Have you ever thought about it -- where are your investments headed? Let's come back to that topic later. In most spheres of life like performing day-to-day chores, work or travelling, a significant amount of planning is put in. Typically, you first determine what you want to achieve. Then you get a check on the time that will be required and finally, the resources that you will need to get the work done. Sounds simple, doesn't it?
Ever wondered, do you adopt a similar methodical approach while investing? Do you first determine why you are investing i.e. what is the investment objective? Then, the time frame over which you wish to achieve that objective, followed by how much you must invest to achieve the objective.
The fact remains that most invest in a random and directionless manner. And the trouble with such an approach is that you don't really know where you will eventually find yourself, in terms of finances.
Setting an objective should be the first step in the investment process. You should be unambiguously aware of what you want to achieve; the goal could range from buying a car to providing for your retirement.
Monetise the investment objective and then put in place a dedicated investment plan to achieve that objective. Remember that clichéd adage -- if you don't know where you are headed, you never know where you may land up. It's no different with investments and that's a risk no smart investor would like to take on.
It was a week marked by intense volatility at the equity markets. The BSE Sensex fell by 4.33% to close at 19,163 points; the S&P CNX Nifty closed at 5,767 points (down by 4.65%). The CNX Midcap posted a loss of 4.87%, before settling at 8,504 points.
Weekly top losers: Open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| JM Financial Services | 17.83 | -6.57% | 3.16% | 45.79% | 88.84% | 10.50% | 0.49% |
| Sundaram Select Focus | 100.20 | -6.42% | 0.98% | 58.29% | 72.65% | 8.14% | 0.44% |
| LIC MF Equity | 32.32 | -6.28% | 2.35% | 52.40% | 58.27% | 8.46% | 0.31% |
| Reliance Banking | 62.41 | -6.15% | 0.26% | 38.50% | 70.10% | 8.40% | 0.32% |
| UTI Thematic Banking | 32.67 | -6.07% | 5.35% | 38.96% | 62.46% | 7.72% | 0.36% |
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)
Sector/thematic funds dominated the losers' list in the equity funds segment. JM Financial Services (-6.57%) emerged as the biggest loser, followed by Sundaram Select Focus (-6.42%) and LIC MF Equity (-6.28%).
Weekly top performers: Long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Tata Income | 26.64 | 0.78% | 1.21% | 4.77% | 7.45% | 0.59% | -0.21% |
| Escorts Gilt | 15.36 | 0.64% | 0.59% | 3.11% | 4.26% | 0.41% | -0.50% |
| Kotak Gilt | 24.86 | 0.46% | 1.46% | 4.98% | 4.22% | 0.90% | -0.19% |
| Principal Gilt IP | 17.20 | 0.46% | 1.42% | 6.57% | 5.49% | 0.96% | -0.08% |
| ICICI Pru. Gilt IP |
24.23 | 0.44% | 1.86% | 6.50% | 7.54% | 1.06% | 0.08% |
The 10-Yr 8.07% GOI yield closed at 7.87% (December 20, 2007, source: Reserve Bank of India website), 4 basis points below the previous weekly close. Bond yields and prices are inversely related, with falling yields translating into higher bond prices and NAV for debt fund investors.
Tata Income (0.78%) topped the long-term debt funds segment; Escorts Gilt (0.64%) and Kotak Gilt (0.46%) occupied second and third positions respectively.
Weekly top losers: Balanced funds
| Balanced Fund | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Escorts Balance | 72.01 | -5.05% | 0.07% | 41.60% | 60.15% | 6.44% | 0.40% |
| FT India Balanced | 44.59 | -4.24% | -0.61% | 25.99% | 40.37% | 5.07% | 0.41% |
| LIC MF Balanced | 69.56 | -4.20% | 8.27% | 56.43% | 57.27% | 6.93% | 0.35% |
| Tata Balanced | 72.18 | -4.06% | -1.08% | 31.39% | 50.74% | 6.23% | 0.39% |
| Sundaram Balance | 44.11 | -4.00% | -0.84% | 26.48% | 41.10% | 5.53% | 0.33% |
Escorts Balance (-5.05%) suffered the most in the balanced funds segment. FT India Balanced (-4.24%) and LIC MF Balanced (-4.20%) also featured in the losers' list.
Sector/thematic funds have emerged as the season's flavour in recent times. A cursory glance at offer documents filed by various Asset Management Companies will authenticate the same. Also, sector/thematic funds are enjoying a lot of investor interest. In light of the aforementioned, it can be safely concluded that good old diversified equity funds are a dead breed.
However, what investors tend to ignore is the risk associated with sector/thematic funds. So long as the underlying sector/theme delivers, so can sector/thematic funds; but when the tide turns, such funds fall the hardest and investors find themselves on the wrong foot. Also, let's not forget that a restrictive mandate means that sector/thematic funds cannot seek attractive investment opportunities elsewhere.
This is where diversified equity funds score over sector/thematic funds. Apart from investing a portion of their assets in the 'hot' sector/theme, they can also seek other attractive investment opportunities. A bit like enjoying the best of both worlds. Investors must remember that sector/thematic funds are best suited for informed investors who can time their entry into and exit from the fund. For the retail investor, diversified equity funds are the best bet!
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