CRISIL FUND INSIGHTS

Monthly funds newsletter from CRISIL Research

Volume – 86 June 2018

When to exit a mutual fund?

Investment Most of us give much-needed attention to various factors while buying a mutual fund, but seldom do we give any

thoughts importance to the factors that warrant selling a mutual fund investment. While the benefits of investing, especially in
equity funds, are derived in a longer timeframe, that doesn’t mean one should forget about these investments and
only take a look at them as the goal nears its target. This is because there are various factors that impact the growth journey of investments. In this
edition of Fund Insight, we highlight the importance of the right time to sell mutual fund investments in the financial planning process and look at the
major scenarios under which investors could take an informed decision to exit their mutual fund investments.
When to sell?
While it’s true that mutual fund investments should be for the long term, a smart investor must also know when to make an exit and sell his or her
mutual fund holdings. For most investors though, deciding when to sell their investments poses one of the biggest dilemmas of investing. In fact, one of
the most common mistakes that investors make is that they react to the short-term movements of equity markets and sell when the market falls,
thereby missing out on the long-term gains from equity.
Here are some of the scenarios when an investor could consider selling and exiting from a mutual fund investment:
Fund is consistently underperforming: An investor must regularly monitor his or her mutual
fund holdings to weed out the under-performers. Thus, if a scheme consistently underperforms
vis-à-vis its benchmark and category returns, an investor should take a fresh look at it and after
determining the cause for the under-performance, take a call to exit the scheme and invest in a
better-performing scheme in the same category. The investor must not base his decision on
short-term underperformance of a quarter or two, however, but only exit if the scheme is under-
performing for a longer period.

Change in fund’s attributes: Following the recent reclassification of mutual fund categories,
many mutual fund schemes have changed their mandate. For instance, a diversified equity fund
has changed its mandate to become a purely large-cap equity fund, which may or may not be
able to generate as much alpha as its previous avatar. In another case, a small and mid-cap
fund has changed focus to become a purely small-cap fund, which by nature would be more
risky than its earlier mandate. In such a case, an investor could exit the fund if it no longer
matches his risk and return profile.
Change in investor’s risk-return profile: Many a times, an investor’s risk-taking ability may
undergo an abrupt change due to unforeseen circumstances, which may also necessitate a change in his or her existing investment plan. For instance,
an investor has aggressive risk profile whose investment portfolio is skewed towards equity. But due to some unforeseen financial circumstances, her
risk profile has changed to conservative. Hence, her financial planner suggests that she reallocate her portfolio towards less riskier assets. Accordingly,
she should sell some of her investments in equity funds and deploy the same in debt funds.
Rebalancing the portfolio: Suppose an investor has a debt-equity allocation target of 40:60 in favour of equities. His equity portfolio has appreciated
rapidly following the bull run of 2017 and now accounts for 80% of his portfolio. In this case, it would be prudent for the investor to reassess his
investments and sell some of his equity mutual fund holdings to rebalance his portfolio. Rebalancing is essential as it enables an investor to keeps a
check on and curtail his risks.
Achieved the goal: The main objective of financial planning is to achieve the set financial goals in a pre-defined way. In the case of medium- to long-
term goals, if the goal amount is achieved well before the timeline, it is prudent to safeguard the investments from adverse market conditions. For
instance, an investor invested in a systematic investment plan in a hybrid fund to reach his goal of purchasing a car three years from the start of the
investments. However, his investments were able to generate higher yield and thus reach his goal amount within two years. In such a case, it makes
sense for him to exit the fund and shift his savings to a less risky product type like liquid fund to ward off any risks to the portfolio value from market
volatility. Similarly, when it comes to retirement savings, most financial planners advise investors to systematically withdraw their investments from
equity mutual funds and shift to safer debt funds a couple of years before retirement to avoid the risk of a sudden market shock eroding their savings.
Before hitting the exit button
It is imperative that investors follow a well-thought-out process for exiting their mutual fund investments. While an investor must be agile in taking an
exit call if there is a change in his scheme’s risk profile or investment attributes, he or she should not hastily move out of a fund just because it has
underperformed in a couple of quarters or only because there is a change in the fund manager.
 Market - Overview ● Domestic equities recovered towards the end of the month and ended flat, thanks to a
normal monsoon forecast, good earnings numbers from some index majors, a correction in
% Change in % Change in crude oil prices, and easing political turmoil in Italy. The S&P BSE Sensex gained 0.46%,
Indices
May 2018 Apr 2018 while Nifty 50 ended little changed.
Nifty 50 -0.03 6.65
● The market fell during the beginning of the month, due to uncertainty over the formation of
S&P BSE Sensex 0.46 6.19
the government in Karnataka and weak domestic macroeconomic data.
Indicators May 31, 2018 Apr 30, 2018 ● A rise in global crude oil prices (which could widen India’s current-account and fiscal
10-year Gsec 7.83% 7.77%
deficits and push inflation higher) and disappointing quarterly earnings from some public-
Monthly CPI Inflation 4.87% 4.58%
sector banks, because of higher provisions for bad loans, have dented the sentiment.
● The local indices tracked weak global developments, including the political turmoil in Italy, US President Donald Trump’s decision to scrap the Iran nuclear
deal, and persistent concerns over US-China trade war.
● The performance of Nifty sectoral indices were mixed during the month. The Nifty Bank index was the top gainer, up around 6%, due to stock-specific
developments and encouraging earnings numbers from a few banks. Among the laggards, the Nifty Pharma index lost 9.28%, due to weaker-than-expected
earnings from pharma companies. The Nifty Auto index fell 5.43%, after the US launched a national security investigation into car-and-truck imports that
could lead to new US tariffs.

