Quarterly review – changes to Prime Portfolios

Prime Portfolios are a set of 19 unique portfolios that meet over 30 different investor timeframes and needs. Prime Portfolios are listed under Ready-to-use-portfolios in the Recommendations dropdown. These portfolios primarily use mutual funds, but where there are better-suited products such as deposits or government schemes, the portfolios include those as well.

We review these portfolios every quarter and make changes to remove underperformers or to include any new investment opportunity or product that may come by. At the end of each year, we review the performance of key portfolios, in addition to discussing the changes we make.

If you are new to PrimeInvestor, do go through the boxed section below on how we construct Prime Portfolios and how you can use it.  Else , skip to the section below the box.

Construction of Prime Portfolios

We have classified Prime Portfolios based on popular financial needs/goals you may have. The basis for many of these would be the goal’s timeframe. We have therefore segregated many of these goals further into timeframe buckets. For those looking for passive investing options, check our home page of Prime Portfolios.

Fund or instrument selection: Prime Portfolios draw from Prime Funds and mix funds with different strategies to minimize duplication within a portfolio. However, there may be a few cases where funds are outside of Prime Funds. This apart, we use other products, primarily on the fixed income side, in portfolios where they will be good options.

Asset allocation: The asset allocation in Prime Portfolios is done based on the ‘ideal’ allocation for a given timeframe or goal. But this is not cast in stone. Assess your own capacity to take risk before choosing a portfolio. These portfolios are not ‘advisory’ in nature. They are bundled MF products with a mix of equity and debt funds and fixed income options with varying strategies for diversification.

Using Prime Portfolios

Prime Portfolios are useful in the following cases:

• If you are new to mutual fund investing, or don’t know how to mix funds and want a readymade basket of funds to invest.
• If you are an existing investor but have new goals and want an asset-allocated portfolio for that purpose.
• If you wish to build your own portfolio by taking cues from the asset allocation and category allocation that we use.
• If you wish to add or modify your existing portfolios by taking cues from Prime Portfolios’ construction use Prime Funds or MF review tool. 
• If you want help to build your own portfolio, then use our Build your own Portfolio tool to have a asset allocated portfolio with the right category mix.

If you’re investing in or referring to any Prime Portfolio, note the following:

• We review these portfolios every quarter after the review of our ratings, recommendations, and Prime Funds. So, this will typically be 2-3 weeks after the end of a quarter.
• Changes may involve fund changes or individual fund allocation changes.
• In the review, where we make changes to Prime Portfolios, we will explicitly specify whether a fund needs to be exited or only SIPs stopped and investments made so far held. 
• In our review reports, we mention only those portfolios where there are actual changes or portfolios to which we wish to draw your attention on any performance. If a Prime Portfolio is not mentioned in these reports, you can take it that there are no changes.
• To track changes to a portfolio, click the ‘Follow’ button to ensure you receive alerts about the changes. Your Dashboard will also show you portfolios that have been changed when you Follow a portfolio.
• We send email and Dashboard alerts on changes only for those who ‘Follow’ a portfolio. However, we also publish a report on the blog on the same every quarter, with the detailed reasoning for changes along with action to be taken. Either way, keep note of our emails – a week or two after a quarter ends!

Some asset classes in your portfolio may have strayed from the original asset allocation as market rallies. You need to run a check on this once a year to see whether you need to rebalance, as each of you would have invested in different times. Read our explanation on rebalancing here and use our calculator to know how much to invest/redeem in rebalancing.

It is important for you to read and record our emails for all of the above. So kindly make sure you find some time to do this to keep your portfolio in good shape!

Change in Prime Portfolios this quarter

This quarter, we have made just a couple of changes to Prime portfolios and have given an exit call on couple of old funds in which we had given a hold call a good while ago. 

3-5 year portfolio

For a 50:50 equity:debt asset allocation, our 3-5 year portfolio has still managed to steadily beat the index since its launch. At 12.3% (IRR since inception) return, the portfolio consistently beats the blended benchmark by at least 1 percentage point. This is not an easy task if you check the composition of this portfolio. 

