|Mutual buzz: While equity funds fared
well, debt funds remained dismal performers in the second quarter
2004-05's first quarter was all gloom, the second was mostly all
cheer. The equity markets bounced right back, helping diversified
equity schemes post a handsome average return of 18.81 per cent.
This was in line with the broad market indices: the Sensex and Nifty
gained 16.44 and 15.93 per cent, respectively. Needless to say,
investor confidence in India has returned with a bang. Tellingly,
all sector indices did well during the quarter, with the exception
The cnx Midcap 200 appreciated over 30 per
cent, and funds exposed to mid-cap stocks did the best. Sundaram
Select Midcap, for example. Taurus mf also emerged among the top
performers, giving some respite to the beleaguered investors of
the fund. ABN Amro Mutual Fund, meanwhile, made its debut, mobilising
huge amounts for its schemes.
Debt funds did badly, but at least closed in
positive territory, thanks to floating rate funds, in contrast to
the negative returns of the previous quarter. Debt funds saw huge
outflows, with Assets Under Management (AUM) falling by Rs 16,192
crore during the quarter.
In the Equity schemes category, topped in the
second quarter by Taurus Starshare, funds with exposure to pharma
and it stocks did well. The average performance by pharma funds
was 21.15 per cent. Tech funds also did well, with the average return
close to 20 per cent.
Gilt schemes did poorly, with negative returns
by and large. Of those ending positive, Reliance G Sec Fund did
the best. Among Income schemes, Prudential ICICI topped. The category's
average portfolio maturity remained low at around 2.7 years. Liquid
schemes saw very little performance variation, clustered around
4.5 per cent return. The topper, LIC mf Liquid Scheme, has a portfolio
maturity of around four months, and manages about Rs 1,500 crore.
Balanced schemes' returns averaged a decent 12.7 per cent. Cantriple+,
the topper, saw massive redemptions, though, its corpus dropping
from around Rs 72 crore in July to Rs 24 crore in September. Over
that period, it reduced its equity exposure from 55 to 38 per cent.
The other category that has done well on low exposure equity is
that of MIP schemes, led by HDFC MIP-LTP.
Risk Adjusted Returns
Adjusted for risk, Tata Growth has done well
among Diversified Equity funds. It took high risks in peer comparison,
but has made good on returns. Among balanced funds, the moderate-risk
HDFC Prudence Fund has done the best. As for Income funds, the risk-adjusted
topper is the moderate-risk Escorts Income Plan, thanks to the low
volatility in its NAVs. The very low risk-taking Tata Liquid Fund
tops the rankings in the liquid fund category, by posting high returns
while also successful maintaining low volatility.
Among Gilt schemes, the top honours for the
quarter go to Birla Gilt Plus Liquid Plan, classified as very low
risk. Despite volatility in the Government Security market, the
scheme was able to keep returns stable.
The second quarter story, broadly, is about
equity funds doing well and debt funds getting hit by all the interest
rate uncertainty. The economy, with its 7.4 per cent pace for the
first quarter (compared to 5.3 per cent in the corresponding period
last year), continues to perform well. So even oil-related worries
ought not to dampen spirits. Throw in strong corporate results,
headline-making investments and enhanced FII confidence, and the
next quarter could prove even more exciting.
Tempted by Mutual Fund initial public offers?
high noon of mutual fund launches was in mid-1999, when sectoral
funds became all the rage. Before that, the big pulse pounder was
the big Morgan Stanley extravaganza of 1993. It's the new era, and
new MFs hit the market with unfailing regularity now.
The trouble, however, is that all new MFs are
not everything they're cracked up to be. Sure, there's the odd new
entrant to the arena, such as ABN Amro, which has made a recent
debut as an mf player. But many of them are thinly repackaged versions
of some old house product pretending to be new. How is that? Investors
are highly sensitive to a quantity called net asset value (NAV).
When a scheme's NAV goes too high, investors are often reluctant
to join in. This is when fund houses employ the simple device of
slapping a new name onto a similar scheme and hawking it as a new
fund. A fund touted as an 'opportunities fund', for example, may
be just a mildly re-fiddled version of a growth fund. So, what should
First, do not dismiss existing high-NAV funds
as opportunities that have already passed you by. An old fund that
takes its NAV from Rs 50 to Rs 60 in a year could be better than
a new one that goes from Rs 10 to Rs 12 (equal percentage gain)
simply because the old one has a track record to go by, and is thus
less risky. Apart from that, the investment strategy of an existing
fund is already 'market tested', in a sense.
"There is a general perception that a
Rs-10 IPO in a mutual fund is a better investment option than a
high NAV for an established scheme," says Ganesh Shanbhag,
MD, SMS financial services, an mf distributor. "In a majority
of the cases, this is a wrong perception."
Household investors are particularly susceptible.
"New issues are hawked with 'Don't miss this investment opportunity'
kind of a thing," complains Dhirendra Kumar, MD, Value Research,
who doesn't see why anyone should fear lost opportunities in a market
that's always open.
New funds, meanwhile, must not only start at
the bottom of the learning curve, they also end up charging investors
their start-up costs (often amortised over time). Newly launched
funds are allowed to charge up to 6 per cent of the IPO money towards
the IPO and initial marketing expenses. Some of these are charged
bit by bit over the years, which hurts long-term investors (typically,
retail investors) more than short-term ones (such as well-informed
"Never invest in a mutual fund IPO unless
there is a compelling novelty to do so," warns Kumar. But that
doesn't mean that you should stay tuned out of new fund launches.
When differentiated offerings do come along, it pays to sit up and
listen. "Floating funds investing in floating debt securities
or global opportunities fund that invests in international securities
are classic cases in point which offer a unique way to spread risks,"
says Kumar. Agrees Hemant Rustagi, CEO, Wise Invest Advisors. "We
don't have all types of mutual fund products in our market yet,"
he says. "There are some specialty products which do merit
After all, the world of investment is still
evolving globally-as evident from all the action in hedge funds,
which use special global expertise to make money. And then there
are funds of funds too, that spread risks across a basket of funds
to offer investors a new risk-return proposition.