The much-awaited budget finally hit the markets, and did so with style. After an initial knee-jerk reaction the markets recovered smartly.
The week closed with the BSE Sensex clocking a growth of 1.52% to close at 4,945 points while the S&P CNX Nifty was up 0.98% to end at 1,553 points. The bone of contention was the proposed turnover tax of 0.15% that would be applicable to all tradeable securities i.e. shares, bonds, et cetera.
Markets reacted adversely to the proposed legislation by shedding more than 100 points but recouped the losses following assurances that the issue would be reconsidered.
Leading Diversified Equity Funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 1-Yr | 3-Yr | Incep. | SD | SR |
| FRANKLIN INDIA PRIMA FUND G | 72.66 | 2.82% | 3.79% | 68.90% | 61.62% | 20.56% | 8.59% | 0.41% |
| LIC EQUITY PLAN | 10.60 | 2.19% | 1.09% | 43.73% | 24.44% | 0.58% | 7.29% | 0.27% |
| CANGLOBAL | 8.04 | 2.03% | 0.88% | 51.41% | 16.84% | 5.00% | 6.51% | 0.22% |
| HDFC CAPITAL BLD. G | 23.08 | 2.00% | 3.02% | 70.42% | 34.81% | 13.70% | 7.30% | 0.36% |
| CHOLA GROWTH G | 11.78 | 1.99% | 1.55% | 57.38% | NA | 36.68% | 7.10% | 0.34% |
(NAV data as on July 09, 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.)
It was a modest week for equity funds with the top performers ranging between 1.99% to 2.82%. Franklin India Prima Fund (2.82%) emerged as the weekly topper while HDFC Capital Builder (2.00%) a fund, which maintains the "value and growth" investing style also made to the top performers list.
Category leader HDFC Top 200 (0.47%) had an ordinary week while Franklin India Bluechip (-0.17%) ended in negative terrain.
The finance minister chose to leave the dividends policy on mutual funds untouched as far as retail investors are concerned.
Hence while the dividends from equity funds would continue to be tax-free in the hands of investors those from debt funds would be taxed at 12.5% plus 2% surcharge.
However, dividend income on investments made by corporates in debt funds will now attract a tax of 20% plus 2% surcharge. Effectively, there was only little additional burden on the retail investors by way of the surcharge.
Leading Income Funds
| Income Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | Incep. | SD | SR |
| SUNDARAM INCOME PLUS G | 11.55 | 0.20% | -0.08% | 1.17% | 4.15% | 7.58% | 0.84% | 0.06% |
| UTI BOND FUND G | 18.61 | 0.14% | -1.18% | -0.23% | 3.55% | 10.66% | 1.50% | 0.12% |
| BOB INCOME G | 11.48 | 0.14% | -0.02% | 3.49% | 6.41% | 6.09% | 0.61% | 0.04% |
| RELIANCE INC GR | 20.34 | 0.09% | -1.24% | -0.08% | 4.95% | 11.55% | 1.35% | 0.13% |
| DEUTSCHE FLOATING RATE G | 10.33 | 0.09% | 0.37% | 2.24% | NA | 3.27% | 0.01% | NA |
(NAV data as on July 09, 2004, Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)
The debt markets which, operate on thin margins did not take too kindly to the turnover tax either and yields rose sharply.
As a leading debt fund manager said, the proposed turnover tax could amount to losing 5 days of interest. The benchmark 7.37% 2014 GOI yield closed at 5.75% (July 9, 2004), 5 basis points below the previous weekly close.
Sundaram Income Plus (0.20%) was the weekly topper in the income funds category followed by UTI Bond Fund (0.14%). The volatility in the debt markets implied that floating rate funds like Deutsche Floating Rate (0.09%) also came to the fore.
Leading Balanced Funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 1-Yr | 3-Yr | Incep. | SD | SR |
| BOB BALANCED G | 11.22 | 1.91% | 1.45% | NA | NA | 12.88% | 6.41% | 0.13% |
| MAGNUM BALANCE | 13.02 | 1.72% | 0.39% | 52.24% | 19.51% | 13.62% | 5.27% | 0.38% |
| ESCORTS BAL G | 19.77 | 1.72% | 0.98% | 37.65% | 24.71% | 23.31% | 5.86% | 0.26% |
| CANTRIPLE | 26.89 | 1.28% | -0.59% | 21.51% | 16.68% | 6.47% | 5.21% | 0.17% |
| PRINCIPAL BALANCED G | 10.73 | 1.23% | 0.00% | 37.04% | 19.87% | 0.17% | 5.55% | 0.26% |
(NAV data as on July 9, 2004. Growth over 1-Yr is compounded annualised)
BOB Balanced (1.91%) surfaced as the weekly topper in the balanced funds segment, followed by Magnum Balanced (1.72%) a fund whose performance in the recent past has been very impressive. Category leader HDFC Prudence (0.59%) had an indifferent week.
Notwithstanding the strong reaction seen in the markets, the budget was clearly a positive one for retail investors.
The abolishment on long-term capital gains tax on equities is a move that should find favour with investors. Investing in equities is about the long-term and that is where the incentive has been provided.
For a serious investor the proposed 0.15% turnover tax should not be a cause for concern. Similarly small savings schemes, one of the most popular investment avenues for retail investors have been left untouched i.e. there will be no rate cut on these schemes.
The proposal whereby "no one with a taxable income of Rs 100,000 will be required to pay income tax as against the earlier Rs 50,000" will again benefit a huge section of the population.
The dampener albeit a minor one was the introduction of a 2% surcharge on the tax liability.
The finance minister deserves thumbs up for delivering a budget which was nothing short of a dream one for the retail investor with a long-term perspective.
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