Now that the sensex has breached 4,000, everybody-as is the bull market custom-has become a stockmarket analyst. Everybody is telling us how the good times are finally here to stay, how this rally is driven by fundamentals rather than speculation, and how everybody will soon get rich.

Customary behaviour extends to other aspects of the investment world as well. As a bull market gets going, equity-based MFs become the beneficiaries of increased retail attention-and money. Most MFs witness a sudden increase in their asset values, as stocks zoom. It is the wise investor, though, who decides to turn even more discerning of mf performance in a bull market.

Julius Pleaser

July was a good month for equity-based funds. The BSE Sensex gained 5.1 per cent over the month. The NSE Nifty, 4.6 per cent. Global indices did rather well too. The BSE Teck, with a return of 9.5 per cent, outperformed all other major indices. Every equity-based fund registered positive returns in July, with an average of 6.9 per cent. Mobilisations rose too.

Of the 71 funds in the diversified equity category, 36 schemes outperformed the average of 6.8 per cent, with Reliance Growth doing so spectacularly with its well-diversified portfolio of 34 assorted scrips. This fund made major gains on Maruti, Pantaloon Retail Ltd and Birla Corp. This category's second-best performer, HSBC Equity Fund, struck it rich on Infosys (up 10 per cent) and Mahindra & Mahindra (up 35 per cent).

Among sector funds, July was the month of pharma funds, borne out by the 8.8 per cent gain in the benchmark Lifex. The top performer was SBI Magnum Sector Umbrella-Pharma, with its 13.3 per cent return. Reliance Banking Fund, in second place, also did remarkably well in July, generating a 13 per cent return.

The tech sector witnessed a familiar frenzy in July, with the BSE Teck gaining impressively. But only Pru ICICI Tech Fund seems to have made the most of it. This fund did well with its bets on Hughes Software, Infosys, i-flex and Padmalaya Telefilms.

Strategic Postures

The monsoons, the corporate results, the US recovery- fortunes are to be made, once again. But is this for real? Or a figment of the heat-oppressed brain? The stockmarkets have already survived a big scare-test at the fag end of July, and that's an indication of the rally's resilience. Market players have shrugged off the news of SEBI's ban on Samir Arora, the beleaguered ace manager of Alliance mf, and are busy building positions. An interesting new game is back in town, and whether you call it me-tooism or you-tooism, nobody wants to miss the action.

Bizarre Correlation
How do people pick their mutual funds? Believe it or not, actual performance has very little to do with it.

One way to pick a mutual fund (mf) is to blindfold one's self and pin the 'donkey's tail'-in the belief that when times are good, everybody makes money, and when times are bad, everybody loses money. MFs are but commodities, one could argue, painlessly interchangeable. Of course, the catch is that MFs are not commodities, and not only because they have exotic names with varying alphabet appendages. They actually vary vastly in the money they make-their performances.

In fact, the 10 best performers did a terrific job in July-raising their Net Asset Values (NAVs) by more than 10 per cent. With the stockmarkets springing back, there'd be a stampede out there to get money into these roarers, you'd think.

Well, guess what: Reliance Banking Fund-Growth, the No. 2 performer, actually lost units-which, if taken as a proxy for fund exits, denotes a rush in the opposite direction. Sun F&C Personal Taxsaver, the No. 10 performer, suffered even more-its unit count dropped by more than half. Of course, these may be administrative blips. Also, when investors jump in and cash-out could well depend on the stage of the fund's investment cycle (new funds could witness unit count spikes, for example), but still, the findings are bizarre. The very worst performer in July, UTI Value Master Fund, actually saw a 46 per cent jump in units. And the top 10 unit expanders, in the second chart, have all made rather ho-hum NAV gains.

So how on earth do investors pick MFs? Size? Ad exposure? Brand name? Size is not it, since most public sector funds-the biggest-have seen their unit counts fall. As far as brands go, Sun, Birla, Tata and Sundaram seem to be the names mopping up the money, and surprising not Franklin (though a Templeton fund has been gaining). But then, Franklin Templeton's TV ad campaign is raising investor sensitivity to performance more than anything else-precisely how it ought to be.