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Maybe it's time to play to safe

February 28, 2004 16:58 IST

It was another disappointing week for investors, the second in a row, as markets fell sharply. The BSE Sensex posted a loss of 3.13% to close at 5,668 points, while the S&P CNX Nifty fell by 2.86% to end at 1,800 points.

Volatility, which has become a regular feature in recent times made its presence felt. If it wasn't for the 100 points recovery on the final day, the picture would have been even gloomier.

The market's turbulent behavior can be gauged by the fact that it has lost nearly 350 points in a span of two weeks, i.e. from closing at 6,012 points on February 13, 2004 to 5,668 points on February 27, 2004.

Leading Diversified Equity Funds
Equity SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-YrIncep.SDSR
CHOLA GROWTH G 25.82 -1.35% -3.13% 39.36% 101.81% NA 48.62% 6.75% 0.40%
KOTAK GLOBAL IND. G 9.94 -1.47% NA NA NA NA 0.52% NA NA
MASTERGAIN 92 16.30 -1.89% -6.28% 35.64% 97.14% 19.21% 6.81% NA NA
RELIANCE VISION G 65.39 -2.04% -3.69% 49.37% 136.79% 53.98% 24.94% 7.36% 0.68%
GIC GROWTH II 16.24 -2.07% -4.63% 20.28% 58.95% 5.59% 5.84% 5.74% 0.24%
(NAV data as on Feb 27, 2004. Growth over 1-Yr is compounded annualised)
(Standard deviation indicates by how much the values have deviated from the mean of the values. It measures by how much the investor has diverged from the mean return either upwards or downwards. It highlights the element of risk associated with the fund.)

Diversified equity funds took a severe beating and delivered negative returns across board. Chola Growth (-1.35%) and Kotak Global India (-1.47%) were amongst the least affected ones. Even category leaders HDFC Top 200 (-3.86%) and Franklin India Bluechip (-2.38%) were not spared.

The recent spate in stock IPOs (initial public offerings) has triggered considerable interest in the investor community. Investors have been seen rushing towards these offerings with the hopes of getting full allotments and a majority of them have been disappointed.

However, a smarter way to participate in these is IPOs is through mutual funds. Mutual funds participating in IPOs have a far better chance of getting allotments. Plus investors also get to benefit from diversification and the fund manager's expertise.

The benchmark 7.27% 2013 GOI yield closed at 5.27% (February 27, 2004), 6 basis points below the previous close. Yields and bond prices share an inverse ratio; higher bond prices imply higher NAVs for investors. Markets were flush with liquidity and lower inflation figures helped the sentiment as well.

Leading Income funds
Income SchemesNAV (Rs)1-Wk1-Mth6-Mth1-YrIncep.SDSR
BIRLA BOND INDEX G 10.60 0.49% -0.41% 1.90% NA 5.28% 0.68% -0.02%
TATA DYN. BOND FUND B 10.28 0.49% -0.82% NA NA 2.69% 0.84% -0.28%
PNB DEBT FUND G 19.59 0.49% -0.53% 1.59% 10.86% 15.37% 1.22% 0.34%
DSP-ML BOND FUND IP G 10.92 0.48% -0.36% 1.66% NA 9.13% 0.95% 0.28%
DEUTSCHE BOND IP G 11.01 0.48% -0.47% 2.47% 14.07% 1.55% 0.81% 0.46%
(NAV data as on Feb 27, 2004. Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-Ó-vis those offered by a risk-free instrument)

Conventional plain vanilla income schemes made a comeback thanks to a positive week in the debt markets. Birla Bond Index (0.49%) shared the top spot with Tata Bynamic Bond Fund (0.49%).

However, despite this week's performance, the importance of holding floating rate funds cannot be undermined in the present scenario. With interest rates having virtually bottomed out, floating rate funds can be used by investors to position themselves for an uptake in rates if any. The feasibility and utility of fixed returns schemes is likely to be seriously tested in the days to come.

Leading Balanced Funds
Balanced SchemesNAV (Rs)1-Wk1-Mth6-Mth1-Yr3-YrIncep.SDSR
FT INDIA INFLATION G 12.19 -0.23% 0.22% 7.63% 16.59% NA 11.74% 0.97% 0.42%
FT CONSERVATIVE G 13.57 -0.63% -1.02% 13.49% 32.29% NA 17.94% 1.99% 0.45%
FT BALANCE GR G 14.66 -1.10% -2.11% 18.69% 42.36% NA 22.59% 3.23% 0.39%
UTI VARIABLE INV. ILP 12.35 -1.33% -2.57% 11.97% 34.65% NA 27.06% 3.93% 0.39%
K BALANCE 13.19 -1.42% -1.80% 19.16% 54.73% 17.40% 12.19% 4.48% 0.34%
(NAV data as on Feb 27, 2004. Growth over 1-Yr is compounded annualised)

Balanced funds investors had very little to cheer about. Schemes with a high exposure to debt were amongst the least affected ones e.g. FT India Inflation (-0.23%) topped the list followed by FT Conservative (-0.63%).

In demanding times like these, investors would do well to disassociate themselves from all the mania in the markets. It's probably a good time to imagine a situation wherein there would have been no feel good factor and visualise the markets sans the rally. Now think of your asset allocation, if it differs from your present one its time to reallocate.

Also investors have a wide array of options available to them; everything from funds investing ináglobal stocks to commodities like gold. An in-line asset allocation can act as the perfect hedge against unstable markets and help you reach your financial goals as well.

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