Quarterly Review – Changes to Prime Portfolios

Prime Portfolios are a set of eighteen unique portfolios that meet several 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, where necessary, to remove underperformers or to include any new investment opportunity or product that may come by. 

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.  

Change in Prime Portfolios this quarter

In this quarter, we have made fund and allocation changes to a few of our portfolios. We also have an action update on another portfolio, to streamline the portfolio and reduce the number of funds.

Timeframe 3-5 year portfolio

In this portfolio, we are removing Mirae Asset Large Cap and replacing it with Nippon India Large Cap in order to improve return potential. Mirae Asset Large Cap has long been a stable performer, but has been faltering for a while now. While the fund has shown brief periods where it beats the Nifty 100 TRI, the fund has more often lagged the index. Its short-term underperformance has continued enough to impact its longer-term returns as well. The fund is now about 1-2 percentage points behind the Nifty 100 TRI in 3-year periods, and this margin has been slowly swelling over the past few months. 

Given that higher returns for this portfolio comes from the equity component and the more limited timeframe, we would prefer to trim Mirae as underperformance can take several quarters to recover. On the other hand, Nippon India Largecap, with a value tint, has been steadily gaining ground and has showcased consistency. We are therefore adding this fund. 

Action required:

• Stop SIPs, if any, in Mirae Asset Large Cap. Continue to hold all investments made.
• Start fresh SIPs if required in Nippon India Large Cap. Any fresh lumpsum investments can also be made in this fund.
• Do not exit Mirae Asset Large Cap; simply avoid making further fresh investments, through SIP or lumpsum, in this fund.

Timeframe 5-7 year portfolio

In this portfolio, we are making no changes. However, this portfolio has earlier had Kotak Flexicap, which we removed in our March 2022 review. We had asked you to hold all investments made until then but stop all SIPs. 

This fund has recovered from the steep underperformance it had had then. However, apart from intermittent periods, the fund has not been able to sustain above the Nifty 500 TRI. This apart, Kotak Flexicap serves to add to the number of funds held for those who had started investing in this portfolio early on. This can limit the performance of other funds in the portfolio.
Therefore, we recommend you exit all investments made in Kotak Flexicapas part of this portfolio (please note that we still have a Hold call on the fund outside of this portfolio). You can reinvest this amount in Invesco India Contra (existing fund in the portfolio), which also follows a value-based approach and holds a large-cap oriented portfolio. You can make such exits in a phased manner if you wish to minimize tax impact.

Timeframe 5-7 year portfolio

In this portfolio, we are making the following changes:

One, we are replacing Mirae Asset Large Cap with Nippon India Large Cap Fund. Despite a great record in the past, the Mirae Asset has been struggling to steadily beat the index for several quarters now. This underperformance has been impacting its longer-term returns as well. The fund is now about 1-2 percentage points behind the Nifty 100 TRI in 3-year periods, and this margin has been slowly swelling over the past few months. To avoid further opportunity loss, fresh exposure can be avoided in the fund. On the other hand, Nippon India Largecap, with a value tint, has been steadily gaining ground and has showcased consistency. We are therefore adding this fund.

Two, we are reducing the weight of Kotak Emerging Equity to 10% from 25%. This weight is being redistributed with other funds and with a new fund, as explained below. Kotak Emerging Equity has earlier been a quality, consistent outperformer beating peers and the Nifty Midcap 150 TRI. However, the fund has been lagging both category and benchmark for a while now, and the underperformance is not small. This is partly to do with the nature of stocks driving the Nifty Midcap 150 where stocks with poorer fundamentals have seen sharp climbs. Given the fund’s portfolio quality, we are giving the fund some leeway for its current performance. But a sharp correction would be necessary for the fund to catch up with the index. For this reason, we cannot risk high weight to this fund. On the positive side, the fund has been able to contain downsides well. It has also shown signs of overall improvement; going by 1-month and 3-month rolling returns.

Three, we are increasing the weight to Motilal Oswal Nifty 500 Index fund to 15% from 10% earlier. Four, we are adding a new fund Franklin India Technology at a 10% weight.

To make up for the lost performance, we are upping exposure to Nifty 500 and bringing a more aggressive thematic fund. While tech as a theme has underperformed in the large-cap space, the mid and small companies in niche IT segments have done well. We expect Franklin’s exposure to such stocks together with a global fund exposure to help play returns-catch up in this portfolio. You can consider SIPs in this sector fund but make sure you rebalance the portfolio when allocations move beyond the original proportion (10%) by more than 3-5 percentage points.