Mutual Fund – Overview

Top Stock Exposures – May 2018 Top Sector Exposures – May 2018
28 175,000
1. HDFC Bank Ltd. 1. Banks
26 105,000 2. ICICI Bank Ltd. 2. Computers - Software
3. Infosys Ltd. 3. Pharmaceuticals
(Net Flows Rs cr)
(AUM Rs lakh cr)

24
35,000 4. State Bank of India 4. NBFC
22 5. Larsen & Toubro Ltd. 5. Engineering, Designing, Construction
-35,000 6. ITC Ltd. 6. Refineries/Marketing
20 Housing Development Finance
7. 7. Passenger/Utility Vehicles
-105,000 Corporation Ltd.
18
8. Kotak Mahindra Bank Ltd. 8. Housing Finance
16 -175,000 9. Reliance Industries Ltd. 9. Cement
May-17

May-18
Oct-17

Mar-18
Apr-18
Jun-17

Jan-18
Jul-17
Aug-17

Nov-17
Dec-17
Sep-17

Feb-18

10. Maruti Suzuki India Ltd. 10. Cigarettes

New Stocks Entries and Exits in Mutual Fund Portfolios – May 2018
Net flows (RHS) Industry Month-end AUM
Entries Exits
Indostar Capital Finance Ltd. Asian Oilfield Services Ltd.
Absolute Monthly Returns%
Category returns Prakash Industries Ltd. GVK Power & Infrastructure Ltd.
May-18 Apr-18
Apcotex Industries Ltd. ITI Ltd.
CRISIL – AMFI Large Cap Fund Performance Index -1.41 5.35
CRISIL – AMFI Diversified Equity Fund Performance Index -2.25 5.48 Den Networks Ltd. Nelcast Ltd.
CRISIL – AMFI Small & Midcap Fund Performance Index -4.49 6.90 Gokaldas Exports Ltd. Ruchira Papers Ltd.
CRISIL – AMFI ELSS Fund Performance Index -2.20 5.97 Asian Hotels (West) Ltd. Shemaroo Entertainment Ltd.
CRISIL – AMFI Balance Fund Performance Index -1.36 3.62 Thirumalai Chemicals Ltd.
CRISIL – AMFI MIP Fund Performance Index -0.32 0.46
United Bank of India
CRISIL – AMFI Gilt Fund Performance Index 0.25 -0.87
Aptech Ltd.
CRISIL – AMFI Income Fund Performance Index 0.13 -0.81
CRISIL – AMFI Short Term Debt Fund Performance Index 0.16 -0.25
CRISIL – AMFI Ultra Short Fund Performance Index 0.45 0.25
CRISIL – AMFI Liquid Fund Performance Index 0.63 0.56
Gold Funds (ETFs and FoFs) -0.02 1.09

