Hey, we bucked the trend," might well be the cheer going up in mutual fund (MF) circles, as a volatile market through the month of April failed to bring down the returns of MFs. The month saw the broad-based equity indices, Sensex and Nifty, going further down compared to March; the Sensex went down from -3.29 per cent in March to -3.35 per cent in April, and the Nifty went down from -3.21 per cent in March to -4.1 per cent in April. In contrast, mutual fund schemes across categories posted positive returns, bringing solace to investors. For example, diversified mutual fund schemes improved upon their average return of -2.35 per cent in March to a positive 0.54 per cent in April. The topper in this category gave 11 per cent return, more than doubling on its 5 per cent return in March. Then, sectoral schemes gave an average of 0.31 per cent return, which was quite an improvement over a -1.3 per cent return in March. Here's the lowdown on the performance of various mf categories and leading schemes in each.

Fund Performance

Among diversified equity funds, Kotak Opportunities Fund was the only scheme to give double-digit returns, with 11.98 per cent appreciation in its NAV. With a corpus of Rs 53.34 crore, the Kotak scheme had its highest exposure in the pharma sector, where it invested nearly 12 per cent of its net assets. This scheme had almost 16 per cent of its total assets in liquid form. It isn't just Kotak that did well, however. Considering that the category's average return was just 0.54 per cent, all of the top five did exceptionally well. Sectoral schemes also saw Kotak at the top, with Kotak MNC Fund giving a return of 8.54 per cent, even leaving in its trail FMCG schemes, which were doing rather well. As with Kotak Opportunities Fund, Kotak MNC Fund also had huge exposure in the pharma sector of more than 27 per cent, followed by 13 per cent in the electrical sector. What gave the scheme the boost needed to reach the top of the category was the almost 9 per cent allocation of its corpus of Rs 67.94 crore in Siemens.

Among tax-saving (ELSS) schemes, though, SBI Magnum Tax Gain Scheme 93 made it a hat-trick at the top with returns to show in April of 10.75 per cent, nearly double that the second-placed scheme, HDFC Long Term Advantage Fund. The category did well overall, with the average return at 1.33 per cent, against -2.33 per cent in the last quarter. The SBI scheme had a corpus of Rs 89.13 crore, with its highest allocation being in the electrical sector of about 16 per cent. Balanced funds category also overcame a negative performance (-1.68 per cent) in March to clock 0.31 per cent returns in April. HDFC Prudence Fund, with a corpus of Rs 749.47 crore, came out on top this month with a 4.62 per cent return. The scheme allocated 63 per cent of its corpus in equity and 28 per cent in the debt category. In equity, it had the highest exposure in Satyam Computers and a 9 per cent exposure in the electrical sector.

Monthly income plans (MIPs) also did well in April, giving a decent 2.55 per cent simple annualised return on an average. Amazingly, all of the top five schemes gave returns of more than 10 per cent. Leading the pack was Reliance MIP with 15.75 per cent return. This scheme, with a corpus of Rs 257.84 crore and an average maturity of 2.21 years (807 days), had an asset allocation of 18.59 per cent in equity and 32 per cent in debt, and had a huge 48.5 per cent as cash and equivalents. Income funds, though still in positive territory, saw their category average go down from 3.68 per cent in March to 2.72 per cent in April. The rank holders, though, did quite well, with UTI Bond Fund topping with 11.96 per cent return, and the others returning over 6 per cent. The UTI scheme had a corpus of Rs 534.86 crore, and an average maturity of 2.96 years (1,080 days).

Returns from liquid funds are generally stable and range-bound, and so it was this time as well, with the category average at 4.98 per cent for the month of April. The top five ran each other pretty close, all returning above 5 per cent, with UTI Liquid Advantage Fund taking top slot with 5.81 per cent return. The scheme had a corpus of Rs 14.39 crore, and an average maturity of 205 days.

With the markets remaining volatile in April, not many IPOs were seen, but the AUM (assets under management) of the mf industry rose by over 5 per cent to cross Rs 1,55,000 crore. An increase in the corpus of equity as well as debt schemes contributed to this growth. Now, as the markets have begun to show signs of settling down, the mf industry can look forward to reaping the rewards of a hard-won battle, which could well translate into fatter returns this month.

Float To Safety

With interest rates in turmoil, income funds are a no-no. Floating rate funds and liquid funds appear better bets for the short term.

By Shilpa Nayak

Rising interest rates over the past year took their toll on income funds and their investors. The first half of the year was a veritable bloodbath with negative returns, but the second half saw a partial recovery with income funds averaging a 4-6 per cent return on the back of corrective steps taken by fund managers to check capital losses. Still, it's probably not the right time to put your money into income funds; you'd do better to look at other avenues. Here's a primer on how to reallocate your portfolio to maximise returns from your debt investments.

Fund managers are looking at short-term funds to tide over the current crisis. Says Nilesh Shah, CIO, Prudential ICICI Mutual Fund: "We have been recommending for the past few months that debt investors should look at short-term funds such as liquid funds/floater funds/short-term bond funds." These funds largely seek to offer capital protection to investors. For those debt investors who want capital appreciation, Shah recommends monthly income plans (MIPs) that offer some equity participation as well.

Then, to handle an environment where interest rates are on an upturn (courtesy, the unexpected reverse repo rate hike by the RBI as also the upward bias in interest rates in the us), specifically designed products such as blended or flexi-debt plans work well. Prudential ICICI's blended plan, for example, is one such that has been essentially made for parking short-term funds and is expected to offer returns similar to liquid funds.

How do you then distribute your portfolio? Advises Sandesh Kirkire, CIO (Debt), Kotak Mutual fund: "It's best to restrict income fund holding to between 10 and 20 per cent, with the balance being distributed over floaters, flexi-debt and short-term funds." Shah, on the other hand, suggests a distribution of 60-65 per cent to liquid/floater/short-term debt funds, 20-25 per cent to dynamic bond funds or blended plan schemes, and up to 10 per cent in income funds. As for increasing allocation in income funds, do it "only when the 10-year yield is close to 7.5 per cent", says Shah.