Mutual funds are a great way to create long-term wealth if you have the right risk-return and investment time horizon in mind. Over shorter periods, markets may be volatile, good fund managers may underperform their peer group and benchmark, but over the long term Indian equity markets and astute fund managers are well poised to deliver significant returns for investors. Here is a list of funds that would make great investment options. This is, however, by no means a comprehensive list, there are many other good managers and strategies out there:
1. Aditya Birla Sun Life Frontline Equity (Large Cap Equity)
The fund invests predominantly into large cap stocks, with a midcap exposure between 15% and 20%. Mahesh Patil is an experienced and skilled manager and his well-executed investment approach makes this fund a compelling choice for investors. Patil loosely aligns the portfolio’s sector weightings with those of the index. His stock-picking has been impressive. A growth bias is apparent as Patil focuses on factors such as ROCE, ROE, and earnings growth potential. The fund has been a consistent performer across the years.
2. DSP BlackRock Micro Cap (Small Cap Equity)
The fund is a good investment option for risk-taking investors with a long-term investment horizon. The fund invests largely in small & micro cap stocks. Given the increased risk and volatility in this segment, research experience and good execution are of paramount importance. Vinit Sambre fits the bill on these counts. He is a competent analyst with reasonable portfolio management experience under his belt. Sambre plies a bottom-up, buy-and-hold approach to picking stocks, scouting for growth oriented companies that have sustainable competitive advantages. The fund has recently been shut for fresh inflows, but as the market broadens and capacity expands, it may reopen in the future.
3. Franklin India Bluechip (Large Cap Equity)
This fund is a true blue large cap fund, managed by Anand Radhakrishnan, who is a seasoned fund manager and runs a solid investment process. Anand focusses on growth and quality companies, which embodies Franklin Templeton’s brand of management. Radhakrishnan looks for companies with sustainable growth prospects. At the same time he is fairly valuation-conscious and is willing to stay away from issues he believes are overvalued. The fund may lag its peers in momentum-driven markets over the short term, but will do well over a market cycle.
4. Franklin India Prima (Mid Cap Equity)
It is a mid cap fund, with allocation to small & mid-cap stocks in the range of 75-80%. R Janakiraman is the designated small/midcap specialist and he scouts for high-quality mid-caps that have sustainable economic moats, predictable businesses, consistent earnings growth, and reasonably high returns on equity with low balance-sheet risk. There is strong emphasis on qualitative aspects such as managerial strengths and corporate governance standards. His benchmark- agnostic approach coupled with his bottom up stock-picking results in a portfolio that is distinct from that of the benchmark index or peers. Janakiraman has been managing this fund since 2011. The fund is a good option for investors who look for long-term wealth creation over the next 7-10 years.
5. HDFC Equity (Large Cap Equity)
Prashant Jain is an extremely skilled and experienced manager and has one of the longest track records in the Indian mutual fund industry. An unwavering focus on the long term and willingness to back conviction bets are integral to manager Prashant Jain’s investment approach. Hence, he doesn’t shy away from trading near-term pain for long-term gains. Research is central to the investment style, with Jain effortlessly combining top-down and bottom-up analysis (with more emphasis on the latter) to identify companies with robust business models, strong balance sheets, and competitive advantages. While the fund may underperform over the short term, given Prashant’s propensity to be early in the cycle, the long-term performance over a market cycle is stellar.
6. HDFC Midcap Opportunities (Mid Cap Equity)
In our opinion, manager Chirag Staved ranks amongst the best portfolio managers in the small/mid-cap space. He has been managing this fund since its inception in June 2007. There is a perceptible quality bias in the investment style, characterized by investments in companies with strong management teams and robust business models. The manager is a patient investor with a long-term investment horizon, which jells well with the quality bias. Given the bias for quality stocks, we expect the fund to underperform the competition in market phases where momentum is in play, but does extremely well over the long term.
7. ICICI Prudential Dynamic (Flexi Cap Equity)
The fund is a Flexi Cap Value style fund managed by Sankaran Naren. The ability to think differently and pick stocks that have the potential to become a big thing tomorrow is critical in this strategy. When markets run up and valuations seem stretched, Naren reduces net equity exposure in the portfolio. He deploys a rules-based approach using the historical price/book value of the market to determine fair value and in turn tweak cash allocations. The portfolio has a large-cap bias with a value orientation and focuses on stocks that have significant long-term growth potential. His philosophy is to ensure the fund performs better than peers when markets fall, even if the strategy hurts performance in rising markets, thereby ensuring robust performance over a market cycle.
8. ICICI Prudential Focused Bluechip (Large Cap Equity)
This Large Cap fund is managed by Sankaran Naren, who took over the reins earlier this year after the exit of Manish Gunwani. The fund has a quality bias when picking stocks and uses competitive analysis and applies qualitative filters to identify the best picks within each sector. The fund is run with a benchmark-conscious approach and aligns the portfolio’s sector weightings to those of the benchmark. Naren has a quality bias when choosing stocks–he favors companies with robust business models, strong entry barriers, and the ability to scale up without eroding profit margins. The fund has been a steady performer and is expected to perform well across market cycles.
9. IDFC Sterling (Mid Cap Equity)
The fund is a small & mid cap strategy with at least 70% invested in these stocks. The fund went through a challenging time after the exit of Kenneth Andrade, but with Anoop Bhaskar taking over the reins in May 2016, reinforces our faith in the fund. Anoop is amongst the most astute investors, especially in the small & mid cap space. While investing, he looks for companies which have decent amount of promoter holdings, good cash generation, low leverage, and profitability over a cycle. He avoids businesses that show profitability in spurts. Given the fund’s small/midcap bias, it gives Bhaskar an opportunity to play to his strength. Subsequently he tries to ferret out companies that are cheaper than their peers and historical valuations. Currently, he has aligned the portfolio to benefit from the recovery in India’s economic cycle. Under Anoop, the fund has performed well and expect the fund to continue to deliver performance over the long term.
10. Mirae Emerging Bluechip (Mid Cap Equity)
Managed by Neelesh Surana, the fund is amongst the best and most steady performers in the mid cap space. The fund is positioned true to its small and mid-cap orientation by maintaining around 75% of its portfolio. The strategy is centered around bottom-up stock-picking with exhaustive filtration laying great emphasis on margin of safety. Surana believes alpha is generated through the right stock selection and not by sector rotation. He only invests in companies that meet the stock selection parameters and would look at both qualitative and quantitative factors. A key quantitative parameter he tends to follow is high return on capital and high cash flows. We believe the fund can hold investors in good stead over a market cycle. The fund currently accepts fresh investments only through the SIP mode.
(By Kaustubh Belapurkar, Director Manager Research, Morningstar Investment Adviser India Pvt Ltd. Although due care has been exercised by them while selecting these funds, readers are advised to consult their financial adviser before investing in any of these funds.)