● Mutual funds’ assets under management (AUM) fell 2.83%, or by Rs ● Gilt funds recorded an outflow of Rs 428 crore in May, compared with an
65,927 crore, to Rs 22.60 lakh crore in May, compared with the record high outflow of Rs 436 crore in April. Weighed by MTM losses, the category’s
of Rs 23.26 lakh crore in April. The decline was driven by outflows in liquid AUM declined faster by Rs 845 crore, or 7.77%, to Rs 10,035 crore in May,
and income funds. marking the ninth straight month of decline in assets.
● Though equities witnessed inflows in May for the 26th consecutive month, ● Liquid funds witnessed an outflow of Rs 46,724 crore in May, as against
investors pumped Rs 12,070 crore into the category in May, following an an inflow of Rs 1.16 lakh crore in April. As a result, the category’s AUM
inflow of Rs 12,409 crore in April. The category’s asset base fell Rs 2,113 declined Rs 58,415 crore, or 12.79%, to Rs 3.98 lakh crore in May.
crore, or 0.26%, to Rs 7.98 lakh crore, weighed by mark-to-market (MTM) ● Among regulatory developments, the Securities and Exchange Board of
losses. India (SEBI) has asked fund houses to follow the 'best practices'
● Balanced funds witnessed an inflow of Rs 2,666 crore in May, compared guidelines issued by the Association of Mutual Funds of India (AMFI).
with an inflow of Rs 3,500 crore in April; however, the category’s asset ● The SEBI has lowered the ‘additional expense’ charged by mutual funds to
base declined Rs 3,311 crore, or 1.83%, to Rs 1.78 lakh crore, compared 5 basis points to help increase the penetration of such products among
with the record high of Rs 1.81 lakh crore in April. investors.
● Debt funds witnessed an outflow of Rs 20,407 crore in May, as against an ● The SEBI has asked fund houses to disclose the total expense charged to
inflow of Rs 5,220 crore in April. As a result, the category’s AUM declined customers for all schemes under a separate head on a daily basis on their
Rs 5,194 crore, or 0.66%, to Rs 7.85 lakh crore from Rs 7.90 lakh crore in and AMFI websites.
April.

