Redemption: that in a word sums up the goings-on in the mutual funds industry last quarter. There's another single word that explains why investors were so keen to take their money back home: Budget. Fund managers love to point out that finance ministry's decision in 1999 to make dividends from mutual funds tax-free in the hands of the investor was the perfect impetus for kick-starting the nascent industry. But then what does Yashwant Sinha do? He shuts the door rudely by making dividends from both equity and debt funds taxable at the investor's hands with effect from April 1, 2002.

That was enough to get investors reaching for the panic buttons, which is reflected in March's huge redemptions of Rs 30,365 crore, up from just Rs 19,194 crore in February. The total industry assets also dipped by 6 per cent, to Rs 1,00,594 crore. To be sure, every category of funds has seen its assets dip and it is predominantly the foreign joint ventures that have taken the biggest hit of Rs 2,695 crore in their assets under management. Standard Chartered Mutual Fund took the biggest knock, losing over Rs 750 crore, although along with redemptions a huge dividend payout too contributed to that loss. The biggest loser in terms of percentage of total assets was IDBI Principal Mutual Fund, whose assets shrunk by 32 per cent. Liquid funds had to bear the brunt of the redemptions (largely by corporates). Since last April, mobilisation by liquid funds has been higher than redemptions in most months. However, post Budget 2002-03, redemptions exceeded mobilisation by a whopping Rs 5,110 crore in March.

A major highlight of last quarter was, of course, the dividend-stripping orgy most mutual funds indulged in, as a response to the finance minister's tax whammy. Debt funds in particular made a mad rush to pay out dividends, as this would be their last chance to declare tax-free dividends (equity funds have the tax shelter for another year). The highest payout was a staggering 70 per cent by Tata Income Plan (that too by creating a sub-plan in a growth option). Liquid funds too joined the scramble with fat payouts. Whilst 20 per cent was the norm here, Sun F&C topped the payout list in liquid offerings with 30 per cent.

But in no way can the redemptions of the previous quarter take away from the impressive performances of some of the funds. Overall, with 31 schemes out of the 56 selected for the study beating the income average of 2.89 per cent, this has been an extension of the good days seen in the last quarter.

Consider the debt funds for instance. For a debt fund to rake up returns of over 25 per cent in a quarter might sound astounding but that's exactly what Pioneer ITI Maxima succeeded in pulling off-25.15 per cent in the January-March period, to be exact. It's not going to be easy, however, trying to analyse this fund's good showing since it hasn't ever disclosed its portfolio. But even that can't take the sheen off that performance, especially when you realise that the next fund in the list, Escorts Income Bond-Growth, could muster returns of just over 9 per cent. At No. 3 is PNB Debt Fund-Growth, with 4.51 per cent. If you're wondering why Pioneer Maxima doesn't figure in our scorecard, it's because of their unwillingness to disclose the components of their portfolio. PNB Debt Fund for its part has been one of the consistent performers and has been rated among the best even in our previous studies. The fund had an average maturity of 10 years as at the end of March 2002 and its portfolio investments include government papers as well as those of FIs.

The star performers of our previous two studies (for the last two quarters)-Gilt Funds-haven't yet run out of steam. The average absolute performance of 39 funds belonging to this category was 4.29 per cent and as many as 21 funds were able to better the category average. The Tata Gilt Securities Fund generated 8.06 per cent in absolute terms, which is not bad at all for a gilt fund. The funds on the toppers' list are those with a higher maturity profile-Tata Gilt has an average maturity of well above 10 years (as at the end of March), and Kotak Mahindra Gilt (Serial) 2019-Growth has a maturity of almost 17 years. Given that higher maturity implies higher risk, the performance of these funds clearly indicates that they have been pretty successful in reading the market, and that high risk equals high returns.

The worst hit by the budgetary proposals will be the liquid funds, as corporate interest in them is sure to go down on account of the increased tax burden on the investor. Yet, last quarter's performance of this category wasn't too bad, with Zurich India Liquidity Investment Plan-Growth showing the way. The scheme generated 1.805 per cent in absolute terms, which translates into an annual yield of 7.89 per cent. The fund has an average maturity of close to four months, which is on the higher side when compared to its category peers. JM High Liquidity Fund closely follows behind with an annual yield with 7.67 per cent. Grindlays Cash Fund has also made it to the list of toppers and has emphasised the fact that mutual funds with banking background derive their strengths from their treasury functions.

