We upset a few of you with our call on some of the Axis funds last week 😊 Some of you commented on the blog and others raised tickets. We thought it would be better for us to respond through an article for the benefit of others as well.
Axis Mutual Fund issued a public notice removing and replacing two of its fund managers, Viresh Joshi and Deepak Agarwal, from seven of its schemes — Banking, Technology, Consumption, and Nifty ETFs and Axis Value, Quant and Arbitrage Funds. This move was accompanied by speculation that the managers were suspended on front-running charges. Axis Mutual Fund hasn’t explicitly mentioned front-running charges, but it has confirmed that it has been investigating “potential irregularities” with the help of external advisors.
Not so long ago, if debt investors in India wanted to get a 7% plus return, they had to go to post office schemes with (poor service and) a long lock-in period like the PPF or GOI Floating Rate Savings Bonds with a 7-year lock-in period. These options, apart from the difficulty of accessing them, required investors to sacrifice liquidity for returns.
Some funds have a clear fundamental strategy that shows in their portfolio construct. When that strategy pays off, they deliver. But many good-to-hear strategies have failed for many mutual funds in recent years. This is partly due to fast-shuffling sector preferences in the market and partly due to high stock weights in the index that funds struggle to replicate. As a result, you see them underperforming key indices.
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.
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.
If there’s one trend that equity funds don’t seem to be shaking off soon, it is the performance divergence. Over the past few review cycles, we have been highlighting how up-and-coming funds have soared well past the earlier steady performers. Taking stock of the underperformers, the nature of market movements, and returns we have made some key changes to our equity funds in this review cycle.
As a result of having many categories, many of you end up having duplication in debt funds in your portfolio inadvertently – by believing that spreading across different categories, you’re diversifying. However, funds that may be in different categories but not necessarily doing anything different for your portfolio.
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.
We have received questions on how to use & choose debt investment options. These questions assume importance in the present changing rate scenario and we thought we should address those questions.