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Boom time for fund investors

July 19, 2005

The good times continued for fund investors as markets yet again ended the week in positive terrain. The BSE Sensex clocked a growth of 0.82% and closed at 7,272 points; while the S&P CNX Nifty ended the week at 2,123 points (up by 0.74%). The CNX Midcap 200 posted a weekly gain of 3.00% and closed at 3,239 points. The upbeat performances notwithstanding, markets also experienced a fair degree of volatility.

Leading Diversified Equity Funds
Diversified Equity FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
DISCOVERY STOCK 13.56 8.22%21.29%54.62%145.21%9.15%0.50%
TAURUS STARSHARE 21.44 7.20%7.85%32.67%104.39%8.06%0.52%
PRUICICI EMERGING STAR14.90 5.37%7.27%35.70%-4.99%0.83%
PRUICICI DYNAMIC32.39 5.23%10.13%33.26%86.79%7.84%0.44%
TATA GROWTH 21.55 5.20%7.71%34.54%87.31%8.17%0.49%
(Source: Credence Analytics. NAV data as on July 15, 2005. 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.)

Diversified equity funds with predominant holdings in the mid cap segment ruled the roost. Discovery Stock (8.22%) from Taurus Mutual Fund outperformed its peers by a significant margin. Taurus Starshare (7.20%) and PruICICI Emerging Star (5.37%) also featured in the weekly toppers list.

Midcap majors Magnum Global (4.31%), Sundaram Select Midcap (4.10%) and Franklin Prima (3.54) had a very good week. It was a mixed week for the category leaders, HSBC Equity (2.92%) pitched in a reasonable performance, while Franklin India Bluechip (1.39%) and HDFC Top 200 (0.89%) had a modest week.

Real estate funds are the latest addition to the ever-growing universe of investment avenues. The working of real estate funds is reasonably similar to that of mutual funds; they both work towards a common cause maximising returns for the investor. Like mutual funds, real estate funds are founded by a group of real estate professionals/experts to 'manage' property/real estate for the investor.

Though the regulator has set the ball rolling for real estate funds, it will be some time before retail investors can begin investing in real estate funds. As of now, the real estate window is open only to high networth individuals (HNIs), institutional investors and global investors. However given the potential of the real estate market and the degree of investor interest, there is every reason to believe that its only a matter of time before retail participation is permitted. In the meanwhile retail investors can watch from the sidelines how real estate funds work, observe their performance and make notes that will prove useful at a later stage.

Leading Debt Funds
Debt FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
PRUICICI FLEXIBLE INC.12.380.13%0.48%2.85%4.28%0.62%-0.34%
UTI BOND 20.070.12%0.97%6.55%8.10%0.86%-0.12%
KOTAK FLEXI DEBT10.390.11%0.49%2.98%-0.03%-1.69%
ING VYSYA SELECT DEBT 10.480.11%0.53%3.13%-0.23%-0.43%
GRINDLAYS DYN. BOND12.320.11%0.14%2.72%2.19%0.61%-0.41%
(Source: Credence Analytics. NAV data as on July 15, 2005. Growth over 1-Yr is compounded annualised)

Debt markets were on a comeback trail this week. The benchmark 10-Yr 7.38% 2015 GOI yield closed at 7.17% (July 15, 2005), one basis point below the previous weekly close. Bond prices and yields share an inverse relation with falling yields translating into higher bond prices and net asset value (NAV) for debt fund investors.

Funds of the "dynamic" variety featured in this week's top performers list. PruICICI Flexible Income (0.13%) emerged as the weekly topper. UTI Bond (0.12%) and Kotak Flexi Debt (0.11%) occupied second and third positions respectively.

This week Personalfn's research team profiled HDFC Multiple Yield Fund-Plan 2005. The fund is mandated to invest upto 85% of its corpus in debt instruments and the balance (15%) in equities. What sets the fund apart from a conventional MIP (monthly income plan) offering is that it intends to lower interest rate risk in its debt investments by locking the yield of the debt paper at the time of launch. As a result, the returns from the debt component are likely to be reasonably stable for the investor who is invested over the stipulated tenure of the debt paper.

Leading Balanced Funds
Balanced FundsNAV (Rs)1-Wk1-Mth1-Yr3-YrSDSR
KOTAK BALANCE 19.09 3.19%7.37%59.03%35.93%5.18%0.51%
UTI BALANCED 38.55 2.94%3.80%35.17%25.74%4.81%0.39%
HDFC BALANCE21.62 2.49%5.03%37.69%27.51%4.84%0.41%
TATA BALANCED 31.96 2.04%3.09%52.18%36.26%5.61%0.49%
MAGNUM BALANCED21.30 1.91%4.51%--5.68%0.61%
(Source: Credence Analytics. NAV data as on July 15, 2005. Growth over 1-Yr is compounded annualised)

Balanced funds benefited from the conducive conditions in both debt and equity markets. Kotak Balance (3.19%) surfaced as the top performer followed by UTI Balanced (2.49%). Category leader HDFC Prudence (1.40%) had an ordinary week.

With the equity markets on a seemingly endless spiral, our advice to investors is to rigidly adhere to the basics of investing. Stick to your pre-determined asset allocation irrespective of how the markets behave; changing market conditions don't change investors' risk profiles. This seemingly simple approach can go a long way in helping you achieve your financial goals and objectives.

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