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Home > Business > Business Headline > Personal Finance


Say 'NO' to thematic funds

February 20, 2006 12:42 IST

After breaching the 10,000-points mark last week, the markets lost steam and closed in negative terrain this week. The BSE Sensex shed 1.29% to close at 9,981 points; the S&P CNX Nifty closed at 2,982 points (down by 1.52%). Mid cap stocks were at the receiving end as well; the CNX Mid Cap posted a loss of 1.31% and ended the week 4,369 points.

Meanwhile, new fund offers (NFOs) of theme-based funds peddling attractive investment opportunities in areas ranging from infrastructure, services to India's unique advantages continued to hit the markets.

Leading Diversified Equity Funds
Diversified Equity FundsNAV (Rs) 1-Wk1-Mth6-Mth1-YrSDSR
FRANKLIN OPPORTUNITIES18.90 1.56%10.79%24.75%65.64%5.62%0.53%
ESCORTS GROWTH46.98 0.69%9.49%29.43%55.80%7.61%0.40%
SUNDARAM MIDCAP65.02 0.61%9.47%31.51%73.68%6.62%0.62%
MAGNUM MIDCAP 17.01 0.24%7.79%31.45%-6.23%0.79%
CAN EMERGING EQUITIES14.23 0.21%6.83%22.99%-7.12%0.47%
(Source: Credence Analytics. NAV data as on Feb 17, 2006. 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.)

Fund with mid cap holdings dominated the top performers list. Franklin Opportunities (1.56%) pitched in an impressive performance and surfaced as the top performer; Escorts Growth (0.69%) occupied second position. Sundaram Midcap (0.61%) and Magnum Midcap (0.24%) also featured in the list.

It was a poor week for the category leaders -- Franklin Bluechip (-0.74%), HDFC Top 200 (-0.57%) and HSBC Equity (-0.32%). Midcap majors Magnum Global (-1.92%) and Franklin Prima (-1.15%) delivered poor performances as well.

This week Personalfn's research team profiled the Quantum Long Term Equity Fund NFO. The fund (launched by an associate company) will follow the value style of investing; 'value-investing' involves buying shares of companies that are 'under valued' and selling them when the mispricing is corrected.

The fund's traits like a defined liquidity criterion for investing in a stock, among other traits, make it an interesting investment proposition.

  • Click here for the Mutual Fund NFO Archives

    Another aspect wherein investors will find the fund's style a departure from its peers is in its willingness to hold cash (upto a maximum of 35% of net assets) at times when investment opportunities are not there. Given the fund's disciplined value style of investing, it recognises that it may not always find stocks at prices that meet its investment criteria.

    Leading Debt Funds
    Debt FundsNAV (Rs) 1-Wk1-Mth6-Mth1-YrSDSR
    ING INCOME 17.450.20%0.03%1.55%3.43%0.64%-0.54%
    PRINCIPAL INCOME 16.330.18%0.15%1.54%4.48%0.59%-0.48%
    ABN AMRO FLEXI DEBT10.550.12%0.53%1.62%4.40%0.34%-0.71%
    TATA DYNAMIC BOND11.310.10%0.15%2.17%6.68%0.46%-0.31%
    KOTAK FLEXI DEBT10.730.08%0.40%2.65%5.82%0.05%-1.52%
    (Source: Credence Analytics. NAV data as on Feb 17, 2006. Growth over 1-Yr is compounded annualised)

    The benchmark 7.38% 2015 GOI yield closed at 7.28% (February 17, 2006), unchanged over the previous weekly close. Bond prices and yields are inversely related with rising yields translating into lower bond prices and net asset value (NAV) for debt fund investors.

    ING Income (0.20%) surfaced as the top performer in the debt funds segment. Principal Income (0.18%) and ABN AMRO Flexi Debt (0.12%) occupied second and third positions respectively.

    Small savings schemes have conventionally been the favoured investment avenue for risk-averse investors. Attractive (and assured) returns, coupled with a high degree of safety were responsible for their popularity. However in recent times, the small saving segment has been subjected to a bout of rationalisation, resulting in the latter losing some of its sheen. With the budget approaching, further steps in this direction cannot be ruled out.

    Leading Balanced Funds
    Balanced FundsNAV (Rs) 1-Wk1-Mth1-Yr3-YrSDSR
    BIRLA SUN LIFE 95141.68 0.46%4.79%38.51%43.85%4.54%0.41%
    MAGNUM BALANCED20.69 0.29%5.89%53.64%57.83%4.66%0.62%
    HDFC BALANCE26.48 0.25%3.72%31.10%35.41%3.79%0.41%
    PRINCIPAL BALANCED19.50 0.05%6.09%38.20%41.59%4.50%0.39%
    ING BALANCED15.70 0.00%3.43%36.05%34.10%4.50%0.36%
    (Source: Credence Analytics. NAV data as on Feb 17, 2006. Growth over 1-Yr is compounded annualised)

    The balanced funds segment suffered on account of the downturn in equity markets. Birla Sun Life 95 (0.46%) emerged the top performer. Magnum Balanced (0.29%) and HDFC Balance (0.25%) also featured in the top performers' list. Category leader HDFC Prudence (-0.89%) had a poor week.

    Coming back to the topic of thematic funds, which seem to have emerged as favourites with fund houses considering the number of NFOs being launched. The trouble with thematic funds is that they go against the grain of mutual fund investing by depriving investors of the opportunity to hold a diversified portfolio. Further if the theme relates to a single sector like infrastructure, the time of entry and exit from the investment becomes vital as well, something that a retail investor may be incapable of doing.

    If the idea is to capitalise on an attractive investment opportunity, rest assured a well-managed diversified equity fund will certainly do the same as well. However during a downturn in markets, the diversified equity fund will be better placed to protect investors' interests.

    This is where thematic funds, thanks to their restrictive mandate will almost certainly falter.

    Our advice to investors -- unless you can understand the intricacies of a given sector/theme, steer clear of thematic funds. Instead, invest in established diversified equity funds, the latter are equipped to safeguard your interests over the long haul.

  • The 2006 guide to Tax Planning. Download the complete guide today! Click here!




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    Number of User Comments: 1




    Sub: Teme funds... naa..

    The fundamental idea behind mutual fund is portfoilo diversification, ie the process of reducing risk by not invetsting in any partcular company, sector or industry ...


    Posted by Reghuvaran




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