Fund News ● Dai-ichi Life has acquired a 39.62% stake in Union Asset Management Company for an undisclosed sum.
CRISIL Fund Rank 1 Schemes - Hybrid
Fund Focus
Mutual Funds' Performance Report
Point to Point Returns %
Inception
Average
Style
Std.
Sharpe
Aditya Birla Sun Life Regular Savings Fund
Scheme Name 1 3 6 1 3 Since Date
AUM
(Rs.Crore)
Box
Deviation
(%)
Ratio (CRISIL Fund Rank 2)
Month Month Month Year Years Inception
Aggressive Hybrid
Launched in May 2004, Aditya Birla Sun Life Regular
Principal Hybrid Equity Fund -2.14 1.09 1.24 15.80 14.31 11.66 14-Jan-00 1026.52 11.14 0.71 Savings Fund (formerly Aditya Birla Sun Life MIP II –
Conservative Hybrid
Wealth 25 plan) has been ranked in the top 10
IDFC Regular Savings Fund 0.00 0.04 -0.62 2.67 6.82 8.98 25-Feb-10 251.01 4.06 0.08 percentile (CRISIL Mutual Fund Rank 1) for three
consecutive quarters between June 2017 and
UTI Regular Savings Fund 0.08 2.33 2.12 7.87 8.50 10.00 16-Dec-03 1187.28 3.72 0.52
December 2017. In March 2018, the fund has been
CRISIL Mutual Fund Ranks as of March 2018 Style Box Legend ranked 2 (the next 20 percentile). As per the
Value Blend Growth
Point to Point Returns are as on May 31, 2018
Large Cap
classification by the Securities and Exchange Board of
Returns are annualised for periods above 1-year, other wise actualised Small & Midcap India (SEBI), the scheme has been categorised as a
Risk Ratios are annualised Diversified conservative hybrid fund. Accordingly, the fund
Period for Risk Ratios is three years manager will ensure that investment in equities is
CREDIT QUALITY
For Sharpe Ratio the risk free rate is 6.59% - the average 91-day T-Bill High Medium Low limited to 10-25% of total assets, with the rest in debt
auction cut-off rate for three years High INTEREST instruments.
Average AUM is 3-months average number as disclosed by AMFI for the Medium RATE
period January-March 2018 Low SENSITIVITY Performance
(FOR MIP AGGRESSIVE SCHEMES)
The fund grew at a 10% compound annual rate (CAGR)
since inception, versus 9% for the category
(Conservative Hybrid Funds, as per CRISIL ranking –
March 2018) and 8% by the benchmark (CRISIL Hybrid
85+15 – Conservative Index). The fund has
outperformed the category and its benchmark over
most time periods analysed.
Chart 1: Performance as on June 13, 2018
15 12.7
10.3 10.7
8.6 9.7 8.9
Returns (%)
10 8.1 9.3 8.4

5 2.9
2.7
1.5

0
1 Year 3 Years 5 Years 10 Years
Period
Aditya Birla Sun Life Regular Savings Fund
Category
CRISIL Hybrid 85+15 - Conservative Index
Note: Returns above one year are annualised

