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.  

DSP Equity & Bond Fund - Direct Plan

Reason for recommendation

The volatility index that calculates expected volatility in the equity market is currently trading at a one-year high. This means volatility is likely to continue for a while due to the war between Russia and Ukraine. Therefore, it is advisable to invest in funds that have exposure to both equity and debt such as an aggressive hybrid fund. An aggressive hybrid fund invests around 65-80 per cent of its corpus in equities and the rest in debt instruments. DSP Equity and Bond Fund is one such aggressive fund that you can add to your portfolio currently. This fund does well during rallies and protects downside better compared to the category. For example, during 2014 and 2017 the fund was able to beat both its category and benchmark. Similarly, for the March 2020 quarter it fell less than its benchmark.

These factors helped the fund to have one of the best risk-adjusted returns reflected in Sharpe ratio of 0.79 – one of the best in its category. On the equity side, at the end of January 2022 the fund was overweight on financials, automobile, construction and chemicals and underweight on technology, healthcare, services and energy. Though the sectors where the fund is overweight are currently looking vulnerable, they are available at attractive valuation and are therefore a good investment case for investment horizon of 1-3 years. ICICI Bank, HDFC Bank, Infosys and Ultratech Cement are some of its top equity holdings. The fund is well-diversified with 56 stocks and the highest weightage to any stock is not more than 7 per cent. On the debt side, it is overweight on government securities and A1+ rated funds while underweight on cash, AAA and AA. The average credit quality is high but on the duration front it is holding papers with respect to medium duration. That said, on the yield curve from the short-term perspective, it is still placed in a better position. Therefore, this fund is a good bet in the present market condition and such uncertain times.