Funds investing internationally were the flavour of the season all of last year. That changed in February this year, when funds hit the ceiling set by the Reserve Bank on how much they could invest in overseas securities. When we first explained the scenario, expectations were that this cap would be increased in due course and international funds could open up again.
Up until six months ago, Parag Parikh Flexi cap was an investor favourite. Its chart-topping performance and overseas investments served as the key attractions. These very same factors now appear to be doing the opposite, causing investors to worry over continuing investments. So, should you be concerned over Parag Parikh Flexi Cap’s performance? Is the restriction in investing abroad a game-changer for the fund?
In this analysis, we look at indices on the ‘Quality’ factor. There are two NFOs running now – DSP Midcap 150 Quality 50 Index fund (there’s already the ETF version of this) and Aditya Birla SL Nifty 200 Quality 30. These two indices join the Nifty 100 Quality 30 index, on which there is an already existing ETF (from Edelweiss).
The world of passive investment options is a growing one, and the ETFs available now number over 100.
Because passive investing has gained such a name for itself, you may think that anything passive is a great investment. No. There are ETFs which make good investments and those that do not, just like with active funds.
This week, we’re issuing an invest recommendation on another theme that’s starting to break out of a long slump. This theme makes for a good portfolio differentiator as most other diversified equity funds, as yet, have not moved overweight by much on it.
The headlines now are devoted to sliding equity markets and stock opportunities to ‘buy the dip’. But that’s not the only window of opportunity to make the most of a correction. With the hike in repo rates earlier this month and a clear path now for higher rates, debt markets too offer scope for timely investments.
Hybrid funds don’t really suffer from the overlapping drawbacks we pointed out in our explanation on Prime Funds’ equity and debt recommendations. However, we still use our basic logic when it comes to portfolio building – given an investment purpose, which fund will fit that need?
This is the second to our two-part explanation on how we construct Prime Funds and how to use these fund recommendations to decide allocations. In the first part, we had covered equity funds in depth. In this Part 2, we will cover the debt fund recommendations in Prime Funds.
In this two-part series, we’ll explain how to build a portfolio with the right allocations. We also discuss how we categorise funds in Prime Funds and how to use each category in your portfolio. In this first part, we will cover equity funds. In the next, we will take up hybrid and debt funds.
In January, mutual funds investing overseas came up to a roadblock. As we had explained at the time on these curbs on international funds, Reserve Bank rules limit the amount mutual funds as a whole can invest in foreign securities. The cap stands at $7 billion for all foreign securities other than ETFs and $1 billion for ETFs. That $7 billion mark was close to being breached. And so, SEBI directed international funds to close off fresh subscriptions until a new limit could be worked out with the RBI. Please read our earlier article on this subject to understand the background.
Conservative hybrid vs equity savings & balanced advantage :
Hybrid funds are interesting options – they neither work entirely like equity, nor entirely like debt. And when you add derivatives into the mix, the lines get even more blurred. Conservative hybrid funds have long been used by investors who are looking for debt-plus returns by adding a dash of equity without taking on too much equity risk. But the advent of equity savings and balanced advantage funds has chipped away at the higher-return-for-low-risk bastion that conservative hybrid funds had.