download our 'which fund to buy guide

Which Fund To Buy guide

Which Fund to Buy guide

Publication Date : 23 June, 2016Validity : Till 31 December, 2016Data Source : Capital Line NAV

: Moneycontrol.com

Bharosa Club is a Registered Investment Advisor with SEBI (RIA # INA100004657). Ouropen to public algorithm helps investors identify good performing Mutual Funds.Investors are free to do their own analysis and choose their own investment picks.

1

Table of Contents

Top Algorithm Picks

Page

4

How to use this guide 5

How did we determine our top picks - EQUITY 8

2

How did we determine our top picks - DEBT 10

How did we determine our top picks – TAX SAVER 12

Disclaimer:1. Mutual Fund Investments are subject to market risks, read all scheme

related documents carefully.2. Past performance does not guarantee future returns.

Message from CIO, Bharosa Club 3

3

Message from the Chief Investment Officer

B.Tech( IIT - Mumbai)PGDM ( IIM - Ahmedabad)Head Equity Derivative Operations, Citibank New York, Reuters Digital Vision Fellow, Stanford University, PayPal founding teamNISM Investment Advisor (Level I&II)

Sanjay BhargavaCEO & CIO, Bharosa Club

Dear Member,

To begin with, a big congratulations to first time mutual fund investors for getting started on yourinvestment journey. It’s our endeavour to consistently provide you well researched & unbiased advice. Youon your part are encouraged to stay the course and not get deterred by short term volatility. Patience &Persistence are the key success mantras when it comes to long term investing.

This guide seeks to address the one question asked by most investors, “Which fund should I buy?”

Our algorithm helps investors resolve this dilemma. We begin by helping you decide your asset allocation(based on your age & risk profile) and then go on to recommend funds across mutual fund categories. Webelieve in an open algorithm, and no one can accuse us of bias. Members are free to execute our advice ordo their own research to select their funds. We recommend the use of websites like Money Control &Value Research to help members dig deeper.

This guide is designed to keep it simple. Some of you may only want to look at our picks; others may wantmore detail. We have tried to balance these needs.

We believe in continuous improvement, and would love to hear from CIO's of AMCs and our members onhow they think our algorithm should be improved. Should the 1,000 cr limit for equity funds be lowered orraised? How can we spot emerging stars and not be biased by past performance? These are just some ofthe issues where we would love to have inputs.

With that, all the best & Happy Investing!

Top Algorithm Picks

EQUITY PICKS

For long term wealth creation. Equity Funds are volatile and risky in the short term

DEBT PICKS

A better alternate to savings account or even FDs. Offer easy liquidity and tax advantages if held for more than 3 years.

TAX SAVER PICKS

Just a 3 year lock-in and higher returns makes them a better alternative for tax saving. They carry the risks associated with Equity Mutual Funds.

Invested

4.67L 4.72L

4.93L

5.51L

SBI BlueChip

Franklin India Prima

Plus

MO Most Focused Multicap

35

ICICI PruValue

Discovery

SBI Magnum Midcap

Rs. 10,000 monthly SIP between June 1, 2013 & May 31, 2016. The above data shows the value of investments on May 31, 2016. Figures have been rounded off. Investments in the DIRECT Growth plans of the above funds. * The Motilal Oswal Most Focused Multicap 35 Fund is only 25 months old. In order to get comparable returns, we assumed an SIP in the ICICI Nifty ETF Fund between June 1, 2013 & April 30, 2014. Post which this amount was transferred to the Motilal Oswal Fund with regular SIPs starting May 1, 2014. We even compared this fund’s performance vis-à-vis the other top picks for the 25 month period, and it mirrors the performance shown in the chart above.

