Quarterly review: Changes to Prime Portfolios, our readymade portfolios

Prime Portfolios are a set of 19 unique portfolios that meet over 30 different investor timeframes and needs. Prime Portfolios are listed under Ready-to-use-portfolios in the Recommendations menu dropdown. These portfolios primarily use mutual funds, but where there are better-suited products such as deposits or government schemes, the portfolios include those too.

We review these portfolios every quarter, along with our other recommendations. We make changes to Prime Portfolios to remove underperformers or to include any new investment opportunity or product that may come by.

In this quarter’s review, we have replaced underperforming funds in 3 portfolios with newer ones. We have explained whether you need to exit or hold the funds we have removed. Our suggestion is that you implement these changes to Prime Portfolios as early as you can, though you are free to decide when you wish to make the changes.

Construction of Prime Portfolios

We have classified Prime Portfolios based on popular financial needs/goals you may have. The basis for many of these would be the goal’s timeframe. We have therefore segregated many of these goals further into timeframe buckets. For those looking for passive investing options, check the Odds and Ends portfolios.

Fund or instrument selection: Prime Portfolios draw from Prime Funds and mix funds with different strategies to minimize duplication within a portfolio. However, there may be a few cases where funds are outside of Prime Funds. This apart, we use other products, primarily on the fixed income side, in portfolios where they will be good options.

Asset allocation: The asset allocation in Prime Portfolios is done based on the ‘ideal’ allocation for a given timeframe or goal. But this is not cast in stone. Assess your own capacity to take risk before choosing a portfolio. These portfolios are not ‘advisory’ in nature. They are bundled MF products with a mix of equity and debt funds and fixed income options with varying strategies for diversification.

Using Prime Portfolios

Prime Portfolios are useful in the following cases:

  1. If you are new to mutual fund investing, or don’t know how to mix funds and want a readymade basket of funds to invest.
  2. If you are an existing investor but have new goals and want an asset-allocated portfolio for that purpose.
  3. If you wish to build your own portfolio by taking cues from the asset allocation and category allocation that we use.
  4. If you wish to add or modify your existing portfolios by taking cues from Prime Portfolios’ construction using Prime Funds or MF review tool. You can read this article on building your own portfolio.

If you’re investing in or referring to any Prime Portfolio, note the following:

  • We review these portfolios every quarter after the review of our ratings, recommendations, and Prime Funds. So, this will typically be 2-3 weeks after the end of a quarter.
  • In the review, where we make changes to Prime Portfolios, we will explicitly specify whether a fund needs to be exited (sold) or only SIPs stopped and investments made so far held. Changes may involve fund changes or individual fund allocation changes.
  • In our review reports, we mention only those portfolios where there are actual changes or portfolios to which we wish to draw your attention on any performance. If a Prime Portfolio is not mentioned in these reports, you can assume that there are no changes.
  • If you wish to track changes to a portfolio, please click the ‘Follow’ button to ensure you receive alerts about the changes. Your Dashboard will also show you portfolios that have been changed when you Follow a portfolio.
  • We send email and Dashboard alerts on changes only for those who ‘Follow’ a portfolio. However, we also publish a report on the blog on the same every quarter, with the detailed reasoning for changes along with action to be taken. So, either way, keep note of our emails – at least at the end of every quarter!
  • Some asset classes in your portfolio may have strayed from the original asset allocation as market rallies. This is something only you need to run a check on (as each of you would have invested in different times), once a year, to see whether you need to rebalance. The rebalancing concept is explained in detail in this article on rebalancing, and we have built a calculator to tell you how much to invest/redeem in rebalancing.
  • We review and publish a report on portfolio performance since inception at the end of every calendar year. 

Essentially, it is important for you to read and record our emails for all of the above. So kindly make sure you find some time to do this to keep your portfolio in good shape!

Changes to Prime Portfolios

1-3 year portfolio

In this portfolio, we have removed Axis Treasury Advantage. This is not due to performance issues in the fund but rather as precautionary move as the fund has seen a severe loss of AUM. We had been keeping a watch on the fund’s AUM over the past couple of quarters as it started losing AUM. Though stabilizing for a while, AUM has since continued to fall and has more than halved to Rs 5,086 crore between July last year and now.

The AUM in absolute terms is still large. There are no risks in the portfolio so far and performance still holds. However, the steep and persisting AUM decline is concerning. Further dips may see risks creeping in, such as concentration in papers, liquidation pressures to meet redemptions, inability to deploy fresh money into higher-coupon papers and so on. The governance issues in the AMC may also hurt. Therefore, we prefer to be on the safer side and avoid any potential risks. The short-term nature of this portfolio does not afford much risk-taking.

Our recommendation is that you fully exit Axis Treasury Advantage if your goal is more than 4-5 months away. You can reinvest in the new fund we have added in the portfolio – Nippon India Low Duration. This is a low duration debt fund that has steadily delivered above average returns in 1-year periods. It takes very marginal credit risks – similar to Axis Treasury Advantage – to earn slightly better yields.

All other funds in the portfolio remain unchanged.

5-7 year portfolio

In this portfolio, we are making changes to the current portfolio to reduce the underperformance coming from the midcap fund. The changes are as follows:

  •  Stop SIPs in DSP Midcap and hold the fund until any further alert from us
  • Start SIPs Kotak Emerging Equity with the same allocation
  • If you have only lump sums, avoid making any fresh lump sum investments in the DSP fund. Make any such investments in the Kotak fund.

