Quarterly review – changes to Prime Funds, Prime ETFs & Prime Portfolios

This is our final quarterly review of Prime Funds, Prime ETFs, and Prime Portfolios — our curated recommendations under PrimeInvestor’s subscription service, which we are now winding down. 

With this being the final review, we’ve approached it differently: rather than reviewing purely based on performance, we’ve focused on both performance and simplification — paring down the lists to funds that need less active monitoring, and restructuring portfolios for ease of maintenance going forward. Here are the changes we have made in each of our recommendation products.

Prime Funds

In this review of Prime Funds, we have made changes primarily in the thematic section of equity funds. This apart, we’d also like to comment on the performance of a few funds.

Equity – Aggressive Active

In this Prime Funds set, we are removing Motilal Oswal Midcap fund. This fund has been a stark underperformer against both category and the Nifty Midcap 150. In our previous review, we had explained the reasoning for the lag – essentially, it is an aggressive fund, with a concentrated portfolio of high-growth stocks; steep declines in these concentrated exposures impacted performance. At the time, we were hopeful that the fund would recover, along with broader markets and as most underlying stocks were otherwise sound. 

However, the Iran-US conflict over the past month sent markets into a tailspin and can delay recovery by the fund; the mid-cap segment may also take longer to bounce back even if markets stabilize over the coming weeks. The gap between the fund’s return and the Nifty Midcap 150 has remained wide, and prolonged sideways or volatile markets can keep a lid on recouping lost ground. Therefore, we are moving the fund to a Hold and removing it from Prime Funds. 

Action to take: Stop any SIPs in the fund. Retain investments made until now. Fresh investments can be made in the Nifty Midcap 150 index fund, to minimize risks given that the midcap space in general has been underperforming.

Equity – Thematic

In this set, we have approached it in two ways:

• Longer-term themes: These are structural themes that can remain part of portfolios over extended periods, while also being well-positioned in the current environment. They typically require less frequent monitoring or profit booking. The themes here are banking and healthcare. The Prime Funds on these themes are as follows: Nippon India Banking & Financial Services, SBI Banking & Financial Services, HDFC Pharma & Healthcare. 
• Higher-risk themes that require tracking: These themes are strong at this time and the Prime Funds here are well-placed to deliver. However, these funds need close tracking and are cyclical by nature. You will need to watch performance of the funds and the sectors, and book profits on rallies. We are not removing them from Prime Funds, as they do hold potential as the cycle picks up and can be good investments for those willing to watch markets. These funds are as follows: HDFC Transportation & Logistics, ICICI Pru Commodities, Invesco India PSU Equity.

The above funds remain part of Prime Funds. You can invest in them, but keep exposure to thematic funds to 5-15% of your portfolio.

We are removing two funds where we see higher risks and would therefore not prefer further investments. The first is Franklin India Technology. The IT theme has been hit by uncertainty over the AI-led disruption. While the rapid sell-off has since abated and stocks have begun to pick up, the structural shift in the sector makes it hard to correctly assess risks and potential. If you are keen on the sector and are willing to track it, you may continue to hold the fund. Else, it is cleanest to exit and reinvest in other diversified equity funds. 

The second is DSP Healthcare. This is a differentiated fund within the healthcare theme, given its holdings in global device manufacturers, innovators, and biotech companies. However, this also makes it riskier. While the pharma & healthcare theme is attractive, the higher-risk nature of the DSP fund and the need to watch it more closely than HDFC Pharma makes it less suitable as part of a long-term portfolio. You can retain investments already made in DSP Healthcare; any fresh investments can be made either in HDFC Pharma to stay within the same theme or in other diversified equity funds.