3.60L

Invested

4.12L

Birla Sun Life Cash Manager

ICICI PruFlexible Income

Reliance Money

Manager

SBI Ultra Short Term

Debt

HDFC Cash Mgmt -

Treasury Advantage

Ret

urn

s o

ver

3 y

ears 3.60L

Invested

4.78L 4.81L4.67L 4.56L

Birla Sun Life Tax

Relief '96

AXIS Long Term Equity

Franklin India

Taxshield

DSP BR Tax Saver

HDFC Long Term

Advantage

Ret

urn

s o

ver

3 y

ears 3.60L

4.26L4.10L 4.10L 4.09L 4.08L

Ret

urn

s o

ver

3 y

ears

4

5.11L*

How to Use this guide

STEP 1: Determine the right asset allocation for yourself

• If you can’t tolerate any volatility in returns

• If you have very short term goals

• If you want regular income out of your investments

RISK AVERSE

• If you can handle slight volatility but not large losses in the short term

• If you want to beat post tax FD returns

• If your investment horizon is less than 5 years

CONSERVATIVE

• If you can handle risk and digest large losses in the short term

• If you want to get higher returns

• If you want to invest for 5 years or more

MODERATE

• If you are a risk taker and can handle losses over the medium term

• If you want to create wealth• If you have an investment

horizon of 10 years or more

AGGRESSIVE

Recommended Asset Allocation

B00% Equity : 100% Debt




STEP 2: Select Funds for the DEBT portion of your portfolio

Top Picks 1st Investment (Min Amt)

Subsequent Investments (Min Amt)

Birla Sun Life Cash Manager - Direct (G) 5,000 1,000

ICICI Pru Flexible Income Plan - Direct (G) 500 100

Reliance Money Manager Fund - Direct (G) 500 500

SBI Ultra Short Term Debt Fund - Direct (G) 5,000 1,000

HDFC Cash Mgmt - Treasury Advantage - Direct (G) 5,000 1,000

We don’t recommend excessivediversification in case of Debt Funds, but youare free to invest in any number of funds.

Our default pick for this category of mutualfunds is ICICI Pru Flexible Income Plan, and wewould recommend this fund in case you don’twish to diversify.

We recommend you also visit our website and use our Product & Goal Report (coming soon) tools

5


STEP 3: Select Funds for the EQUITY portion of your portfolio

Equity Mutual Funds are of several types. We have looked at 3 in particular• LARGE CAP FUNDS (Invest in stocks of large companies). These provide stability to a portfolio and seldom give super normal profits or losses as large companies have predictable

growth paths.• MID CAP FUNDS (Invest in stocks of mid sized companies). These provide opportunities for super normal profits as mid sized companies have greater room for growth. However, they

are volatile and can also lead to super normal losses during downturns.• MULTI CAP FUNDS (Invest in large, medium and small companies). These provide the advantages of Large Cap and Mid Cap Funds and thus are typically more volatile than Large Cap

funds.

The above are just recommendations, you are free to decide your own allocations as well as pick any fund of your choice

6

Top Picks Fund Type

Which Funds to invest in(Recommended distribution in equity allocation basis your profile)

1st

Investment (Min Amt)

Subsequent Investments

(Min Amt)

If you are a 1st time investor and want to try

Equity

If you want a diversified

and balanced portfolio

If you want limited volatility

in your Equity portfolio

If you can handle high volatility

and want higher potential returns

SBI BlueChip Fund - Direct (G) Large Cap 100% 20% 30% 5,000 1,000

Franklin India Prima Plus - Direct (G) Large Cap 20% 30% 5,000 1,000

Motilal Oswal Most Focused Multicap 35 Fund-Direct (G)

Multi Cap 20% 20% 30% 5,000 1,000

ICICI Pru Value Discovery Fund - Direct (G) Multi Cap 20% 20% 30% 5,000 1,000

SBI Magnum Midcap Fund - Direct (G) Mid Cap 20% 40% 5,000 1,000


STEP 4: Select Funds for Tax Saving (first calculate how much you need to invest in tax saving instruments)

Top Picks 1st Investment (Min Amt)

Subsequent Investments (Min Amt)

Birla Sun Life Tax Relief '96 - Direct (G) 500 500

AXIS Long Term Equity Fund - Direct (G) 500 500

Franklin India Taxshield - Direct (G) 500 500

DSP BR Tax Saver Fund - Direct (G) 500 500

HDFC Long Term Advantage Fund - Direct (G) 500 500

Choose the amount of diversification you want and invest in any number of funds from this selection. You are also free to invest in any other fund of your choice.

Our default pick for this category of mutual funds continues to be Axis Long Term Equity Fund (our recommended pick in our last report), and we would recommend this fund in case you don’t wish to diversify.

7

What about other funds? Want more research?

Our algorithm picks serve as a guide for thosewho need assistance in fund selection.Members are free to invest in any fund of theirchoice.

