Fund of Fortnight

This is our mutual fund recommendation. Every fortnight, we recommend one open-ended equity diversified fund that has the best potential of returns for the next one year considering its constituents remain the same.

Reason for recommendation The stubborn inflation everywhere, including India, is forcing central banks to raise interest rates even at the cost of growth. When there is fear of slowdown, Large-Cap companies offer better risk-adjusted returns. We are already witnessing a glimpse of this with the broader markets underperforming the frontline indices. As a result, it makes more sense to take a conservative approach and invest in a large-cap-biased fund. IDBI Flexi-Cap Fund fits best in the present situation. Looking at its asset allocation, 77.4 per cent is dedicated towards large-caps, 17.29 per cent towards Mid-Caps and 5.23 per cent towards Small-Caps. 

On the sectoral front, the fund is overweight on financial, technology, capital goods and construction. Stocks like HDFC Bank, Infosys, ICICI Bank, SRF and Reliance Group form part of its top holdings. Looking at the current earnings and valuation, financials are likely to perform better going forward where the fund has maximum exposure. In terms of returns, this fund has outperformed the category average in the last one-year, three-year and five-year period. Moreover, this fund seems to have better risk management in place as it does protect downfall more efficiently than the benchmark as well as category average.

This is evident from the fund’s lower standard deviation and beta that stood at 20.44 per cent and 0.88, respectively. Maximum drawdown of the fund is also much lower than the benchmark. The portfolio of the fund looks quite diversified. It had a 50-stocks portfolio at the end of September 2022 and its top 10 holdings contribute only 43.26 per cent while the top three sectors contribute 49 per cent. This shows that even in terms of concentration risk, this fund is well-placed. In terms of risk-reward as measured by Sharpe and Sortino ratios, the fund is ahead of its peers. This fund is more suitable for investors with a conservative to moderate risk profile.