sectors is given below. Interested readers can read
Good :
  • Information Technology (IT) : The performance of IT services companies is likely to improve in 2014-15 , with nearly all Tier-1 players delivering around 15% growth. Growth maybe be broad-based, with contribution from all geographies, verticals and service lines. It may benefit from weak rupee and stable pricing.
  • Pharma : The sector has shown consistent double-digit growth in the recent past. However, the US Food and Drug Administration’s demanding guidelines have hit overseas sales. Also, the government’s new pricing policy has impacted margins.  With rapid rate of R& D , weak rupee pharma should do well.
Bad 
  • Capital Goods : Performance of the capital goods sector depends on the GDP growth rate. A tight fiscal condition implies little from support from government. For capital goods to gain domestic economy has to improve.
  • Real Estate : Real estate companies are facing the brunt of high interest rates, tight liquidity, large debts and lending curbs.The fundamentals of the sector may not change any time before the middle of 2014 (elections)
  • Oil & Gas : Uncertainitty remains on subsidy sharing or payment. And government’s ability to increase diesel prices.The gradual easing of tensions between US and Iran may lead to normalisation of flow of crude oil from the west Asian country. Improvement in supplies from Lybia and Iraq may also ease pressure on global oil prices.
  • Metals : the global economic sentiment has improved, as manufacturing picks up. Stability in steel prices globally is a big positive
Okay
  • FMCG :  Stocks of most consumer staples companies have fallen in last three months. The trend is expected to continue as earnings growth slows due to (a) rise in competition and weak economic environment; (b) unlikely margin expansion from the current high base (c) high advertising and promotion spends to fight competition amid limited scope for increasing price
  • Auto mobiles : It has suffered slowdown in the last two years. Interest rate and commodity prices will remain a concern.Competition has increased across the spectrum.
  • Banks : Macroeconomic stress is likely to keep asset quality of both public and private sector banks under pressure. Interest rates on three-five year term deposits likely to remain firm due to high inflation. Private sector banks are better placed than public sector banks to absorb the rising credit costs due to their high margins and low costs.
  • Telecom : Companies have discontinued the services of inactive and low-value subscribers and shifted focus to active and revenue-generating subscribers. Competition has eased, leading to increase in tariffs. The number of data services subscribers has been growing. Reforms, especially the clarity on M&As rules, will lead to consolidation and, thus, an increase in revenue for the bigger companies

Related Articles:

As mentioned earlier Reason for comping up with the list was to start a discussion on which funds can one invest. We have given links to funds on Valueresearchonline for our readers to investigate these funds further. We plan to have discussion on funds in the list,why it makes sense, why it doesn’t. We shall be reviewing this list every quarter. We reiterate these are suggestions only, investing in equity mutual funds is risky, please consult your financial adviser or whomever you consult before investing in these suggestions. We shall not be liable for any losses based on our suggestion. According to the Chinese Calendar 2014 is the year of horse which stands for speedy progress and travel. Will it gallop, will it canter, only time will tell.

Disclaimer : This is an information based website, meant for providing assistance to it's readers. We do not hold any responsibility for mis-information or mis-communication.