Shortlist 4 funds from below!

POSTED BY sainath ON November 16, 2012 11:59 pm COMMENTS (19)

Hi Manish

Am a regular follower of jagoinvestor. Once I started reading jagoinvestor I came to know so many things regarding financial planning. Thanks for wonderful site. My age is 31. Am married and having 7 month old kid. Take home 43k.

1. Am planning to build corpus for retirement and child education. I want to invest in MFs for 15 to 20 years through SIPs.

I am constantly watching some mutual funds inorder to invest for long period say 10-20 yrs. I have short listed the below funds. (Thanks to Jagoinvestor! I dont know these things till I started reading Jagoinvestor.)

SBI Magnum Pharma-G
HDFC Balanced-G
IDFC Premier Equity Plan A-G
Quantum Long Term Equity-G
ICICI Pru Dynamic Inst I-G
HDFC Top 200-GFranklin India Bluechip-G

I have considered one Gold ETF, one balanced fund and one tax saver fund apart from equity funds. Please suggest some good funds from the above or any other If I have missed out. It may be silly but I have doubt. Is it good idea to invest in invest in MF upto 10 yrs through SIP and leave it for another 10 yrs like in stocks?

Thanks in advance

19 replies on this article “Shortlist 4 funds from below!”

  1. bhavik vora says:

    Hi Sharad, Can you share the links please?

  2. sainath says:

    thanks sarad

  3. 3sharad says:

    Hi Sainath,

    At any point in time you only have past information, the idea is to use it effectively.

    I will try to accumulate some links and pass on the same for understanding.


  4. sainath says:

    I have seen what will happen if great brains encounter ๐Ÿ˜‰
    Any ways i gained some knowledge.

    Now am confused.. how to pick a fund? I was thinking that
    1. past performance is the criteria for selection of a fund.
    2.And we need to concentrate on diversified-equity funds in-order to absorb market shocks.

    But, from the above discussion, I came to know that we have to be careful while selecting funds. I dont know about these alpha, beta… Can any one tell me a site which explains basics and these alpha things while investing in funds.

  5. 3sharad says:

    Hi Zion,

    Thanks for your response.

    The idea is not to mirror the index, which ETFs do, the idea is to follow the style. Implying, if a large cap fund has Nifty as index, it should have a ‘major’ portion invested within Nifty stocks… this doesn’t mean to invest in all Nifty stocks in the same proportion, which ETFs do.

    You can have a 25 stock focused portfolio from within Nifty stocks and still generate good performance. This fund won’t be an ETF.

    The fund manager generating performance from within the index should be given more credit, is the point I am driving at.

    If a large cap fund has Nifty as index, but invests in mid-cap while they are in favor, it should get lesser credit for the return generated through that, as compared to the 25-stock-fund discussed above.
    Alternatively, the out-of-index-scheme should term itself as a mid-cap fund and get peer compared with mid-cap funds and mid-cap index.

    Moving out of index and shifting styles is referred to as ‘Style Drift’ in fund management parlance and is considered risky until and unless the fund is specifically mandated for Style rotation strategy, in which case it should have a custom index.

    Essentially, I am not advocating making a fund extremely water-tight, but largely a fund should follow an index it’s bench-marking against.

    MFs typically are not absolute return products and that’s why index comparison is important.
    If index weren’t important, why have any index at all… or why not have all schemes declare just one index. Indices do imply style and that’s why they are important.

    Think of a case where your client’s portfolio needs to have 60% exposure to large cap funds and 40% to mid-small cap funds.

    We can pick-up top funds using NAV returns in each category and accordingly advise the client. But in scenarios of prevalent ‘style drift’, isn’t the client getting exposed differently to large-cap and mid-cap as compared to the 60-40 target.

    The analysis I mentioned at helps us avoid being myopic and recognize the true merit of performance rather than just the top-level numbers.

    Best Regards,

  6. TheZionView says:


    You are saying a fund should replicate the benchmark index its based on and create out performance within???

    I would be happy to invest in a fund which dont just replicate the index with a small alteration to beat the benchmark but rather take a stand outside and beat it by a good margin and with consistent record at that.

    If you want the fund to mirror most of it per the benchmark.i would be happy to buy that index ETF and dont have to pay the expense ratio at around 2%.

  7. 3sharad says:

    My point is simple: Would you say a fund bench-marking against a large cap index and investing in mid caps a follower of style? (This is just an example and not a comment w.r.t. Franklin Blue chip)… so proclaiming an index does matter for relevance and relative performance.