GIC Fortune and Reliance Vision aren't exactly the top-of-mind names in the mutual fund industry, but they figure amongst the top performers in the equity category. The equity offering from GIC has been a decent performer over time thanks to its diversified portfolio (it holds over 40 stocks belonging to a number of sectors), which helps it cover up for the risk associated with stocks. A close No. 2 is Pioneer ITI Prima Fund-Growth, which has always believed in the virtues of diversification. K.N. Siva Subramanium, Fund Manager, Pioneer ITI Mutual Fund, attributes the performance to the shift into mid-cap and small-cap stocks. ''Between October 2001 and March 2002, the valuation gap between large caps and mid-to-small caps got corrected,'' he explains. The average performance of the 50 equity schemes (growth options of schemes excluding tax-saving and sector-specific schemes) was a handsome 12.98 per cent with as many as 19 outperforming the average return from the peer group. Among the benchmark indices, the BSE Sensex posted 7 per cent and Nifty generated 7.04 per cent over the same period, indicating that the performance of the category was generally better than the benchmarks.

The performance of the sector funds meantime clearly reflects the buoyancy on the markets, with 33 of them (growth options) notching up close to 15 per cent on an average and seven going on to outperform the category. On top of that list of outperformers is JM Basic Fund, with a monstrous 87 per cent return. UTI Petro takes the runners-up spot. ''There has been an upswing in the petro sector, which is one of the main reasons for our fantastic performance last quarter,'' says Chandan Desai, Fund Manager, JM Mutual Fund.

Equity-linked savings schemes (ELSS, also known as tax-saving equity schemes) too notched up attractive gains last quarter, with the average performance of 16 such schemes working out to 15.24 per cent over the last quarter. The top performer of the category was IDBI-Principal Tax Savings Fund, which shot up by over 25 per cent. The fund has good exposure to decent quality scrips, with the selective focus being on the banking, petroleum, pharmaceuticals, and it sectors. ''We've benefited tremendously from PSU stocks by investing in PSUs with strong businesses and attractive valuations,'' explains Tridib Phatak, Fund Manager, IDBI Principal Mutual Fund. Among other top performers of the category, half of which outperformed the category average and 15 of which outperformed the BSE Sensex (7 per cent) and Nifty (7.04 per cent), are Tata Tax Saving Fund and Zurich India Taxsaver-Growth.

One of the consistent performers in the balanced funds group is Zurich India Prudence Fund-Growth, which has been rewarded for its consistency in management style. With a return of 15 per cent-plus, the fund stands first in the list of top-performing balanced funds for this quarter, leaving its more renowned peers like Alliance 95 far behind.

Risk-Adjusted Performance

Investors looking to invest in equity are prepared to take the higher risk associated with them, more so with sector funds that are higher on the risk scale. To evaluate a fund manager's performance, investors should therefore take a look at the performance of schemes with respect to the degree of risk associated with them.

Among the diversified equity funds, Alliance Equity has emerged as the top fund over the period of study. The technology sector has always been a favourite with Alliance, and that bias held it in good stead last quarter during which market conditions turned favourable (roughly a quarter of Alliance's holding is in tech).

Guess which fund figures at the top of the heap of sector schemes? None other than UTI, which has three of its schemes in the top five! This proves that the beleaguered trust does have some good offerings. The UTI Growth Sector Fund-Services in its latest disclosed portfolio at the end of March had investments spread across multiple sectors with a clear focus on service-oriented industries such as hospitals, hospitality, banking and technology etc. At the No. 2 spot is JM Basic Fund, which has compensated for the higher risks taken by posting good absolute returns.

UTI is on top in the balanced funds category too, with UTI us 95-Growth beating previous toppers such as Alliance 95 and Zurich India Prudence. A little over 60 per cent of the UTI scheme's exposure is to equity, which includes names like Dr Reddy's and Infosys. For risk-averse investors looking for safety and returns (in that order), IDBI-Principal Income Fund-Growth has delivered the goods by investing in AAA paper, quality corporate paper and government securities.

The spectacular run of the gilt funds continues, with Kotak Mahindra Gilt (Serial) 2013-Growth performing better than its category peers. The fund is invested in government papers maturing in 2013 and is closely followed by Kotak Mahindra Gilt (Serial) 2011-Growth. With the only risk in them being the interest rate risk due to their high maturity profiles (credit risk is virtually absent from these funds), little wonder they're so popular. Amongst the liquid funds, Birla Cash Plus has emerged at the top of the pile, thanks to its investment in short-term corporate paper and a maturity profile of just 76 days. Prudential ICICI Liquid Plan-Growth, which comes in at No. 2, has a portfolio of sound commercial paper and decent corporate NCDs.

Clearly, despite all the brouhaha over the dividend tax, mutual funds are still the flavour of the day. And if the fund managers can keep delivering the goods, that one surefire way to ensure that mobilisations always stay one step ahead of redemptions.

-Reporting by Shilpa Nayak