(This article was first published in The Economic Times.)
Just as a cricket team needs a combination of playing talent, your mutual fund portfolio too should have the best of each class.
Large-cap equity fund
A steady batsman to play a long innings
This fund will deliver stable, if not high returns over many years. Will not see wide fluctuations in returns as it will take on moderate risk through well established businesses.
Multi-cap equity fund
A versatile batsman who can adapt to different situations
This fund will seek to take advantage of opportunities across the spectrum of stocks. Having flexibility to invest anywhere, it can adapt to changing market situations.
ELSS fund
A dexterous wicketkeeper batsman every team needs
This is a fund that not only contributes with high returns through equity investments but also helps investors save taxes under Section 80C.
Performance stats of playing eleven
Just as a cricket team needs a combination of playing talent, your mutual fund portfolio too should have the best of each class.
Alpha shows degree of outperformance/underperformance. Sharpe ratio shows return delivered per unit of risk taken. Standard deviation shows degree of volatility in return. Source: Value Research. Data as on 28 Feb 2017
Dynamic bond fund
A specialist bowler who can bowl according to the situation
This fund will aim to benefit from interest rate fluctuations by switching actively between bonds of different maturity profiles. Its delivers decent returns in both declining and rising rate scenario
Small-cap equity fund
A pinch-hitter to help score runs quickly
This fund can potentially deliver high returns over a shorter time span by investing aggressively in high-growth smaller companies yet to be discovered by the market. The risk profile is higher given the nature of exposure
Short-term debt fund
A dependable batsman to hold the innings if wickets fall quickly
This fund can provide a foundation for your entire portfolio. It will invest in short tenure bonds to deliver moderate yet dependable returns.
Gilt fund
A spin bowler to take advantage of a turning track
This fund will make the most of a declining interest rate scenario by investing in long tenure government bonds, whose price appreciates sharply in such scenarios. Requires you to time both entry and exit from the fund, else it can cost you many runs (incur losses).
Mid-cap equity fund
A fast bowler to take wickets through speedy deliveries
This fund will seek to capture higher return from investments in mid-sized businesses growing at a fast clip. While it can give a boost to overall portfolio return, it will come with higher volatility.
Equity-oriented balanced fund
An all-rounder who can contribute with the bat and bal
This fund aims to capture the best of both worlds—the return potential of equities and safety of debt. It can deliver stable returns over long run, riding out intermittent volatility.
Liquid debt fund
A night-watchman to ensure that team does not lose other important wickets
This fund is best suited to provide cover in case of emergency needs. Investing in very short tenure debt instruments, it will typically provide muted yet highly stable returns
Credit opportunities debt fund
A medium pace bowler who can take quick wickets in middle overs
This fund captures high return through accrual from high-yield corporate bonds and from capital gains through any rating upgrades. While interest rate risk is limited, credit risk is higher owing to exposure to lower quality paper.
Saurin Parikh 