Best Equity : Multi Cap Funds for 2011.

Nowadays everyone wants to invest in Mutual Funds in India. In this post, I have complied some of the Mutual Funds which are Top MFs under Equity: Multi Cap category. These are long-term MFs winner in their category and given a best performance over the years by beating their benchmark and category average with good margin. These funds would not give you a benefit of tax-saving and they have diversified their portfolio in different caps. These are those funds which have 4 or more than 4 fund rating by Value Research Online and have toped the chart on 5 year returns basis.

List of best Equity : Multi Cap MFs.

This list is best suited to those investors which are looking for a long-term investment  with good returns and are ready to take risk. Please note that, I am talking here about Growth option not dividend option.

Reliance Regular Saving Fund- Equity

• 5.5 year old fund with returns since launch 20.49% with bad market crash in 2008.
• 23.42% strong 5 years returns beating its benchmark by 10.64% and category average by 10.06%.
• 48.59% in Mid and Small caps with 40% assets in Top 3 sectors. (Risky, but have shown high potential for returns)

HDFC Equity

• 16 year old fund with 22.49% returns since launch.
• 18.80% returns in 5 year time frame beating its benchmark by 5.94% and category average by 5.44%.
• 69% in Giant and Large cap and 28.08% in Mid and Small caps with 55.39% assets in Top 3 sectors.
• Less risky fund compare to Reliance Regular Saving Equity.

HDFC Growth

• 10.5 year old fund with 22.37%  returns since launch.
• 18.61% returns in 5 year time frame beating benchmark by 5.83% and Category average by 5.25%.
• 64.67% portfolio in Giant and Large and 33.68% in Mid and Small cap companies with 47% assets in Top 3 sectors.
• Well diversified portfolio and less risky than Reliance Regular Saving Equity.

ICICI Prudential Dynamic

• 8 year old fund with 35.54% mind boggling returns since launch. 
• 18.46% returns in 5 year time frame beating benchmark by 5.6% and category average 5.1%.
• 77.42% portfolio in Giant and Large cap and 19.32% in Mid and Small cap with 41.86% assets in Top 3 sectors.
• Has strict with its investment objective and less risky with high potential for growth.

UTI Dividend Yield

• 15.5 year old fund with 21.25% returns since launch.
• 17.98% returns in 5 year time frame beating its benchmark by 5.25% and category average by 4.62%.
• 71.65% in Giant and Large cap with 51.11% assets in Top 3 sectors. 
• Good for those who are looking for decent returns with good downside protection.

Templeton India Growth

• 14.5 year old fund with 19.305 returns since launch.
• 17.32% returns in last 5 year time frame beating its benchamrk by 4.54% and category average by 3.96%.
• 54.84% in Giant and Large cap and 45.17% in Mid and Small cap with 55.37% assets in Top 3 sectors.
• Fund has a value based investment style, mainly for those investors who are ready to take higher risk.

Above is the list of funds under Equity:Multi cap category. These funds are pure equity funds and have a good performance track record in the past and as per their investment style we can hope that they will perform well in future also. We can expect around 15-16% returns in future even if these funds has a potential for better performance.

Note : This blog is not for recommendation purpose, hence, must not be treated as an encouragement to invest in above listed funds. The decision of investment in any above listed funds solely lies with the reader/investor.

Source : ValueResearchOnline and Mutualfundsindia.

Special thanks to my friend who helped me in writing this blog. Thanks Rahul Sharma. 

Selecting a Equity Fund or Diversified Equity Fund

When we think about investments in Mutual funds, then the first question always comes in mind is which fund to invest in. There are lots of choices available for investor but not all the options can be considered. There are more than 40 Asset Management Companies (AMCs) currently in Indian Mutual Fund Industry at present and several schemes are offered by these companies. It will be challenge for investors, when it comes to identify a mutual fund scheme which best suits to their portfolio out of large universe of schemes. Good news for the investor is that most of the scheme doesn’t make to good rating but still the main challenge lies in identifying from those few schemes which make to good rating.

Investment in mutual funds always comes with evaluating your own investment objective with good investment decisions, in which investor always get confused. Their confusion always get enhanced by misrepresentation of mutual fund agent as they are hungry for their own commission. Because of all these unfavourable things, it’s necessary for an investor to have a set of objective parameters because these parameters always serve as a benchmark for investor for selecting mutual fund for their portfolio or for evaluating respective mutual funds.  Here, I am providing you four steps for selecting a right diversify fund:-

1.    Compare the fund against its own performance.

First and foremost it’s important to compare fund with its own historical performance. All funds don’t show stability in retaining their performance every year on. By evaluating funds against its own historical performance investor is just ensuring that he/she is choosing the fund with most consistent performance record for their portfolio. This is important because all mutual funds are not able to sustain their good decisions year after year going from one market cycle to another and then slip up. So, it’s necessary for investor to filter effectively, the inconsistent performers and keep them away from their portfolio as they can affect their future objectives.

2.    Comparison of return across funds within same category.

Benchmarking involves comparing funds within a same category. For example, you are evaluation DSPBR Top 100 equity which comes under large cap diversified equity fund for investment. So, you need to compare this fund returns with other large cap diversified equity funds. Comparing it with multi cap HDFC equity fund for example will deliver wrong results because their risk-return relationships between these two funds are not comparable.

As we all know that equity deliver best returns over a time period of 3 to 5 years, so investor should mind this that they need to make investment in diversified equity funds with long term perspective. Hence, the investor should consider longer time period while comparing returns before taking a decision about investing in a fund. Comparing a fund for such a long period will give investor a good idea about how fund have performed in a stock market cycle.