    Moreover, putting money in an index fund is different from a fund investing in index stocks. A fund manager can create a portfolio by choosing differential weights across sector and stocks from the universe within the benchmark index.

    Btw, Alpha is not a predictive value, its the historical out-performance.

    If you believe in qualitative analysis you are still looking at past information, even if it is about management teams changing. In that case, your advocating, not to ponder over past data, contradicts yourself..

    Since you have put your views loud and clear, that everything else is non-sense… I would respect your opinion and close this discussion from my end.


    1. Ramesh says:

      You seem to be taking a tangential path on this discussion. Please do not give very hypothetical examples.

      Benchmark indices are not a holy grail, since you seem to believe very strongly in them. Again my personal opinion. A benchmark index is just a bunch of 30 or 50 or 500 stocks, which usually is constructed with weightage to different sectors by somebody. They have the same basic attributes of changing over time, sometimes excessive weight to some sectors like any other collection of different sectoral stocks of a fixed number.

      An active fund’s job is to get mostly a variable number of stocks (can be fixed too like dsp focus 25) in different sectors (diversification) which is supposed to give better performance than a similar type of benchmark index. It may sometimes be that the fund has a mandate / style of investing in the respective benchmark index. Sometimes, it is not. Again, both the absolute and relative performances are important (quantitative) but I want to stress that qualitative analysis is much more important for me than a 1-3 year performance. On the contrary, your take is that extreme analysis of past 1 or 2 years is enough.

      Again, I know alpha and other values are historical performance calculations. And I have been saying the same thing that they are not important for future predictions.

      Surely, you can close the discussion. Enjoy.


  8. 3sharad says:

    Dear Ramesh

    Great analysis. I am impressed by your openness to check the styles at the website.

    What you mentioned is largely correct but there are a few other points which need to be considered.

    For the Jan-10 to Oct-12 period, your finding on alpha drivers is correct. However, I am not solely talking about that.

    Please go to the STYLE tab and see the figure with the heading “Alpha Sources: Where is outperformance coming from”. Its on the left side of the page.

    You will notice that Franklin Blue chip has only 60% investments in Index and 40% outside. This non-index investment is generating 9% of the alpha, which is a major part of the total alpha.
    On the contrary, ICICI Pru Top 100 has 87.5% in index and all the Alpha is generated from within Index stocks. Alpha from non-index stocks is almost 0%.

    This is a very important thing from a fund mandate and style perspective. A fund manager must invest within the benchmark which is not the case with Franklin Bluechip.

    On the right of the page, within the Style tab is a section with heading “Style Returns: Fully invested, index portfolios”. Please look at the bottom box labelled “100% index portfolio”.

    Let me explain what this means. This is the return that the fund would have generated during the period, if all its investments were within the index… which means the returns that the portfolio would have generated if it would have followed its “Style by 100%.”

    The value for Franklin Bluechip is a mere 4.4% vs. 10.8% for ICICI Pru Top 100. So the style and mandate is better followed by ICICI Pru Top 100.

    Essentially, a fund manager must generate returns from within the index which is his mandate.

    I agree to your point “Having more data DOES NOT mean more information or more โ€œactionableโ€ information.”… we must not torture data, however there isn’t any unnecessary regression that we are talking of. These are a few basic numbers.

    I like your cricket analogy (seems you are a cricket fan… I am too). I notice “Australian cricket team is fairly decent always because of their system”…

    You agree that they are good because of the system and processes. The same thing is good for fund management. If a fund house has deployed good processes and systems, they would be able to consistently outperform even if the team moves on. is one way of finding for mutual funds, whether the style is good and the returns are coming from mandated sources. A way of looking at the performance holistically.

    Sorry, I don’t agree with your point regarding 2-3 year data being meaningless and being a noise. Almost all rating agencies like CRISIL, Morning Star etc. look at 3-5 years of data and put highest weight on past 1 year, second highest weight on 2 year and so on.
    Seems they are too noisy ๐Ÿ˜‰

    Thanks anyways for your analysis and point of view.


    1. Ramesh says:

      It seems you are confused about mandate and benchmark index.

      Fund Mandate= The universe of the stocks and the basic criteria, if any, of stock selection by the particular fund. In Franklin’s case, it is largely bluechip companies, while in ICICI Pru Top 100, there aren’t any.

      Benchmark Index= It is just some already formed index against which the fund tries to compare. There is nothing to say that the fund HAS to put money only in the respective index. If I was only interested in putting money in index, I would have taken an index fund.

      Fund style: This includes the fund management house team, analysts as well as the final call of the fund manager(s) of the respective fund.