After a few quarters’ watching, we decided to remove DSP Midcap given that the fund’s rolling 1-year return outperformance (over 3 years) is now below category average. The March quarter saw some improvement as markets picked up then but the correction once again has made it difficult for the fund to make a swift comeback. This rolling return underperformance since October 2021 puts it in the backseat now in terms of competing with peers especially in this market.

Stop fresh investments and SIPs in this fund and hold existing investments. We will alert you if there is a change in our stance based on whether its portfolio is able to make a comeback. Kotak Emerging Equity is a more aggressive midcap fund but has managed to deliver consistently. The fund can be a bit more volatile in down markets but long-term holding should take care of this.

We have taken other steps earlier in this portfolio to address the underperformance that crept in as funds faltered. The overall performance of this fund has gradually improved from when we gave a performance update last December. The changes we have made should hold the portfolio now in good stead.

Apart from the above, all other options in the portfolio remain unchanged.

Need based: Tax-saving portfolio

In this review, we removed Axis Long Term Equity on account of underperformance over the past 6 months on a rolling 1-year return basis. The underperformance widened in this market correction. This fund held heavy exposure to stocks such as Bajaj Finance that took a beating. The underperformance over the Nifty 500 is on the higher side.

You can hold investments in fund (even if it is no longer under the lock-in). We will alert you if you need to exit the fund. For any fresh investments, make this in the new fund we have added in this tax-saving portfolio - Canara Robeco Equity Tax Saver.

All other options in the portfolio remain unchanged.

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9 thoughts on “Quarterly review: Changes to Prime Portfolios, our readymade portfolios”

  1. Siddhartha Sikder

    In Sep’2020, you said about DSP Midcap “The funds don’t need changing every year 🙂 And unless DSP Midcap’s strategy changes, it appears well placed to continue to deliver in the long term.”
    And now less than 2 years later, your advice is to Stop & Hold. This does not give me much confidence as an investor on your advisory services – specially if your only alternative is to redirect investors towards passive options based permanent portfolios.

    1. Bhavana Acharya

      When a fund’s performance stays down for a long period, it is best to redirect fresh investments to a better alternative. We still think the fund’s strategy and portfolio are tilted towards good, quality stocks – but if markets don’t pick up these stocks, then performance is going to stay subdued. As far as our recommendations go, there is limited benefit in us sticking to our calls and making no change even as we see performance stay low. We don’t remove funds as soon as they drop – we watch portfolio changes and improvements before taking the call. – thanks, Bhavana

  2. Hi,
    I need some clarity of thought as a DIY investor. I subscribe to advisory services like yours and invest in a fund with 5-7 years horizon. Within a year, I am told to either stop SIPs in the fund or exit.
    So what is the rationale for investing in a 5-7 year horizon fund if one needs to exit in one year. And if this happens couple of times a year, one is left a bucket of funds which is large and not desirable.
    So how should one approach investing in equity mutual funs even with a decent time horizon.

    1. Bhavana Acharya

      Whether in our portfolios and in Prime Funds, our aim is to avoid much churning. We pick funds based on their consistency across market/rate cycles, and blend funds of different styles in portfolios so that there is an even approach.

      But sometimes, it is inevitable that we remove funds – funds can and do lose their grip on performance. In such cases, we pinpoint the reasons for this, wait for improvement and portfolio changes. Only when it has been a long or steep underperformer or we don’t see it turning around do we remove it from the list. We also mention whether a fund can continue to be held or if it is necessary to exit. This helps retain funds that can eventually pick up and exit those that are down.

      In a portfolio, there always will be the need to shift funds around because their performance changes. To a large extent, you can limit the churn by going for stable consistent funds and mixing different styles so that some part of your portfolio is always performing. But when you have active funds, it is par for the course that some will slip. It is buy-and-hold equity and not buy-and-hold the same fund. If you wish to entirely avoid tracking and changing funds, you can stick to passive options – we have explained how to use them to create a permanent portfolio here: https://primeinvestor.in/varsity/how-to-build-a-permanent-portfolio/ -thanks, Bhavana

  3. Arun Kumar M S

    Query in relation to suggested alternate for “Axis Treasury Advantage” fund; For the same tenure that this fund may be used for, fund recommendations from your end seem to carry another fund that has a higher rating as well – “Nippon India Money Market Fund”. Would this too form a good alternate.

    Also, from a write up point of view, why is the inclination more towards “Nippon India Low Duration Fund” in comparison to the fund that I have mentioned above.

    Thankful to the response on this.

    1. Nippon Low duration has slightly higher maturity and hence higher yields than the Money Market fund. Otherwise, Money Market is good too. As long as we are clear we are not taking risks, we would side higher yields now, slightly higher maturity notwithstanding. vidya

  4. jatin.mehta1501

    Your classify Nifty 50/Nifty 100 as Moderate where as Nifty Midcap 150 as Aggressive … What would be classification of said index funds based on style of investing… Growth/Blend/Value etc.
    Thanks & Regards

    1. Bhavana Acharya

      The Nifty 50 and Nifty 100 are both large-cap indices and therefore classified as moderate. The Midcap 150 is a mid-cap index, and thus aggressive. Otherwise, our classification will be on the basis of strategy or can be due to extent of volatility or downside possibility – like the Nifty Next 50. – thanks, Bhavana

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