We are back with our equity mutual fund SIP portfolio recommendations in 2018. There is a small change in the portfolio this month: we are excluding Aditya Birla Sun Life Top 100 from the list. The decision was taken after the fund scored low on consistency over three and five year periods, as it might have a detrimental impact on the overall portfolio performance in future.
We have included Mirae Asset India Opportunities -G and Kotak Select Focus- G in its place in the the largecap holdings. Both these funds score high on consistency. We believe the returns generated by the new entrants to the portfolio will outweigh the portfolio loss incurred due to exit load on redemption of Aditya Birla Sun Life Top 100.
ET.com Mutual Funds launched its recommended equity mutual fund portfolios to invest through SIPs in October 2016. Since then, we have been closely following the schemes in the portfolios, and coming out with an update in the first week of every month. In November, 2017, there was a change in the portfolio: ICICI Prudential Value Discovery Fund was out of the portfolios, and SBI Magnum Multicap Fund replaced it.
It is a testimony to our research that ICICI Prudential Value Discovery Fund was the first scheme to be replaced in the portfolio. Earlier, we had to replace Quantum Long Term Equity Fund. But it had nothing to do with the scheme's performance. It was after the fund house launched the regular plan.
Many new investors are flocking to mutual funds these days. The ever-ballooning assets under management is testimony to the trend. However, many investors find it difficult to put together a few schemes (or create a mutual fund portfolio) that would help them to meet their various long-term financial goals.
Many investors believe that creating a mutual fund portfolio involves several complicated steps. To begin with, an investor needs to shortlist a few schemes with a consistent long-term performance record. Then s/he should pick the ones that are in line with the risk profile and investment objectives. Then the biggest problem: how to fix the composition of the portfolio. The task doesn't end here. Then they also need to monitor and review the performance of the portfolio at regular intervals and take remedial steps if needed.
That is where ET.com Mutual Funds steps in. We have created portfolios for three different individual risk profiles: conservative, moderate and aggressive. We have also considered three SIP baskets - between Rs 2,000-5,000, between Rs 5,000-10,000 and above Rs 10,000 - while creating the portfolio.
As said earlier, we monitor these portfolios regularly. If we find any scheme is faltering , we recommend appropriate changes to the portfolio. You can see our current SIP portfolios below.
We have only considered equity diversified and equity-oriented balanced funds for recommendation. We have also assumed that the investor is investing with an investment horizon of five years.
Methodology
ET.com Mutual Funds has employed the following parameters for shortlisting the mutual fund schemes.
1.
Mean rolling returns
: rolled daily for the last three years.
2.
Consistency in the last three years
: The three-year period is divided into smaller time periods each with a progressing weighting.
3.
Downside risk
: We have considered only the negative returns given by the mutual fund scheme for this. X =Returns below zero Y = Sum of all squares of X Z = Y/number of days taken for computing the ratio Downside risk = Square root of Z
4.
Outperformance
: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme - [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5.
Asset size
: For equity diversified funds, the threshold asset size is Rs 100 crore, and Rs 50 crore for balanced funds.
We have also conducted a back testing of our model portfolios. These returns are forward returns from the base date.
(Disclaimer: past performance is no guarantee for future performance.)
