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
One of the greatest dangers to the current rally in the equity market world over is stronger than expected inflation. Higher inflation would mean tightening of the rate by central banks much before the expectation of the market. A higher interest rate would mean a lower equity valuation. Therefore, this is the right time to invest any incremental amount in a category of funds that offer you a margin of safety. Given such a scenario, value or contrarian funds are categories that will protect you better than the growth category. Kotak India EQ Contra Fund is one such fund that follows the contrarian style of investing.

A contrarian fund manager invests in stocks that are not performing very well or are out of the limelight at that particular point in time. Nevertheless, the fund will go back to the stocks’ real or fair value in due course, which will help the investors. The fund manager follows a stock-picking approach that combines the fund manager’s conviction with a quantitative model. In the last five years the fund has generated annualised return of 18 per cent – one of the best in its category. The best part is that the fund has been able to beat its category average and benchmark during the years 2018 and 2019 when the overall equity market was not performing well.

Even in the year 2020 it matched the category and benchmark performance. The fund has major exposure to large-caps of up to 70 per cent of its net assets and 30 per cent towards mid-capdedicated stocks. In terms of sectors, the fund is overweight on financial, construction and energy while it is underweight on healthcare, automobile and FMCG. What also favours the fund is its expense ratio, which is the lowest in its category and was less than 1 per cent at the end of May 21. Although investing in such funds requires a long-term view and patience, looking at the current juncture they look attractive from a one year perspective also.