Portfolio analysis
The fund has primarily preferred to take safe bets, with
Average Assets under Management - A Bird's Eye View 87% of the total debt holdings in top-rated paper (AAA,
Jan-Mar Oct-Dec
Change %
Jan-Mar Oct-Dec
Change % A1+, T-bills and g-secs) over the past three years to
Mutual Fund Name 2018 2017 Mutual Fund Name 2018 2017
(Rs.Crore) (Rs.Crore)
(Rs.Crore) Change
(Rs.Crore) (Rs.Crore)
(Rs.Crore) Change May 2018. Lower-rated paper, as a percentage of total
ICICI Prudential Mutual Fund 305739 293338 12402 4.23 Canara Robeco Mutual Fund 12496 12256 240 1.96 debt, has also seen a rise, with the percentage
HDFC Mutual Fund 300549 289168 11381 3.94 Edelweiss Mutual Fund 12100 10000 2100 21.00 increasing to 20% in the past 12 months, from 6%
Aditya Birla Sun Life Mutual Fund 247529 241107 6423 2.66 IDBI Mutual Fund 10760 10653 106 1.00 between May 2015 and April 2016. The scheme’s
Reliance Mutual Fund 244904 243594 1310 0.54 Indiabulls Mutual Fund 10714 11100 -386 -3.47
monthly dividend option has given consistent dividends
SBI Mutual Fund 217649 205273 12376 6.03 HSBC Mutual Fund 10261 11252 -991 -8.81
in the past 36 months, with the average monthly
UTI Mutual Fund 154939 153364 1575 1.03 BNP Paribas Mutual Fund 8159 7499 660 8.80
Kotak Mahindra Mutual Fund 124691 119800 4891 4.08 PRINCIPAL Mutual Fund 7196 6625 571 8.62
dividend yield of 0.41% during the period.
Franklin Templeton Mutual Fund 103152 99804 3348 3.35 BOI AXA Mutual Fund 5802 5255 547 10.41 The fund’s interest-rate risk was managed well by
DSP BlackRock Mutual Fund 86326 87141 -816 -0.94 Union Mutual Fund 4305 3938 367 9.32 altering its modified duration. For instance, when the
Axis Mutual Fund 77325 73372 3954 5.39 Mahindra Mutual Fund 3368 2821 548 19.42
benchmark yield for five-six years’ maturity bucket
IDFC Mutual Fund 69919 71388 -1470 -2.06 Essel Mutual Fund 1540 1147 393 34.30
rose from 6.99% in June 2017 to 7.40% in December
L&T Mutual Fund 65932 60314 5618 9.31 IL&FS Mutual Fund (IDF) 1274 1114 160 14.37
Tata Mutual Fund 46977 48907 -1929 -3.95 Quantum Mutual Fund 1203 1182 21 1.80
2017, the fund reduced its modified duration from 6.19
Sundaram Mutual Fund 34306 36267 -1961 -5.41 PPFAS Mutual Fund 1010 925 86 9.25 years to 3.85 years to minimize loss.
Invesco Mutual Fund 26203 24122 2081 8.63 IIFL Mutual Fund 793 731 62 8.44 Fund manager
DHFL Pramerica Mutual Fund 23595 23493 102 0.43 IIFCL Mutual Fund (IDF) 650 642 9 1.33
LIC Mutual Fund 20118 22114 -1997 -9.03 Taurus Mutual Fund 509 597 -88 -14.69
Mr Satyabrata Mohanty, a CA and CFA, is Head - Mixed
Motilal Oswal Mutual Fund 17735 15762 1974 12.52 Escorts Mutual Fund 231 245 -14 -5.62 Assets with over 18 years of experience in finance and
JM Financial Mutual Fund 16365 16633 -268 -1.61 Sahara Mutual Fund 64 67 -3 -4.28 research. Mr Vineet Maloo, B.Com and CA, is the equity
Mirae Asset Mutual Fund 15756 13467 2289 17.00 Shriram Mutual Fund 43 43 0 -0.68 fund manager with around 13 years of experience. Mr
Baroda Pioneer Mutual Fund 13022 11085 1938 17.48 Grand Total 2305212 2237603 67608 3.02 Pranay Sinha is a fund manager for fixed income, with
AAUM is the quarterly average number and excludes Fund of Funds
around 11 years of experience in the financial markets.

Every month, Fund Focus will feature one of the CRISIL

Mutual Fund Rank 1 or 2 Schemes
Crossword Corner – boost your financial knowledge
Horizontal
1 2
1) A scheme that invests in companies of a particular industry, such as information technology or
industrial products (8)
3) A scheme that does not levy charges at any point in time, when investors buy or sell their holdings
(2,4)
3 4
5) The measure of the sensitivity of a bond's price to the changes in market interest rates (8)

Vertical
5
1) A document which conveys essential investments to investors, such as investment objectives and
asset allocation (1,1,1)
2) The practice of buying and selling securities periodically so that holdings are in line with the
portfolio's target weights (9)
4) A scheme that invests a majority of its assets in floating-rate instruments (7)
5) A tax on the distributed income of mutual funds that reduces an investor's net return; it is paid by the
AMC (1,1,1)

Answers
1) SID (Scheme Information Document) 2) Rebalance 4) Floater 5) DDT (Dividend Distribution Tax)
Vertical:
1) Sectoral 3) No load 5) Duration
Horizontal:

Contact Details

Deepak Mittal : +91 22 3342 8031; Deepak.Mittal@crisil.com

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Amrita Sarkar : +91 22 3342 8405; Amrita.Sarkar@crisil.com
Sandeep Tripathi : +91 22 3342 8047; Sandeep.Tripathi@crisil.com
Rajnikant Tiwari: +91 22 3342 2954; Rajnikant.Tiwari@crisil.com
Ankur Nehra: +91 124 6722 418; Ankur.Nehra@crisil.com
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Last updated: April 2016

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