      In my opinion, analysing the actual alpha (which by itself is a non-sense future predictive value) does not help. Same with beta or any other indices. All of them are just to complicate the analysis and LOOK intelligent. I know that I do not know about the future and I do not try to predict it too.

      Regarding the various rating agencies, the star ratings of all those Morningstar, CRISIL, valueresearchonline are also non-sense in my opinion. eg, Reliance RSF fund was given 5 star 2-3 years back, then dropped to 4 and even 3 star and now it is back at 5star. Same with Templeton India Equity Income. All 5 star funds (except Quantum Long Term Equity fund) have changed their star ratings. If someone just wants to see them and invest according to them, God help them.

      No matter how much you ponder over past data, it would not help you predict the future. Be it fundoo or anyone else.

      Morningstar’s Qualitative analyses are the only decent analysis which I have found useful. Not their star ratings.


  9. 3sharad says:

    In recent 6 months a couple of European funds have appointed ICICI Pru as their advisor. See the link:

    I am not citing this to say ICICI Pru is better. Neither did I say Franklin and others are not good, I just put an objective data-based comparison for 2 funds (not fund houses).

    Does changing a team mean a bad team has taken over? Does a stagnant team guarantee performance?

    There would be some merit to that big win for ICICI Pru… I guess. Your judgment on management teams is interesting and I hope you would have your own strong and well placed reasons for the same.

    I hope are giving importance to teams because you wish the end result i.e. returns. right? If that is the case then why not look at the performance numbers and understand the skill of the management team from the numbers rather than personal judgment.

    Particular Fund
    ICICI Prudential has just changed the name of the fund. The mandate, index etc remains the same. Here is the related link:

    Its clearly mentioned that the name change is “to make the name of the Schemes simpler for the investors and to capture the essence of the fund.”

    The world is moving to BIG data and here we are arguing on usage of data. Its not about blindly following what others/big institutions are doing but we can certainly learn from good practices.

    Still we can have different opinions, which I appreciate.


    1. Ramesh says:

      If you want an ICICI AMC’s funds, then ICICI discovery and ICICI dynamic are better choices with a very decent mandate and style. Though, the non-continuance of the same fund managers is an issue there too.

      The mandate of ICICI growth (now top 100) is very vague and confusing. Just go through it yourself and then compare with their other funds.

      Changing of a team: My take is “you do not change a winning combination”. Unless someone is retiring altogether, in which case you need to see if the whole management philosophy and training is consistent. eg. an Australian cricket team is fairly decent always because of their system, compared to say a Pakistan team. Constant chopping and churning is a bad signal especially in investment teams. A stable team is more likely to give you performance. You can call it stagnant if they are not performing and still not changed.

      The European example which you have pointed out is good for ICICI AMC, but they seem to be very happy with their Dynamic fund philosophy. Also, you need to take into account that such parternships take many years and months to finalize and things in the AMC have changed recently. So, I would not give it a big thumbs up.

      I am interested in both the returns as well as the peace of mind during investment times. I do not want to stress myself every year or so, about whether I should change my funds because of underperformance or because some other funds have outperformed. A decent outperformance as compared to the index is more than enough for me, with a consistent management team and consistent investment style. Changing styles means the team is confused.

      The fundamentals have remained the same and will remain so in the future also. Fads come and go.

      Regarding the Fundoo’s analysis, for Franklin’s Blue chip fund:
      Investment period- the default 1 year (1/11/11-30/10/12). The main alpha driver is Dividend (1.4%) and others are negative or flat.
      For Investment period – the max’ed out (from Jan 10-Oct 12). I could not go any further back than that. The main alpha drivers are Selection (9.3%) and Dividend (3.4%).

      For ICICI Top 100:
      in both instances (last 1 year, and their max)= the main alpha driver is Selection.

      Try this, with many other funds. decently performing funds over the two different periods atleast.

      The problem you will face is that different good funds will have different factors in their alpha and sometimes different over the two time frames. Tell me what you find and what you will give more importance too.

      Anyways, for me, 2-3 years data is meaningless, and just noise.

      Having more data DOES NOT mean more information or more “actionable” information.

      And yes, it is ok to have different approaches and opinions.

  10. 3sharad says:

    @ Ramesh… Agreed and appreciate your point on analysis horizon.

    However, the same analysis holds largely true for 2 year period also. I would say that’s a decent period to judge a fund’s style and decision making skills, since fund managers do change and even their style changes.

    How long back should we look?
    Debatable… 2-3-5 or entire history but in wake of the fact that fund managers, teams etc. change, it’s important to understand how good the fund management style is and for that the style analysis becomes mandatory.

