The core-satellite approach is one of the most popular investment strategies. In it, you have a core fund (or a couple of them) and allocate a major part of your capital to them. So, the core fund is the main fund in your portfolio. Then you can add other funds in your satellite portfolio to boost your returns or diversify better.

The core-satellite approach has many advantages, which we have discussed in the video. Next, we explore what should be the core fund for your portfolio. Because equity funds have the highest return potential and are most suitable for those in the accumulation phase, we started looking into the equity categories.

In our view, the core fund must fulfil two criteria: (1) it should give good returns and stability and (2) it should be reasonably free to invest anywhere. The second criterion is important because restricted investment mandates can affect diversification and increase risk. To ensure stability, we took those equity categories which have a large-cap allocation of at least 50%.

The equity categories that got disqualified due to the above criteria were mid-cap, small-cap, multi-cap, dividend yield, value/contra, sectoral/thematic. The categories that cleared the criteria included large-cap, large & mid-cap, flexi-cap, ELSS and focused funds.

We then compared the performance and the volatility of the five categories that cleared the criteria. Focused funds did best. Large & mid-cap funds showed higher return potential at a higher volatility. Flexi-cap funds were moderate on both risk and return. ELSS funds gave moderate returns but at a higher risk. Finally, large-cap funds gave the least returns but were able to contain volatility.

These were the findings and one can use these to build a portfolio. However, one should go beyond returns. Different categories of funds could be suitable for different investors based on their requirements. Even funds from more than one category can be clubbed depending on the requirement. We have given the suitability of each of the categories in this video.
Link to check portfolio overlap: https://www.advisorkhoj.com/mutual-fu...

Chapters
00:00 Introduction
00:34 The core fund for your portfolio
01:45 Why Does a Core Fund Matter for a Good Portfolio?
03:45 What categories can qualify as core funds?
07:25 Which is the best core fund category?
10:20 Picking the right core fund

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