Our MF Review Tool is among the most oft-used products on our platform. In this tool, we give you buy/sell/hold calls on funds, along with a reasoning for the call. Where we give sell calls, we also direct you to the section in Prime Funds that’s the closest comparable to the ‘sell’ fund. Now, all this is fairly straightforward.
Many of you, though, have raised questions through our support platform on the results of this tool. Most of these have a common thread. We’ve addressed a good many here in this FAQ on the MF Review Tool. Today, we’ll cover a few more.
Q. Why do you have no Buy calls in liquid funds?
Our reasoning explains our rationale in brief, but here’s expanding it. Liquid funds are extremely short-term in maturity. There’s not a lot of performance differential between them, and relative performance within the category can change quickly because they have very short maturities. Further, the scope of instruments in which they can invest is not wide. All this makes most liquid funds very similar to each other. This apart, liquid funds are the best fits to run STPs. Here, you necessarily need to pick funds from the same AMC as the fund you want to invest in rather than looking at return potential.
For all these reasons, we prefer not to clearly mark liquid funds into Buys and Holds. In STPs, seeing a Buy in one fund and a Hold in another may raise doubts on the latter’s suitability for STPs. Therefore, we keep most liquid funds as Holds, despite their rating. We don’t give Buys. Therefore, you can invest in liquid funds given as Hold. We give Sell calls on those rated liquid funds where either expense or AUM pose or other qualitative metrics such as AMC strength pose a risk.
In Prime Funds, we give recommendations in liquid funds. We give these for those who are looking to invest short-term money or to build emergency portfolios, which need such funds. However, these funds will still be marked as Holds in the review tool for the reasons explained above. You will be able to identify the Prime-recommended liquid funds by the ‘tick’-marking in the Prime Rating column in the tool’s output sheet.
Q. What do I do about funds where you have ‘No opinion?’
Our ‘No opinion’ calls mean that we are not equipped to give our view on such funds, for several reasons. We refrain from giving calls in the following cases:
- One, where the fund is new. With no or limited history of portfolio or performance, it’s not possible for us to opine whether or not a fund is good. If you hold such funds, then simply go by its performance. If it’s delivering well for you, you can well continue to hold. Exiting such funds and re-entering others can lead to unnecessary taxes and churn.
- Two, where the fund is too small and so doesn’t cross our gating criteria. In debt funds especially, we’re wary of taking calls on small funds as such funds’ performance ability can change in a blink if there’s an AUM impact. Here, the call is entirely yours – to hold or move.
- Three, in thematic or international funds. We don’t have an opinion on every theme/sector there is and the funds within those themes; past performance is of limited help here and timing is key in many. Thematic/international funds we have calls on will be available in Prime Funds. If there’s a theme you are interested in, check Theme Park for funds that are best suited for that theme. You may, of course, write to us on thematic or international funds, or even on other funds (that don’t fall in the two buckets mentioned above) for more understanding. But do be aware that we may still not offer concrete opinions if we do not have the conviction or information needed to give such calls.
Q. For funds which are a Sell, should I reinvest only Prime Funds?
It is not necessary! We give alternatives for Sell funds from the most relevant section in Prime Funds. But you can do any of the following: one, go for the Prime Funds. Two, check if any funds you currently hold are Buys in the tool. If so, you could go for them instead of adding more funds to your portfolio. However, do ensure that the fund’s allocation is within reasonable limits. We’ve talked about fund exposure and how many funds to have in a separate article. If adding to existing funds takes the allocation too high, go for Prime Funds for reinvestment. Similarly, if you don’t have any funds that are good Buys, or they are too few for the amount you need to reinvest, add on Prime Funds. The question below will also help you in your decision.
Q. For funds which I sell based on the MF Review tool, should I reinvest only in the same category?
Not necessarily. Reinvesting in the same category is certainly not wrong. But this could also be an opportunity for you to see if your portfolio can be improved or be better diversified in any way. For example, if you have missed setting up an asset-allocated portfolio with appropriate debt exposure, you could start by reinvesting the amount in debt funds. Or, if your aggressive fund allocation (i.e., funds with high mid-cap/ small-cap allocation) is on the higher side, reinvesting in more moderate-risk funds to bring back balance. Or, you could introduce different fund styles or fund segments that you don’t have so far.
Q. You have calls saying ‘Buy through direct’. What should I do if I already have investments in the regular plan?
We introduced the Buy through direct call because we noted several funds in different categories where the differential in the direct and regular expense ratios is much higher than average. With a research service like ours, there is little need for you to continue with funds with a higher-than-average expense differential. Therefore, where we see a very high regular plan expense ratio compared to the direct plan, we have issued a ‘Buy through direct’ call.
So, if a fund is a Buy through direct, the ideal thing would be for you to exit current investments and also make fresh investments through direct. However, the problem for most of you would be the tax on the sale of your current investments in the regular plan since a switch from regular to direct involves tax outgo. If such tax outgo is high and/or you want to avoid it, simply make fresh investments through the direct plan. Retain existing regular plan investments made so far. Note this point – where we have a Buy through direct call, the regular plan fund is not a poor performer or low rated. That is, even with the high expense ratio, it has delivered well. It is just that the direct plan is by far a better option because it combines good performance with lower expense. If you’re comfortable with the higher expense, you may continue investing through regular plans.
PS: We’re also shortly launching a tool that will give you category-wise comparison between the direct and regular expense ratio of funds. With this tool, you’ll be able to see how your fund stands relative to others in its direct-regular expense ratio differential.
