The smiles, and the returns, for mutual funds (mf) investors have weakened this quarter. For instance, in the previous quarter (Q3, 2004-05), the average peer group return for diversified funds stood at 20 per cent, whereas in this quarter (Q4, 2004-05), even the topper (SBI Magnum Sector Umbrella-Emerging Businesses) managed a return of just over 11 per cent. A major influence for the drop was that the BSE Sensex consistently lost steam since closing at an all-time high of 6,915.09 on March 8, 2005. Contributing to the drop in mf returns was profit booking by retail investors. Corporates also chose to abandon the party as the financial year came to an end, and they needed to show good results in their books of accounts.

Despite the downtrend, out of the 86 mf schemes considered, 70 were able to beat the Sensex and the Nifty, which posted negative returns for the quarter, going down by 1.67 per cent and 2.16 per cent respectively. FMCG schemes were the best performers, giving 3.15 per cent returns on an average. Among the other sectors, banking and it schemes gave returns in positive territory at 2.33 per cent and 2.13 per cent respectively.

Not that there wasn't anything to smile about. As many as 47 equity schemes rewarded their investors by shelling out dividends. Sahara Tax Gain scheme led the way with a 100 per cent dividend, followed by another dividend of 200 per cent. However, despite huge mobilisation of funds through a host of equity IPOs, the industry AUM (assets under management) actually fell from Rs 1,50,088.18 crore in December 2004 to Rs 1,49,976.47 crore in March 2005.

Simple Returns

SBI schemes topped the equity funds category, generating close to 10 per cent returns during the quarter against an average of a meagre 0.85 per cent. SBI Umbrella-Emerging Business had high exposures in the electrical and electronic equipment sector followed by the housing and construction sector. The highest exposure was in Crompton Greaves at 9.34 per cent. In the balanced funds category, the average returns stood at 0.77 per cent, way below last quarter's average of 14.24 per cent. The #1 in this category, Tata Balanced Fund, had a 62.7 per cent exposure to equity and 25.93 per cent to debt instruments. MIPs performed badly as both equity and debt markets showed dismal performance. Even topper Reliance MIP witnessed a fall in its corpus from Rs 420.81 crore to Rs 250.91 crore over the quarter. Income funds did better than the previous quarter (4.87 per cent return on an annualised basis), but they still lost over Rs 1,392.9 crore during the quarter due to redemptions. Gilt funds performed well, with average returns going up from 1.14 per cent to 5.26 per cent. Liquid funds remained stable, with average returns of 4.53 per cent (4.84 per cent in the last quarter). UTI Mutual Fund tops the list, but its corpus decreased by Rs 30 crore since December 2004.

Risk-adjusted Returns

The schemes were also analysed on the basis of the risk-adjusted returns. The daily rolling return has been taken as the measurement of return, and downward deviation from the mean return as the surrogate of risk. Tata Equity Opportunity Fund, with a 15 per cent exposure in the IT sector, remained on top in the equity diversified category. Among balanced funds, HDFC Prudence also remained on top, with 63 per cent exposure to equities and 25 per cent to debt instruments. In the MIP category, FT MIP witnessed a fall of over 15 per cent in its corpus. Among income funds, topper Escorts Income had 90 per cent of its allocation in debt and 9 per cent in cash and liquids. The finance sector was a favourite for this scheme. Among gilt funds, UTI Gilt Advantage Fund stayed on top, and its average maturity decreased from 86 days to 22 days. In the liquid funds category, LIC Liquid held on to its top position, but its fund size was reduced to almost half of the previous quarter, and average maturity also increased from 43 days to 198 days.

It's understandable if you're wary about the equity markets taking a beating lately, but with strong economic fundamentals and good Q4 results expected, the markets are likely to recover soon. And when that happens, the mf industry is also expected to pick up.

Lifestyle Inflation

What it is, what causes it, and what you can do about it.

By Priyanka Sangani

When did you last upgrade your cellphone? Three months back? And the previous one? Another six months? Maybe you're sporting grander tags on your clothes and watches, driving a more expensive car, and spending more on multiplex movies as well. If a growing economy has put more money into your hands, it has also brought along a propensity to spend more than you require. It's inflation of a different kind, lifestyle inflation.

Says Rohit Sarin, Partner, Client Associates: "People's incomes have gone up. Along with this, attitudes towards spending and saving have also changed." Another reason for lifestyle inflation is the easy availability of credit. Credit cards, debit cards and easy finance schemes have made it possible for the average salaried person to buy items that were earlier beyond reach. So, you'd rather buy a Santro car that costs around Rs 3,60,000 than the ubiquitous Maruti 800, which costs around Rs 2,31,000, simply because you can afford to pay the EMIs (equated monthly instalments).

While you're welcome to spend your money, it does throw your financial planning into disarray, and this is something financial planners are struggling with. The way out? Says Ranjeet Mudholkar, CEO, Financial Planning Standards Board, India: "The emphasis on lifestyle costs has to be worked out at an individual level with the planner. Plans need to be changed to incorporate lifestyle changes." It is therefore important to revisit your financial plans on a regular basis to ensure that you spend sensibly.

But spend and sensibility don't often go together, so here are a few tips. First, try and increase your savings; second, get into investing in assets that are expected to give returns above the inflation rate (such as equity, if you can stomach stock market churns, or property). Most important, show some restraint; it's your money, after all.