Quarterly review – Changes to Prime Funds, Prime ETFs & Prime Portfolios

Prime Funds is our list of recommendations in equity, debt, and hybrid mutual funds that are worth investing in. Prime Funds narrows down your choices from the thousands of funds that there are into a concise list of funds that span different styles. Prime Funds are selected based on performance, portfolios, and investment strategies. 

In this review, we have made a few changes in the equity, hybrid, and debt categories. Please go through the report in detail to know the changes and the rationale.

Equity

Markets have seesawed through the quarter, with the Nifty 50 repeatedly surrendering gains after brief rallies. The broader market followed suit. This caps a turbulent 2025 where Nifty 50 posted modest returns while small-caps stayed negative. Even index-level gains in large-caps and mid-caps came from a narrow set of stocks, with most lagging far behind—a phenomenon we detailed in our annual performance recap in Prime Funds & Prime Stocks, as well as in our recent technical index outlook.

Fund performance has been mixed across the board. With most stocks trailing their indices, outperformance has been elusive. In large-caps, for example, half the funds underperformed the Nifty 100 TRI over one year, with barely two beating it by over 1%. 

Given this backdrop, we’ve been extremely cautious with Prime Funds changes. Judging underperforming funds is difficult, and adding new recommendations is risky. We’ve been lenient with funds lagging their benchmark if they’re outperforming peers, hold quality portfolios, and have promising sector positioning. Some recommended funds may still be underperforming but remain on our list for these reasons.

In this quarter’s review, we have made just one fund removal in the Equity – Aggressive category. We have added no new funds. 

Equity – Moderate

In this Prime Funds set, we have made no changes at all. But we’d like to give some explanation for two funds in the list where performance has been particularly behind. These are as follows:

• Baroda BNP Paribas Large Cap: This large cap fund has been trailing the Nifty 100 TRI by about 2-3 percentage points over the past six months. The fund holds a large portfolio of over 50 stocks; while most of the heavier stock weights held up, some of the smaller holdings underperformed the Nifty 100 which pulled down performance. For example, some consumer picks such as Trent, ITC, and Varun Beverages, energy picks such as NHPC and Power Grid, IT calls such as TCS, all lagged. The margin of underperformance is not widening for the fund, and it has kept up with the category on an average. Therefore, while we are watching performance of the fund, we are not pulling it out of Prime Funds.
• Nifty 50 Value 20: This fund is part of the passive section in the Equity – Moderate Prime Funds. The index has been behind the parent Nifty 50 for over two quarters now. This is slightly a contrarian call that we continued to retain, given that the index has a heavy weight to IT services. However, this sector index is picking up again now and other sector heavyweights in the index are financial services and automobiles, where prospects are looking strong. Going by trends in short-term returns, the Nifty 50 Value 20 is pushing ahead of the parent. 

Equity – Aggressive

In this Prime Funds set, we are removing Mahindra Manulife Midcap. We are not replacing this with any other fund. The Mahindra fund has been trailing the Nifty Midcap 150 for about 3 quarters now. While this is partly owing to the volatility in the space, a concerning factor is that the extent of underperformance has now been widening. Against the category as well, the fund has slipped below the average. 

The fund holds a very diversified portfolio and several stocks have lost over 15% in the past year; for an overall return improvement, much of the portfolio now needs to turn around which can take a long while without broader market support. With a lower consistency, compared to other midcap funds in Prime Funds, we would prefer to pull the fund out.

Action to take: Stop SIPs and retain investments made so far. Fresh investments can be made in the Nifty Midcap 150 index fund, to minimize risks given that the midcap space in general has been underperforming.

Another fund in this Prime Funds set is Motilal Oswal Midcap. This is a distinctly aggressive fund even within the mid-cap category. Its strategy involves a concentrated portfolio and a strong growth-oriented approach. As a result of this concentration, sharp declines in a few portfolio holdings have led to a pronounced period of underperformance; this is among the risks of a concentrated portfolio strategy. Stocks such as Dixon and Trent have corrected steeply, as have Kaynes Technology, Balkrishna Industries, Kalyan Jewellers, and Oracle Financial Services. 

While the fund has pruned back or exited some of these, the impact has caused the fund to fall well below the Nifty Midcap 150. Given the compact structure, gains in other top holdings can help in recouping the underperformance. This apart, the worst of the corrective period in the portfolio stocks may also be behind, limiting further underperformance in the portfolio. It also has a record of strong outperformance during market upswings. For now, we’re retaining this fund in Prime Funds. 

Equity – High Risk Turnaround

In this set, we are making no changes. Invesco India Focused, part of this set, has seen a drop in performance relative to peers and the Nifty 500 in the past quarter. Like with the Motilal fund above, sharp corrections in concentrated holdings (such as Interglobe Aviation, Eternal, HAL) has triggered the underperformance. Invesco has a higher mid-cap allocation, compared to category outperformers such as ICICI Pru Focused. We are retaining this fund in Prime Funds.

Hybrid Funds

In this review, we are adding one more option in the balanced advantage category. Given that hybrid funds are becoming more useful in portfolios to balance risk and return, we have been gradually adding different options to suit multiple use-cases.

Hybrid – Moderate risk

We are adding SBI Balanced Advantage here. This fund is a consistent performer in the balanced advantage category. It straddles the middle ground between being conservative (such as IPru Balanced Advantage, which is the Hybrid – Low Risk Prime Funds) and being more aggressive (such as HDFC Balanced Advantage). Its average unhedged equity exposure stands at about 50%, compared to HDFC’s 60%. The fund scores well on downside capture as well, and clocks lower-than-average volatility. 

This fund is useful for those looking at a lower-risk route to getting debt-plus returns in their portfolios. It can be paired along with debt funds in long-term portfolios to balance out the equity risk. Compared to the other funds in this Prime Funds set, it is also more suitable to include in shorter-term portfolios given that it is lower in its risk profile. 

Debt

The past quarter saw another repo rate cut, though 10-year gilt yields remained stable and short-term yields rose marginally. There are multiple factors including exchange rates, inflation, and growth to juggle. While returns in pure gilt funds and other long-maturity funds have declined after the rally earlier last year, funds across other categories have clocked steady returns. In Prime Funds, there are limited changes to make, especially given that aggressive tactical calls at this point are best avoided. In this review, therefore, we are making just one change.

Debt – Medium Term

In this Prime Funds set, we are removing Aditya Birla Sun Life Corporate Bond. This fund has been part of Prime Funds for several years now. The fund had always adopted a short-to-medium average maturity and was steadily delivering above average. Over the past year, however, this outperformance began to slow, slipped below the average, and the margin is worsening. The fund now has a much longer maturity profile, which it has increased over the months and which has weighed on returns. 

Given the risk of such a strategy continuing to subdue returns given the rate outlook and that the fund has not usually taken such calls, we are pulling the fund out of Prime Funds. The Prime Funds set already has other corporate bond funds that have delivered much better, and which are more stable as well.

Prime ETFs

We have not made any changes to Prime ETF recommendations in this quarter’s review. But as a cautionary alert – the market price-to-NAV differential of Motilal Oswal Nasdaq 100 ETF is again starting to rise after a period of low differentials. This is a fairly standard phenomenon in this ETF and therefore, phase out any investments to be made in this ETF.

Prime Portfolios

We have not made any changes to any Prime Portfolio in this quarter’s review. You can continue investing through SIPs/lumpsum as you were before and there is no action that you will need to take.

You can view the full list of Prime Funds here

You can view the full list of Prime ETFs here

You can view the full list of Prime Portfolios here

Disclosures & Disclaimers