My mutual fund portfolio

Probably Morgan Stanley was first mutual fund (?) as I recall the early days of mutual funds in India somewhere in mid nineties . Like most of the investors I too did not trust the mutual fund however the fund was oversubscribed with Rs. 800 Cr., twice than the actual offer. In initial years the fund did not perform well and NAV remained below Rs. 10-00.

Therefore, last year when I started my fresh adventurous journey I was still skeptical about investing in mutual funds. However, after some persuasions by my broker I purchased my first mutual fund, Reliance Equity (G) in March’06 (so technically my re-entry in the stock market investment was in March’06). Thereafter , I purchased many(!) other mutual funds as per the advice of my broker.

I was not much concerned about my mutual fund portfolio until last month as it weighed only 15% in my total equity portfolio. However, I was keeping an eye on it using portfolio manager at moneycontrol.com and valueresearchonline.com. My mutual fund portfolio gave 20% return , which I considered good enough. But when I checked individual funds closely, some of them faring between 20-45 % and some were laggard giving return anywhere between 4-20%.

So, I checked each fund throughly and found more then 50% of funds were New Fund Offer (NFO) and unable to perform at par with their peers. I become aware that I was made victim by my broker for the higher commissions. As mutual fund companies pay 2% commission on existing schemes and 6% on new offer, and therefore brokers insist upon subscribing new offers for their own benefits. The greed of higher commission has caused a large mis concept among people that an NFO is cheap because it is available at Rs.10-00. (NFOs: The latest “serial” killers)

Fund Scheme	Annual Return %
Magnum Mid Cap (D)*	30.58
Reliance Long Term Equity (D)	28.51
ICICI Pre Infrastructure (D)	27.30
ICICI Pru Emerging Star (D)*	26.58
Sundram PNB Paribas Select Mid Cap (D)	26.46
ICICI Pru Dynamic (D)*	26.03
Tata Capital Builder (D)	21.52
Reliance Equity (D)*	18.20
HDFC Core and Satellite (D)*	15.15
Reliance Equity Opportunity (D)	13.61
Franklin Flexi Cap (D)	13.53
SBI Bluechip (D)*	12.62
Tata Equity Management (D)	10.72
*=Averaged with subsequent purchase

Therefore, I have decided to switch the funds performing below 20%.

1. Reliance Equity. – This fund was introduced in March’06 and was advised by broker. As Ramesh rightly pointed out in the comment in previous post that mutual fund is still purchased and sold like a commodity , by merely looking at the name of the fund companies. Reliance is legend in the Indian stock market and so people presume that Reliance mutual funds will fare equally. However, it is performance which is to be seen. I have checked its performance using tools at valuereasearchonline.com. This fund is able to perform average , slightly performing above the BSE sensex and was at 52 week high at 27-07-2007 with the market. So I am giving this fund a one more chance.

2. HDFC Core and Satellite – I had purchased this fund (Try to guess what does the scheme name denote?) during May’06 at Rs.20.56, when the sensex was its all time high. And thereafter market fell like brick and I averaged it in August’06 at Rs.17.60. On account of the averaging , the fund showed some decent return of 15.15 %. However, the overall fund performance has remained poor , performing below the sensex and far below than its category returns. Even 52 week high was during December’06 and was unable take any benefits during the recent rally. Therefore, I will be disposing half of the amount , the first purchase of this fund, substituting with better performing fund.

3 . Franklin Flexi Cap – This fund seemed to perform well for some time after its inception in 2005 . But recently lagged behind due the high exposure to Information Technology shares consisting 19.30% of portfolio. The fund also has 17.42% portion of portfolio allocated to financial services companies which also has caused some suffering in the asset recently. So, this fund will also be replaced with better one.

4. SBI Blue Chip – As people use the name of the fund companies as decisive factor to purchase any fund. Some still use the scheme name as another factor before buy. I too believed so, when I bought this fund and still again when averaged it. This fund has given annual return of 21% under performing the sensex (30.94%) and the category (34.40) for the year ending on 03-09-2007. So, I am saying goodbye to this fund also.

5. Tata Equity Management – This close-ended fund has ably mis-managed the funds by giving annual return of 10.72% against the returns of the sensex (39.72%) and the category (30.94%). I bought this fund on its inception in June-06 and therefore I am struck till Dec’07 , otherwise my scanty return will be marred by with the proportionate NFO expenses.

Not surprisingly, my recent interest and (with some luck) good returns on the investments I have been looked up as an stock market expert 🙂 in my family and I have been entrusted to manage four other portfolios primarily in mutual funds. So, next I will be reading How to build Mutual Fund Portfolio and selecting some mutual funds to be invested in.

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