For one, we have a midcap index fund in it which means it cannot beat the benchmark, it can only hug it. Two, we have another index fund – Nifty Next 50 (as part of the historical portfolio) on which we gave a hold in March 2023. Hence with 2 index funds and 2 debt funds (where most debt funds typically struggle to beat the theoretical debt indices), beating the benchmark isn’t a cakewalk. Our primary aim in this portfolio is to therefore contain downsides and at least sail with the blended benchmark. The fund has more than achieved this.

Action required: At this point, we are making some tweak in the debt portfolio to capture yields better.  Towards this:

• We recommend a stop SIP and hold call on Axis Banking & PSU Debt Fund. 
• Invest fresh SIPs in Kotak Bond Short Term .

Please note that Axis Banking & PSU debt is a sound fund and our call on that fund still remains a ‘buy’ based on consistency and performance. Our change is specific to this portfolio. Considering Axis’ roll down strategy, we prefer a fund with slightly higher maturity and also superior yields for this portfolio to gain more from a rate fall. Given that it is a conservative portfolio, we will need to optimise even if it is only a matter of few basis points. The change is therefore only a strategy shift and not based on fund performance. You can continue to hold the Axis Fund as part of this portfolio or use it for any shorter term goals, if you have one.

5–7-year portfolio

The point we discussed above about having index funds and the challenge of beating the blended index is more felt in this portfolio. This portfolio has been underperforming as a result of too much leeway we gave for underperformance in funds such as DSP Midcap or Invesco Growth Opportunities (and Kotak Standard Multicap) in the past. We course corrected it a few times and have been slowly reducing the margin of underperformance (newer investors may not feel this pinch). At 13% IRR now, the underperformance margin is still a little about 2.5 percentage points. Having 2 active equity funds with just 30% weight in overall portfolio poses a challenge to bridging this gap quickly; not to mention the 70% exposure to index funds and debt funds.

Hence, given the current market scenario of a broad-based rally for some time, and considering the time frame of this portfolio, we are adding a sector fund - Nippon India Banking & Financial Services Fund to this portfolio with a 10% weight. Given the broad rally in financial services, this fund is well placed to capture returns in the non-banking financial space as well.

Action required: We have reduced the weights in a couple of funds to accommodate this fund as given in the table below. You may follow this for fresh lumpsums or SIPs. You need not sell your existing investments in these funds. 

Please note that the weight reduction in 2 funds is merely to accommodate the aggressive banking fund. The banking fund is a tactical call and we may choose to shift it when market changes its mood. 

High growth portfolio

There are no changes to this portfolio’s present composition. However, we are consolidating some of the earlier funds in our High growth portfolio. If you hold any of them, you may take note of this. Else you can ignore. 

This portfolio’s returns since inception is at a healthy 16% IRR, beating the blended index by 3.6 percentage points. Some of the changes we made in earlier years are bearing fruit. 

Action required: Now, just to clean up and consolidate, we are providing an exit call on ICICI Pru Nifty Next 50 fund (we gave a hold in April 2022 and it is over a year now) and SBI Small Cap (hold given in October 2020). Please note that we are doing this merely to keep the portfolio intact.

The proceeds of the Next 50 fund can be deployed as lumpsum in the Motilal Oswal Nifty 500 Index fund we have and that of SBI Small Cap into Nippon India Small Cap. Unfortunately, as the Nippon fund has recently stopped lumpsum, you have two options. Either continue holding the SBI fund and switch later. Or, sell the SBI fund and do an SIP to gradually shift to the Nippon fund. 

Here again, the changes are specific to this portfolio and should not be construed as view on the fund. Check our MF Review tool for fund reviews. 

Please note that performance review of portfolios is typically done after the end of a calendar. You can view the performance of individual equity-oriented portfolios on their respective Prime Portfolio pages. 

General disclosures & disclaimers