    Institutions are now investing in setting up processes so that the performance can be reproduced to an extent even if a star fund managers leaves the fund house (though… I understand that they don’t clone humans..:) ). The tool mentioned above is one such tool that fund managers across the globe use extensively to find pain/gain areas and is an important part of the fund management process.

    Regarding the qualitative judgment of teams, If I am correct, the team at ICICI Pru shuffled 1+ year back (starting Feb 2011). In that case, the 1 year analysis becomes all the more important, along with the longer term analysis. As discussed, the 1 year analysis shows that the current team has been able to generate healthier returns with good style.

    I would reserve myself on the qualitative analysis and would embark on data driven factual analysis. Knowing that teams can change this is the only way to find if the fund house is still delivering performance and would do so in future.

    If the skills can be represented via data which is the case here, I would give it due weight while taking an investment decision.

    Personally, I am fine with a young chap delivering performance to me and logically all of us should be.

    That’s the benefit of looking at this approach.

    PS: Having said all of the above, it’s always recommended to keep pruning the portfolio. Investment for the long-term doesn’t mean that an investor is married to a particular fund with no-divorce clauses… ๐Ÿ™‚

    Thanks & Regards,

    1. Ramesh says:

      Fund House: The management should be top class, ethical, and have a consistent and clear-cut approach to investing. The continuance of the same team for years and years together, without shuffling is a major requisite (ICICI fails on this, while Franklin, HDFC and Quantum have remained solid).

      Particular Fund: The performance should be atleast across one market cycle (bull+bear), and more the better. 1 year or 2 year is just too less, since one is supposed to be investing for 7-10-20 years.

      In this case, ICICI top 100 has changed its mandate from a prior ICICI growth fund to Top 100 fund. If the fund house and the management team themselves are not sure about this fund, how am I supposed to be. ๐Ÿ˜‰

      Regarding institutions setting this up, I do not think I need to be concerned with what the big institutions are doing and how they are doing.
      Regarding quantitative analysis, too much of this analysis is pure senseless and utter waste of time.

      The best thing about qualitative analysis is your funds will remain consistent over years. My selection of 5 years ago have remained unchanged (and I do check them regularly). While funds selected on quantitative terms tend to change yearly or 2-yearly (as per your analysis time).

      In the end, do what you yourself think because it is your own money. ๐Ÿ™‚


  11. 3sharad says:

    Hi Venkat,

    For the large cap fund, you can look at ICICI Pru Top 100 fund instead of Franklin India Bluechip.

    Following reasons (based on style analysis of funds using

    1. Franklin India has generated most of the out-performance from dividend returns and not from sector allocation or stock selection skills. ICICI Pru Top 100 has generated higher returns/alpha and majority of it from the Stock Picking skills/actions (1 yr return and analysis… you can further deep dive)
    Details at following links:

    2. There are other aspects like the % wt. invested in Index which is 53% for Franklin Bluechip and 85% for ICICI PRU. I would give higher credit to a fund manager who outperforms by being within his benchmark index.
    Also read this for Franklin :

    3. The alpha generated by Franklin from the index is negative, however the same is high positive for ICICI Pru Top 100

    Since I would highly recommend to base investment decisions on the basis of skill and style rather than just NAV based statistics, ICICI Pru Top 100 would be my pick.

    You can do more such analysis using the above mentioned website tool which is coming up with quite a number of schemes already live.

    You can refer to the following link where, in an answer, I have explained in some detail, why we must look at this way of analysis mutual funds;

    Feel free to ask for more questions.

    Best Regards,

    1. Ramesh says:

      @ Sharad,
      Is your comparison on the basis of just past 1 year really relevant when the proposed investment period is Future & many years.
      Also, the investment management team of ICICI Top 100 is very new, while both the current management of Franklin blue chip and the whole team of that AMC have remained stable since decades.

      So, in my opinion, Franklin’s funds are much better.

  12. TheZionView says:

    IDFC Premier Equity Plan A-G
    Quantum Long Term Equity-G
    Franklin India Bluechip-G

    this should do

    1. sainath says:

      thanks Zion,

      Please suggest regarding SBI Gold ETF, HDFC Balanced-G , Canara Robeco Eqt Tax Saver-G


      1. TheZionView says:

        I do not have idea on gold related investments.

        HDFC prudence is not needed as the three funds mentioned above is sufficient diversification.

        If you want to invest in a tax saving MF then invest in Quantum Tax saver(this is because its mirror image of quantum long term equity which you have already invested in)

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