3.    Comparison of returns against their benchmark index.

AMFI regulations demand that every fund should mention its benchmark index in their offer documents. It serves double purpose as being a guiding post for fund manager and investor both. Every investor must keep an eye on a benchmark index and how that fund has performed against it. Again the investor should consider the performance of the equity fund over a longer term, while comparing it. However most of the equity funds have outperformed their benchmark indices for a long time period say 3 to 5 years. However during bad market condition like the one in oct-nov 2008, investor will see that most equity funds was struggling for returns equal to their benchmark indices. The funds that can outperform their benchmark indices during bad market or volatile market conditions should be marked.


4.    Risk-related parameters.

NAV returns are important for investor but investor should not ignore the risk taken by the fund for achieving those returns. All mutual funds are market linked so they are associated directly with stock market related risk. There are 2 things which investor should take into account i.e volatility of the fund which is indicated with the help of Standard Deviation and risk adjusted returns which are calculated with Sharpe Ratio.

Standard deviation shows the degree of risk fund has taken and Sharpe Ratio indicated the return generated by the fund per unit of risk taken. Standard deviation of the fund should always be lower than the other funds in the same category, whereas Sharpe Ratio of the fund should be higher than other funds. Best funds are those funds which have lowest Standard Deviation and highest Sharpe Ratio within same category of funds. Here also, Investor should evaluate the Standard Deviation and Sharpe Ratio of the fund on a historical basis for identifying the most consistent fund in that category.

Should you invest in IDFC Infrastructure Bonds under Second Tranche?

As you all know that investment in infrastructure bonds are also eligible for additional tax exemption upto Rs. 20000 under section 80CCF. This is second tranche from IDFC ltd and there are a lot of investors who are considering these bonds again as an option to save additional tax this year.  I will brief you about IDFC infrastructure bonds in this article. 

About issue??

The company is planning to raise around 3400 crore for the financial year 2010-2011. These bonds come with the maturity of 10 years and lock-in period of 5years. These bonds will be listed in BSE and NSE. After 5 years you can keep them for additional 5 years and withdraw money at any time just by returning them to company or by selling in a secondary market. This time company issuing 2 different series:  series1 do not provide cumulative interest but have an option of buy-back. Company will pay interest annually at rate 8% p.a. Series 2 will provide you cumulative interest rate with buy-back option. Company will provide 8% interest rate compounded annually.

About taxation??

These bonds will get tax exemption under section 80CCF upto Rs. 20000. However interest earned on these bonds will be taxable for an investor.

About Real Return??

The interest rate under these bonds are 8% but still the actual return works out to be much more than that once you add on the tax deduction factor in it.  For example: - Suppose you fall under tax bracket of 30.9% and you invested 20000 in these bonds. This means your tax for this year will goes lower by 6180, and you earn a 1600 interest after one year. So, effectively your return after 5 year will be nearly 11% to 12% in case of annually interest payment.

	Series 1	Series 2
Face Value per Bonds	5000	5000
Frequency of Interest Payment	Annually	Cumulative
Interest Rate	8% p.a	N.A
Buyback Option	Yes	Yes
Buyback Date	Date falling 5 years & 1 Day from the Deemed Date of Allotment	Date falling 5 years & 1 Day from the Deemed Date of Allotment
Maturity Date	10 years from the Deemed Date of allotment	10 years from the Deemed Date of allotment
Buyback Amount	5000 per bond	7350 per bond
Maturity Amount	5000 per bond	10800 per bond
Yield on Maturity /Buyback	8%	8% compounded annually

Other features of IDFC Infrastructure bonds.

• The bonds don't attract any TDS.  
• These bonds have got rating of LAAA by rating agency ICRA and AAA (ind) by FITCH indicating a stable outlook. 
• The interest accrued on the Bonds will be credited to the respective bank registered with the dematerialized account through electronic clearing service (“ECS”) on the due date for interest payments.
• Investors can mortgage or pledge or hypothecate or mark lien over these bonds to avail loans only after the lock-in period.
• Investment in the Bonds can be made in dematerialized and physical forms.
• An investor would need to provide his or her PAN card to invest in these Bonds. 
• The Bonds will be issued only to resident Indian individuals (major) and HUFs.
• An applicant may subscribe to both options but the minimum application under each option shall be one Bond i.e., Rs. 5,000.   
• Interest on the Bonds shall be payable on annual or cumulative basis depending on the series selected by the Bondholder.
• Issue closing date is February 04, 2011

·       

You can subscribe in these bonds through physical form also by just following these steps:-

• Don’t fill up the dematerialized details in the application form
• Compulsorily provide the following three documents with the application form:
• Self-attested copy of the PAN card;
• Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.
• Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:
• Ration card issued by the Government of India; or
• Valid driving license issued by any transport authority of the Republic of India; or
• Electricity bill (not older than 3 months); or
• Landline telephone bill (not older than 3 months); or
• Valid passport issued by the Government of India; or
• Voter’s Identity Card issued by the Government of India; or
• Passbook or latest bank statement issued by a bank operating in India; or
• Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or
• Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.

It is stated in the prospectus of these bonds that they provide interest rate of 8% which would further reduce if we consider tax on interest earned. But if you have different outlook then the money you save through tax-exemption at the time of investment in these bonds then your over all return will going to be around 11% to 12% in case of 30.9% tax bracket. Now, decision is yours whether to invest or not.