Other equity Prime Funds

All other funds across the Prime Funds equity categories continue to remain stable performers. We’d like to highlight a couple of funds here:

• Nippon Nifty 50 Value 20: This fund, part of the Equity – Moderate Passive set, is slightly thematic. The index itself, after going through a period of lagging the Nifty 50, has now begun to pick up again. Its heavy weight in banking, along with auto and smaller sectors such as metals and FMCG, can hold it in good stead and it can remain part of a long-term portfolio. The IT sector, though, also has a good weight in the index and this can keep it volatile for a time.
• Invesco India Focused: We had already mentioned this fund in our previous review. We continue to retain the fund in Prime Funds; its underperformance is owing to higher concentrations in a few stocks that have corrected sharply; this risk is par for the course in focused funds. With top weights in banking and industrials, as well as a good large cap exposure, the fund can pick up well on market recovery.

Debt funds

In this review, we have made changes to keep the Prime Funds list to housing funds with minimal credit risk. This enables a more hold-and-forget approach to the debt part of your portfolio. Accordingly, we have removed only one fund as below:

• Long-term, above 5 years: We have removed ICICI Pru Credit Risk from the list. The fund remains the best performer in the credit risk category, and has delivered strong returns in line with its higher risk profile unlike peers. But as mentioned above, we are keeping the debt funds list to those with higher quality papers to limit the need for closer tracking. Credit risk, in general, requires careful watching for nature of risk and any increase in fund-specific risk owing to papers and concentration. If you are comfortable with credit risk funds, you can continue to invest in the ICICI Pru Credit Risk fund. Else, you can stop further investments in the fund and start instead in the other funds in the Prime Funds – Short Term/ Medium Term buckets.

All other funds in the all categories of Prime Funds remain part of the list. They can continue to form part of your portfolio and you can continue all investments. 

Prime ETFs

We have made no changes in any category in Prime ETFs. You can continue to invest in them and they can remain part of your portfolio.

Prime Portfolios

In this review, we’ve focused on simplifying the portfolios and making changes aimed at ease of future maintenance rather than performance alone. The following are the changes we recommend in this review. 

#1 Time frame-based portfolio – Greater than 7 years

In this portfolio we have decided to remove Franklin India Technology. It is possible that some of you will be in losses or low profits in this fund largely due to uncertainty stemming from AI disruption. This structural shift makes it difficult to confidently assess downside risk — for instance, if AI-driven productivity compresses industry billing rates by 10–15% over the next 3–5 years. We prefer to exit now to either crystallise tax offsets or avoid prolonging opportunity cost. Those tracking the sector closely may choose to hold, but we believe the cleaner path is to exit and redeploy.

We recommend redistributing both the existing investment and any active SIPs into Kotak Emerging Equity (weight increasing from 10% to 15%) and Motilal Oswal Nifty 500 Index Fund (weight increasing from 15% to 20%). These two funds offer sufficient growth exposure without the sectoral uncertainty, and any residual IT allocation is naturally captured within them.

#2 NRI ETF Portfolio

We are replacing the ICICI Prudential Nifty IT ETF with Nippon India ETF Nifty Bank BeES. The IT sector has seen a significant sell-off driven by weak BFSI growth, AI-related revenue concerns in application services, and range-bound margins. While the valuation de-rating might ordinarily present an entry opportunity, we are not comfortable holding a pure-play sector fund amid such structural uncertainty. 

The Bank ETF better aligns the portfolio with clearer, more durable growth themes at this point.  Hence, this change is not done because the underlying companies in the ETF are poor. It is done to ensure opportunity is not lost while we wait for the uncertainty to be cleared.

These are the only changes we have in this final review of Prime Funds, Prime ETFs, and Prime Portfolios. You can view the updated lists here:

Prime Funds

Prime ETFs

Prime Portfolios

A Note on What Continues

We hope you’ll continue using our MF Review tool to keep your portfolio in good shape. It will remain free, and you can use it for the remainder of your investment journey — within the available refresh limits. Prime Ratings on mutual funds and ETFs, as well as the Buy/Hold/Sell calls will also continue, to help guide fresh investment decisions and manage your current portfolio.

If you’d like more hands-on support and the potential for better alpha, you can register for a call at primeinvestor.in/portfolio-management-services and we’d be happy to take it from there.

Disclosures & Disclaimers