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MC30: How investors should use the ratings

Decide your asset allocation. The proportion of equity-debt-gold-international schemes in your portfolio will decide the funds.

August 16, 2021 / 03:17 PM IST

MC30 is curated basket of 30 investment-worthy mutual funds (MFs). You need not invest in all the 30 schemes. The MC30 is a manageable shortlist culled from over 1,000 schemes across asset classes. All you need to do is to pick a few from this crisp list for your own portfolio, based on your risk appetite and goal horizon. About 8-12 MF schemes would suffice for your needs.

Decide your investment mix

First, decide your equity-debt-gold-international funds proportion. Typically, if you are a young investor and do not have too many liabilities, your equity component should be higher, at say 70-80 percent. As you grow older, your equity share should reduce gradually and your debt allocation should increase. Around 5-10 percent each should be in gold and international funds.

The next step is choosing the schemes.

Of the 30 schemes in this basket, 25 are actively-managed. Next to each scheme are some basic details that give you an idea of a fund’s past performances and characteristics. You can read the rationale for why each of these schemes made it to the MC30 here. Click ‘i’ next to the scheme’s name and you’ll see a brief comment; just to give you an idea of what it is about, to get you started.

Unequal number of schemes across categories

In some categories, you will see minimal offerings – large-cap funds and equity-linked saving schemes (ELSS). This is deliberate. As far as large-cap funds are concerned, it’s getting tougher for them to consistently outperform their benchmark indices. At the same time, the variety of passively-held funds has expanded over the years. To build a solid foundation, start with conservative funds – active or passive large-cap funds or a bit of both, if you wish.

Another alternative is to start investing in hybrid equity funds. These are funds that invest at least 65 percent of their assets in equities and the rest in debt. Well-managed schemes in this category tend to give equity-like returns, with lesser volatility.

Depending on your risk profile, you can choose from among large-cap, flexi-cap and passively-managed funds. From these categories, you will need around three to four schemes in all. Pick one mid-cap scheme and a small-cap fund. If your risk tolerance is high, you can increase the share of small and mid- cap funds in your portfolio, but make sure your core portfolio consists of frontline schemes.

One ELSS is more than enough. And every year, do not add a new ELSS scheme. Keep investing in the same scheme, every year, unless we remove it from MC30.

Options in debt schemes

Now comes your debt allocation. You have three options: short-term, corporate bond and banking and PSU debt funds. All three categories are meant for an investment tenure of at least three years. The tax advantage is also favourable if you stick around for three years at least. You can either pick and choose from all three categories or stick to the one that suits your risk profile the most. For instance, short-term funds could have a sprinkling of lower-rated assets. However, MC30 MF rankings and star ratings will weed out schemes if this allocation is higher than desired.

My scheme is not in MC30. Should I sell?

If you are already investing in MFs and don’t see your schemes in MC30, do not worry. MC30 comprises schemes that we assume would do well, based on our rigorous analysis of their prospects. But there are many more investment-worthy schemes out there, so don’t sell your existing funds and reinvest in MC30 schemes. For instance, some schemes may have taken on a bit more risk than what we’re comfortable with. Or, a fund house may have multiple schemes that would have done well, but we avoid concentration from a single house as far as possible.

Some schemes from the MC30 may not live up to our expectation. Either their strategies may not work in certain markets or a fund manager may move out, resulting in portfolio chopping and changing.

These are inevitable scenarios, but we will try to keep changes in MC30 to a bare minimum. Every future edition of MC30 will have an audit of how the previous set has done. Our endeavour is to ensure that a significant chunk of schemes outperform benchmark indices and categories over the long term.

A box of passive funds in MC30

Five spots in MC30 are reserved for passively-managed schemes like exchange-traded funds (ETF) and index funds. You can pick schemes from this lot, to add to those that you pick and choose from MC30, like say a gold or an international fund. Or for your large-cap allocation. Or you could pick all the 5 schemes from this lot, if you wish to avoid fund manager’s risk (on the equity side).

Happy investing!

Kayezad E Adajania
Kayezad E Adajania heads the personal finance bureau at Moneycontrol. He has been covering mutual funds and personal finance for the past two decades, having worked in Mint and Outlook Money magazine. Kayezad was the founding member of Mint’s personal finance team when it was set up in 2009.
Dhuraivel Gunasekaran
Dhuraivel Gunasekaran
first published: Jul 10, 2021 10:43 pm