If you like to invest in other categories ofmutual funds – Sectoral Funds, Balanced Funds,Hybrid Funds, Other Debt Funds etc., you arefree to do so from our site. Our algorithm doesnot cover these categories of mutual funds,because we don’t like to compromise onsimplicity.

Valueresearchonline.comMoneycontrol.com

For further research inputs, alternate views &SIP return calculations.

How did we determine our top picks

In general several investors view mutual fund recommendations with suspicion, becausethe advice giver is often influenced by the lure of commissions. We are a commissionfree platform, and don’t earn even a rupee from your investments. Which is why, in theinterest of absolute transparency, we are openly sharing our fund selection process. Weare always trying to improve our fund selection, so we welcome Ideas from everyone.

25Mutual

Fund Houses

290Diversified Equity Schemes

267In existence for > 1 year

73Corpus > Rs. 1,000 cr

20Weighted SIP Performance

Top 5

We recommend investments in Diversified Equity Mutual Funds. We don’t like thematic orsectoral funds because their performance tends to be cyclical. We also don’t like hybridfunds; instead we recommend allocation to debt funds to create an ideal asset allocation.

We like funds with a track record of at least 1 year. That allows meaningful analysis ofperformance.

Funds with a large corpus implies a certain amount of investor confidence. It also allows afund manager to adequately diversify his holdings.

We looked at the SIP performance of the 73 shortlisted funds over a 3 year period. Furtherwe assigned weights to different time periods - 10% (6 months), 20% (1 year), 30% (2years), 40% (3 years). This created a bias for funds which have delivered good returns overa sustained period of time, and at the same time those which are showing a turnaround.

EQUITY MUTUAL FUNDS - SHORTLISTING

From the Top 20 performing funds, we selected 5 funds to create a balanced portfolio:2 Large Cap Funds, 2 Multi Cap Funds, 1 Mid Cap Fund

The objective was to curate a list of the Top 5 Equity Mutual Funds which constituted a balanced portfolio – without excessive bias to a sector or market capitalization.

Transparent

Un-Biased

Data Driven

8

Stages of filtration # of funds in every stage

Criteria Used


EQUITY MUTUAL FUNDS - SELECTION

PICKED: Highest Ranked Mid Cap Fund

PICKED: Highest Ranked Large Cap Fund

PICKED: Second Highest Ranked Large Cap Fund

PICKED: An existing pick from our previous algorithm (Dec 26, 2015)

Rank Top 20 Schemes using weighted SIP between June 1, 2013-May 31, 2016 Fund Type

1 DSP BR Micro-Cap Fund - Direct (G) Small Cap

2 SBI Magnum Midcap Fund - Direct (G) Mid Cap

3 Franklin India Smaller Companies Fund - Direct (G) Mid Cap

4 Franklin India Prima Fund - Direct (G) Mid Cap

5 Reliance Small Cap Fund - Direct (G) Small Cap

6 Sundaram Select Midcap - Direct (G) Mid Cap

7 DSP BR Small And Mid Cap Fund - Direct (G) Mid Cap

8 SBI BlueChip Fund - Direct (G) Large Cap

9 Franklin India Prima Plus - Direct (G) Large Cap

10 Birla Sun Life Advantage Fund - Direct (G) Large Cap

11 L&T India Value Fund - Direct (G) Multi Cap

12 Franklin India High Growth Companies Fund -Dir (G) Multi Cap

13 Birla Sun Life Equity Fund - Direct (G) Multi Cap

14 Sundaram S.M.I.L.E Fund - Direct (G) Small Cap

15 Motilal Oswal Most Focused Multicap 35 Fund-Dir(G) Multi Cap

16 ICICI Pru Value Discovery Fund - Direct (G) Multi Cap

17 Franklin India Bluechip Fund - Direct (G) Large Cap

18 SBI Magnum Multiplier Fund - Direct (G) Large Cap

19 Franklin India Flexi Cap Fund - Direct (G) Multi Cap

20 Birla Sun Life Frontline Equity Fund - Direct (G) Large Cap

1. We don’t select Small Cap Funds in our Top 5 because they tend to be extremely volatile

2. We have a bias for funds which were previously a part of our Top Picks because we want to limit portfolio churn

3. We have a bias toward larger, more established fund houses

4. Investors are encouraged to study these funds and make their own fund selection

PICKED: An existing pick from our previous algorithm (Dec 26, 2015)

Reason for selection

9


102Ultra Short Term & Liquid Funds



10Weighted

Performance

Top 5

We recommend investments in Ultra Short Term & Liquid Funds as they have lessersensitivity to interest rate fluctuations. As a result, returns are more predictable. Longerduration debt funds tend to be more volatile to interest rate changes.



