When I am asked to pick up ‘best funds’ I am scared. Why ?

Simply because I cannot write ‘best fund of the past month’ or ‘past 6 months’ – I just do not know how to do that. Such searches have to be numbers driven and I hate a numbers driven approach to selecting the best.

Let us suppose 2 of us entering a football stadium and my partner asks the person sitting next ‘what’s the score?’ and he replies ‘0-0’ and my partner says ‘thank God we did not miss anything’. It just shows that my partner knows NOTHING about football. Similarly even in cricket the score board does not tell you how the runs came, who was bowling, were catches dropped,  – you need to watch the match, not just the scoreboard. Ditto for mutual fund performance. So I decided to write about funds in which I have invested (all done in 2002). Far more importantly I have been watching these funds for a long time and I will share what I like about these funds, and what I do not like! Clearly if I were a journalist I need to track 43 fund houses and know why and why not for each fund. If it is just my money – and I am not answerable to anybody EXCEPT my own goals…I can stick to such a fund scheme.

The funds first – Hdfc Equity, Franklin India Bluechip, Franklin India Prima Plus, Franklin India Flexicap fund.

What I liked about these funds is the consistency of the fund manager in terms of vision. My focus was clear that I wanted wealth creation and I had no specific goal – it was just wealth creation and I just invested some money and let it lie there for 2 decades. I have some money in Hdfc Top 200 too.

The other fund that I added on the way was Icici Prudential Discovery – because it was being managed by Naren Sankaran and I had (have) a lot of respect for him. I knew the PRUDENTIAL ICICI MUTUAL FUND team also, but I had not touched any scheme from Icici Pru till Naren joined. When I knew Naren was managing the I Pru discovery fund I added it to my portfolio and have not regretted till now. I do keep wondering why the shift from mid to large cap – and then I realized that the fund manager may have seen the bull run of small caps. Possible.

I also added Axis ELSS and Hdfc Tax Saver apart from a couple of other ELSS scheme like Franklin Tax shield. I liked the vision of the schemes and the low standard deviation. However Axis is no longer there in my portfolio. It is an ex 🙂

The midcap fund in which I have invested is Franklin India Prima fund, but the funds that I like are Mirae and the Dsp small and midcap fund too. Surprising that I did not invest in Hdfc Midcap opportunity fund – even though the big boss of Hdfc MF personally told me to look at it. My bad luck I guess.

Now let me tell you what I like about all these funds.

  1. I had no clear vision about what I wanted these funds to do for me. I was happy if it created wealth in the long run – say 30/40 years – and I was not bothered about the small time fluctuation. I did not budge when Prima underperformed for a long period of time. I did not see the need as long as the fund manager was taking corrective action.
  2. I knew my risk profile and knew that I would sit tight immaterial of what happens in the 30/40 years of capital accumulation.
  3. I was sure that if the fund manager is capable of managing, he will know how to come out of bad situations – if he gets into one!
  4. When Franklin India Blue Chip bought a lot of PSU I frowned, but the managers knew their mistake and corrected it. If the fund manager it capable of doing that, I had no business telling him what to do.
  5. I liked the style and the managers at Franklin India Bluechip – and the smooth transition from one fund manager to another without any blips. Not easy to do, they did it well.
  6. I never look for ‘consistency’ in my fund managers. Consistency largely means a fund manager is not trying anything new. I like some small time experiments, which all these funds did.
  7. I never (ever) compare my funds to the benchmark.  My expectation from a fund like I Pru Discovery is that it should beat the index and create wealth, but I will compare it to the index only on a 5 year basis and not an annual basis. I know it makes no sense – how can you benchmark a fund like Icici Prudential Discovery? There is no sensible index!
  8. Were these funds volatile? Yes Franklin India Prima fund was not just volatile, it also performed badly for a long period of time. At that juncture I went back to the fund house with a good process – I trusted that one day it will come back, and it did!
  9. I did not bother about the size of the fund increasing. I convinced myself that the managers would find enough items to find. I was happy that I was in Hdfc Equity and not in Hdfc Top 200 – which had a more restrictive mandate. Almost all these funds were true to label and that was a big comfort.
  10. I never bothered about the short term performance of the funds. In fact I was convinced that if the fund manager is experimenting, I will live to see the result of the experiment.
  11. Currently the fund manager saw a greater opportunity in large cap funds – so Icici Pru discovery has shifted to a large cap portfolio. Hey I am not judging him in a hurry. I need not – maybe I should not?
  12. I paid attention to costs – and realized that no fund house will drop costs in a flag ship, so I lived with higher costs. Happy to have got out performance with high costs. In fact the only thing that I do not like in these funds is that they are high cost funds.
  13. I liked the corporate culture of Franklin Templeton the best, followed by Hdfc and then by Naren Sankaran!
  14. I did not bother too much about ‘risk-adjusted return’ – to me the risk was ONLY in the standard deviation, and that did not bother me at all.
  15. Sometimes the numbers do not tell you everything keep your ear to the ground! It helps.

CAVEAT: I HAVE INVESTED IN THESE FUNDS SINCE 2000 OR THEREABOUTS. RECENTLY I HAVE INVESTED IN MOTILAL OSWAL’S FUNDS AND HAVE BEEN FOLLOWING MIRAE TOO. NO SIGNIFICANT AMOUNT COMMITTED, BUT I LIKE THEIR STYLE. THIS POST IS NOT SPONSORED BY ANYBODY AND IS NOT A RECOMMENDATION TO INVEST IN THESE FUNDS. A TRANSLATION OF THIS IS ABOUT TO APPEAR IN A WEBSITE/MAGAZINE/NEWSPAPER…JUST FYI. 

 

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  1. Hi Subra,

    How do you see Quantum mutual fund.

    It seems like unique fund, and stands out in terms of costs (one of lowest) and managing risk (known to increase cash holding when it belives market is overheated, thus causing some under-performace in short term in bull mkt but giving good risk-adjusted return in long term).

    regards,
    yrsharma

  2. This is an amazing article which I am recommending a lot of my friends to read, Sir. I found one very interesting comment in the article. You said that you paid attention to costs and lived with higher costs.
    With the new Direct fund route, the costs of a direct fund are relatively lower compared to Regular funds. In this case, I was wondering if you stay put in your regular funds or switched to direct funds?

    Your views would be very interesting and as always enlightening.

  3. Sir – No need to write “THIS POST IS NOT SPONSORED BY ANYBODY AND IS NOT A RECOMMENDATION TO INVEST IN THESE FUNDS”.

    We all know you and love you 🙂

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