Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on March 10, 2018

I find that ICICI Pru Value Discovery is recommended by almost every MF related website and by advisers. But I am very disappointed with the performance of this fund. Also, can you advise on Quantum Long Term Equity? I have been investing through SIPs in this fund for the last six months and I find views on this similar to that of ICICI Pru Value Discovery. Should I continue SIPs or are there better funds in this category?

Prabhakar Gupta

If you have started investments in ICICI Pru Value Discovery in the last one year, you are bound to be disappointed. In this period, the fund has earned about 10.2 per cent returns while its benchmark, the BSE 500 index, sports a much higher gain of 19.7 per cent. Its one-year SIP return of around 14.5 per cent is also lower than that of most other peers in the multi-cap funds category.

ICICI Pru Value Discovery’s multi-cap approach implies that it has the flexibility to take greater exposure to mid- and small-cap stocks at one point in time and stick with large-caps at other times. Thanks to the bullish sentiment since 2014, valuations of mid- and small-cap stocks have moved up sharply. Hence, although these stocks have continued to do well in the last one year, the fund has gradually reduced holdings in this segment.

Besides, as the name goes, the fund follows a value strategy which means that it could favour beaten down stocks and sectors or those with relatively lower valuations, which have the potential to re-rate over the medium to long term. True to its value bias, the fund has increased its exposure to out-of-favour sectors such as IT and pharma whose stocks have taken a beating. For these two reasons, the fund’s performance has been sub-par in the last one year.

Quantum Long-Term Equity is a large-cap oriented fund but like Pru Discovery, this fund adopts a value approach. The fund has a tendency to go high on cash/debt when it feels the markets are overheated, like in the current scenario. From just about 6 per cent a year ago, the allocation to cash and equivalents has risen to about 18 per cent now. That could be one of the reasons the fund (12.2 per cent returns) has underperformed its benchmark (15 per cent returns) in the last one year. Its SIP returns of 14.4 per cent for the last one year are also one of the lowest among large-cap funds.

While the strategies adopted by these two funds have cost them in the last year, it may come in handy now as markets are perched on a peak and have turned a bit volatile. A bias towards large-cap stocks as well as cash/debt holdings will help contain downside. Over the last five years, both these funds have outdone the benchmark and the category average convincingly, implying that their calls have been proved right. Since they have a reliable long-term track record, you can continue SIP investments in both these funds.

I had been investing ₹2,500 each through SIP in SBI Bluechip & Franklin Prima Plus for the last 18 months. But due to urgent requirement of cash, I had liquidated it. Now I can invest again. Is it advisable to buy the same number of units I had forfeited at one go or should I buy in small quantities through SIP?

Thirumal Dhurai

As far as the funds go, both are large-cap oriented and have a reliable track record of performance. Hence, it is worth considering investments in these funds again. You can choose the SIP route rather than the lumpsum route. A lumpsum investment now when the market is at a peak and is showing a bit of volatility may not be the best thing to do. SIPs help tide over the need to time your entry into the market. It averages out your costs by automatically helping you buy more units when the market falls. Also, it is best if you invest through SIPs for medium to long-term goals and not touch it in the interim.

Although markets have not seen any substantial correction in the last 1-2 years, no one can guess future market movements. You may burn your fingers if you depend on it to finance any short-term needs. Besides, each SIP in an equity fund must complete at least one year for the proceeds to be free from long-term capital gains tax.

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Published on September 17, 2017

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