We looked at the performance of the shortlisted 30 funds over a 3 year period. Further weassigned weights to different time periods - 10% (6 months), 20% (1 year), 30% (2 years),40% (3 years). This created a bias for funds which have delivered good returns over asustained period of time, and at the same time those which are showing a turnaround.

From the Top 10 funds, we selected 5 funds keeping quality of holdings and modifiedduration in mind.

DEBT MUTUAL FUNDS - SHORTLISTING

The objective was to curate a list of the Top 5 Debt Mutual Funds, which provided a high degree of safety and protection from volatility.

10


Criteria Used

25Mutual

Fund Houses


DEBT MUTUAL FUNDS - SELECTION

PICKED

NOT PICKED: Minimum investment amount is Rs. 10,000. The scheme has witnessed a drop in AUM over the last year

Selection & Reason for omissionRank Top 10 Schemes using weighted returns between June 1, 2013 & May 31, 2016

1 Franklin India Ultra-Short Bond - Direct (G)

2 ICICI Pru Ultra Short Term Plan - Direct (G)

3 Birla Sun Life Cash Manager - Direct (G)

4 UTI-Treasury Advantage Fund - Inst - Direct (G)

5 ICICI Pru Flexible Income Plan - Direct (G)

6 Reliance Money Manager Fund - Direct (G)

7 SBI Ultra Short Term Debt Fund - Direct (G)

8 Reliance Liquid Fund - Cash Plan - Direct (G)

9 HDFC Cash Mgmt - Treasury Advantage - Direct (G)

10 Birla Sun Life Cash Plus - Direct (G)

PICKED

NOT PICKED: Modified duration of over 1 year, makes scheme susceptible to interest rate volatility

NOT PICKED: Minimum investment amount is Rs. 10,000. More than 5% investments in unrated securities.

PICKED

PICKED

NOT PICKED: More than 5% investments in unrated securities

PICKED

11


25Mutual Fund Houses

55Tax Saver Schemes



10Weighted SIP Performance

Top 5

For tax saving purposes, we recommend investments in Tax Saver Mutual Funds over PPF,Insurance & Tax Saver FDs. Shorter Lock-ins and higher potential returns are the greatestadvantages that this category of mutual funds offer.



We looked at the SIP performance of the 11 shortlisted funds over a 3 year period. Furtherwe assigned weights to different time periods - 10% (6 months), 20% (1 year), 30% (2years), 40% (3 years). This created a bias for funds which have delivered good returns overa sustained period of time, and at the same time those which are showing a turnaround.

TAX SAVER MUTUAL FUNDS - SHORTLISTING

From the Top 10 performing funds, we selected the top 5 funds

The objective was to curate a list of the Top 5 Tax Saver Mutual Funds.

12


Criteria Used


TAX SAVER MUTUAL FUNDS - SELECTION

PICKED

Reason for selectionRank Top 10 Schemes using weighted SIP between June 1, 2013-May 31, 2016

1 Birla Sun Life Tax Relief '96 - Direct (G)

2 AXIS Long Term Equity Fund - Direct (G)

3 Franklin India Taxshield - Direct (G)

4 DSP BR Tax Saver Fund - Direct (G)

5 HDFC Long Term Advantage Fund - Direct (G)

6 Sundaram Tax Saver - Direct (G)

7 L&T Tax Advantage Fund - Direct (G)

8 Reliance Tax Saver (ELSS) Fund - Direct (G)

9 SBI Magnum Tax Gain Scheme - Direct (G)

10 ICICI Pru Long Term Equity Fund - Direct (G)

PICKED

PICKED

PICKED

PICKED

13

For suggestions & comments

[email protected]

[email protected]

14

#566, 5th floor, Tower B-1,Spaze I-Tech Park, Sohna RoadSector 49,Gurgaon, Haryana- 01www.bharosaclub.com

T: +91 9313137373E: [email protected]

download our 'which fund to buy guide

Documents