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Mutual fund returns take a knock

August 16, 2004 12:08 IST

Markets were in deja-vu mode with inflation returning to haunt them. Inflation figures touched the 7.61% mark and markets went on a southward journey. The BSE Sensex fell by 1.81% to close at 5,103 points while the S&P CNX Nifty posted a loss of 2.14% to close at 1,598 points.

Leading Diversified Equity Funds
Diversified Equity FundsNAV (Rs)1-Wk1-Mth1-Yr3-YrIncep.SDSR
TAURUS STARSHARE 11.761.29%14.62%40.17%34.13%0.89%7.23%0.36%
ALLIANCE EQUITY G 56.540.04%6.08%64.89%35.37%33.04%7.47%0.42%
RELIANCE GROWTH GR 78.55-0.36%11.06%66.84%61.06%26.26%7.54%0.53%
TATA PURE EQ 22.14-0.47%5.61%60.18%32.13%27.98%7.52%0.44%
HDFC CAPITAL BLD. G 24.78-0.54%7.76%65.70%39.13%15.35%7.10%0.45%
(Source: Credence Analytics. NAV data as on August 12, 2004. Growth over 1-Yr is compounded annualised)

Falling equity markets translated into negative returns for the diversified equity funds segment. Taurus Starshare (1.29%) and Alliance Equity (0.04%) were the only funds which didn't slip into negative terrain. Value style fund, HDFC Capital Builder (-0.54%) made it to weekly toppers list as well. Keeping with the recent trend, funds which predominantly invest in the mid-cap segment dominated proceedings this week too. Category leaders HDFC Top 200 (-2.92%) and Franklin India Bluechip (-2.22%) had a particularly bad week.

Macro economic factors seem to suggest that volatility in equity markets will not be going away in a hurry. Investors should use this as an opportunity to get invested at attractive levels. However instead of trying to time the markets, they should utilise the systematic investment plan (SIP) route to do so.

Leading Income Funds
Income FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrIncep.SDSR
LIC FLOATING RATE G 10.150.09%0.30%NANA1.40%0.04%-5.29%
PRU ICICI FLOATING RATE G 10.680.09%0.37%2.29%4.79%4.89%0.03%-5.23%
BIRLA FLOATING RATE LTP G 10.600.09%0.38%2.28%4.99%5.05%0.06%-2.32%
GRINDLAYS FLOATING G 10.740.08%0.35%2.15%4.61%4.92%0.04%-3.41%
KOTAK FLOATER G 10.540.08%0.36%2.21%4.87%5.02%NANA
(Source: Credence Analytics. NAV data as on August 12, 2004. Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis--vis those offered by a risk-free instrument)
(Standard deviation highlights the element of risk associated with the fund.)

Debt markets continued to reel under pressure courtesy the rising inflation levels. The 7.37% 2014 GOI yield closed at 6.60% (August 13, 2004), 30 basis points above the previous weekly close. A hike in the interest rates by the U.S. Federal Bank only added to the woes, further strengthening the possibility of an uptick in interest rates.

Expectedly floating rate funds came to the fore, LIC Floating Rate (0.09%) emerged as the weekly topper in the income funds segment followed by PruICICI Floating Rate.

In the present scenario, floating rate funds must find a place in the risk-averse investor's portfolio. Another category which has grabbed attention is the "actively managed" funds segment. Funds from this category invest in various debt and money market instruments. This week's FundSelect, focuses on an actively managed fund, PruICICI Flexible Income Plan.

Leading Balanced Funds
Balanced FundsNAV (Rs)1-Wk1-Mth1-Yr3-YrIncep.SDSR
LIC BALANCE G 23.420.47%3.99%16.28%13.66%4.85%4.52%0.24%
BOB BALANCED G 11.670.00%4.57%NANA17.40%6.58%0.17%
UNIT SCHEME 95 G 29.68-0.50%4.29%28.99%21.81%18.19%4.75%0.31%
JM BALANCED G 10.83-0.73%3.34%14.75%15.50%13.29%4.60%0.21%
CANGANGA 10.69-0.74%5.53%27.60%20.08%4.30%6.07%0.27%
(Source: Credence Analytics. NAV data as on August 12, 2004. Growth over 1-Yr is compounded annualised)

The balanced funds segment had a tough week as well, most funds found themselves in negative zone. LIC Balance (0.47%) and BOB Balanced (unchanged over the previous week) were the only funds that didn't suffer erosion in their NAV. Category leader HDFC Prudence (-1.44%) had a poor week.

With inflation looming large, most investment options will be severely tested going forward. Investors in assured return schemes, on account of their "assured" returns are often falsely led to believe that they are immune to inflation.

However nothing could be farther from the truth; this section is often the worst hit in times of inflation. Investment avenues like capital indexed bonds, equities etc can play a significant role in making your investments resistant to inflation. Get informed advice and get invested in an instrument which suits your profile the best.

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