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[Contn.] A Lesson For The Investors Trend Analysis
This section evaluates the performances of mutual fund schemes, on the basis of their deliveries and the potential expectations from them on the basis of risk associated with their portfolios. The expectations are calculated on the basis of Capital Asset Pricing Model (CAPM), which develops an optimum portfolio on the basis of securities available in the market. The performances of the schemes are calculated against the returns generated by the optimum portfolio, arrived at by using CAPM. The performance of 243 schemes were considered for the three-year period ending on March 31, 2001, which excluded funds with a life of less than one year. Certain schemes that do not disclose the NAVs frequently were also dropped from the study. The performance of the industry was good as 58.84 per cent of the schemes considered, posted satisfactory returns viewed in the scope of the macro and micro factors governing the market. While analysing the performances of the funds against the risk premium they generated for the investors by plotting the returns against risk free instruments, it was found that 97 per cent of the debt funds, 44.4 per cent of the equity funds and 46.15 per cent of the balanced funds posted satisfactory returns.
The debt funds were clear winners. The category included all debt-oriented mutual fund schemes such as diversified debt schemes, liquid debt schemes, money market schemes and gilt schemes. These funds received the highest fresh inflows and also rewarded investors adequately. The best fund that has emerged is Prudential ICICI Liquid Plan. The scheme invests in very liquid securities. As on February 28, 2001, the fund had 36.5 per cent of its assets in call, 33 per cent in commercial papers and 31 per cent in AAA-rated NCDs. All the top performing schemes belong to the sub-category of liquid funds and invest predominantly in highly liquid instruments of the money market and call money. And all of these liquid funds posted satisfactory risk adjusted return, while 75 per cent of the funds outperformed the risk adjusted return on the debt market index, Ibex. A sub-category, Gilt Funds, which invest in securities with zero credit risk, were comparatively more volatile in terms of fluctuations in their NAVs. Another sub-cate- gory-diversified debt funds-which invests in a spectrum of debt securities, performed well on account of risk adjusted return. About 82 per cent of the schemes posted satisfactory returns and 18 per cent of them posted risk adjusted returns above the market benchmark-Ibex.
The best diversified debt fund was Chola Freedom Income, which invested only in AAA and AA rated securities with AAA coverting 75 per cent of its portfolio. The fund has an average maturity of 1.97 years. Zurich India Sovereign Gilt scheme was the best scheme among the gilt funds. Prudential ICICI Liquid Fund the best among liquid funds and among all debt based schemes. The performance of the equity funds were not up to the mark for the three-year period ending on March 31, 2001 because of the carnage in the market. Though most of the funds reduced their exposure in the most volatile ice sector, only 44.4 per cent of the 151 equity schemes reviewed were able to match their expectations. Zurich India Top 200 was the leader among all equity funds. Top 200's managers follow the value philosophy and invest only in the top 200 stocks that are fundamentally strong. Though the scheme did not provide very attractive returns during the bull phase of the market, its strength proved its worth during the volatile phase, establishing the importance of diversification. Zurich Top 200 has a 10 per cent exposure in ice stocks.
The runner-up among equity funds was UTI Growth Sector Fund-Services, which invests only in the services sector and delivered an annualised return of 62 per cent, since its inception in June 1999. The third best equity fund was KP Taxshield, a tax-planning fund diversified across sectors like infotech, oil and gas, metals, etc., posting an annualised return of 48 per cent since its inception in April, 1999. The short point is that although the mutual funds industry is maturing and attracting investors in droves-evident from the increasing inflow trends-equity fund returns were negative. There is no point in blaming fund managers. When the stock market is turbulent, it is well nigh impossible for even the most astute of stock pickers to buck the overall trend. In a sense, the last quarter was a lesson for investors who blindly choose equity funds in the hope of high returns. The last quarter's performance by mutual funds once again underscores what is a golden tenet of investing: Match your investsments with your risk appetite and remember that high returns always involve high risks. "We think that small investors should go to competent advisors, ascertain their needs and equate them with their risk taking abilities before zeroing in on a particular mutual fund product, so as to avoid nasty surprises later," says Vijayan of JM Mutual Fund. Mutual fund: Complete Score Board The
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