Action required: 

• Stop SIPs, if any, in Mirae Asset Largecap and start fresh SIPs in the Nippon Largecap fund. You can continue to hold investments made in the Mirae Fund and periodically review the fund using either our Portfolio Review Pro tool or our MF Review tool. We will of course alert you if the fund warrants an exit (if you use the ‘follow’ feature).
• Reduce future allocation (SIP or lumpsum, whichever way you invest in) to Kotak Emerging Equity to 10% and increase Motilal Oswal Nifty 500 index fund to 15% and start fresh SIPs in Franklin India Technology (10%). You can continue to hold existing investments in Kotak Emerging Equity with reduced SIP allocation; please note that you don’t need to redeem from Kotak Emerging Equity to bring it down to 10% of your portfolio. Just ensure fresh investments are in the new proportion.

All other funds in this portfolio can be retained as before. The new portfolio can be seen here: Greater than 7-year portfolio

NRI investing – Active MF Portfolio

The above portfolio’s equity component is the same as the greater than 7-year portfolio. We are repeating it here for the benefit of those who follow this portfolio. 

One, we are replacing Mirae Asset Large Cap with Nippon India Large Cap Fund. Despite a great record in the past, the Mirae Asset has been struggling to steadily beat the index for several quarters now. This underperformance has been impacting its longer-term returns as well. The fund is now about 1-2 percentage points behind the Nifty 100 TRI in 3-year periods, and this margin has been slowly swelling over the past few months. To avoid further opportunity loss, fresh exposure can be avoided in the fund. On the other hand, Nippon India Largecap, with a value tint, has been steadily gaining ground and has showcased consistency. We are therefore adding this fund.

Two, we are reducing the weight of Kotak Emerging Equity to 10% from 25%. This weight is being redistributed with other funds and with a new fund, as explained below. Kotak Emerging Equity has earlier been a quality, consistent outperformer beating peers and the Nifty Midcap 150 TRI. However, the fund has been lagging both category and benchmark for a while now, and the underperformance is not small. This is partly to do with the nature of stocks driving the Nifty Midcap 150 where stocks with poorer fundamentals have seen sharp climbs. Given the fund’s portfolio quality, we are giving the fund some leeway for its current performance. But a sharp correction would be necessary for the fund to catch up with the index. For this reason, we cannot risk high weight to this fund. On the positive side, the fund has been able to contain downsides well. It has also shown signs of overall improvement; going by 1-month and 3-month rolling returns.

Three, we are increasing the weight to Motilal Oswal Nifty 500 Index fund to 15% from 10% earlier. Four, we are adding a new fund Franklin India Technology at a 10% weight.

To make up for the lost performance, we are upping exposure to Nifty 500 and bringing a more aggressive thematic fund. While tech as a theme has underperformed in the large-cap space, the mid and small companies in niche IT segments have done well. We expect Franklin’s exposure to such stocks together with a global fund exposure to help play returns-catch up in this portfolio. You can consider SIPs in this sector fund but make sure you rebalance the portfolio when allocations move beyond the original proportion (10%) by more than 3-5 percentage points.

Action required: 

• Stop SIPs, if any, in Mirae Asset Largecap and start fresh SIPs in the Nippon Largecap fund. You can continue to hold investments made in the Mirae Fund and periodically review the fund using either our Portfolio Review Pro tool or our MF Review tool. We will alert you if the fund warrants an exit (if you use the ‘follow’ feature).
• Reduce future allocation (SIP or lumpsum, whichever way you invest in) to Kotak Emerging Equity to 10% and increase Motilal Oswal Nifty 500 index fund to 15% and start fresh SIPs in Franklin India Technology (10%). You can continue to hold existing investments in Kotak Emerging Equity with reduced SIP allocation; please note that you don’t need to redeem from Kotak Emerging Equity to bring it down to 10% of your portfolio. Just ensure fresh investments are in the new proportion.
• All other funds in this portfolio can be retained as before. The new portfolio can be seen here: NRI investing – Active MF portfolio.

Timeframe: 1-3 year portfolio

In this portfolio, we are making no changes. We want to, however, explain Nippon India Low Duration that is part of this portfolio. Those of you following Prime Funds may note that we have removed this fund from Prime Funds. 

We are retaining Nippon Low Duration in this portfolio. Our intention behind removing it from Prime Funds was solely to keep the list compact and make way for a new fund addition that currently offers marginally higher yields. Nippon Low Duration remains a Buy and any yield differential with other funds is too minimal to warrant a change. It remains a quality, above-average performer in its category.

All equity-oriented portfolio returns are available on the respective Prime Portfolio pages. 

General disclosures & disclaimers