Fund houses are back again with what is the best way to garner AUM (asset under management), launching NFOs (New Fund Offers). With so many NFOs on display, the question that still remains unanswered -- what is that they have on offer for investor that hasn't already been offered?
With the quality of NFOs being launched, it does not really require a thorough study to answer that one. Most NFOs are far from new and are mere modifications of existing funds. The fancy name is about the only work of innovation in the NFO. Ultimately in all this, it's the investor who is the loser.
For years, the issue price of Rs 10 per unit offered by NFOs has attracted hordes of investors. It also works as a tool for mutual fund advisors to achieve aggressive targets. With so many 'forces' working against them, investors need to be even more careful of surrendering their hard-earned money to an investment avenue, particularly a mutual fund NFO.
At Personalfn, we keep a strict vigil on all aspects pertaining to investments so NFOs can hardly be expected to escape our attention. With so many NFOs on offer, we have been busy scrutinising the latest offerings. Over the last couple of weeks we have profiled as many as three NFOs. While two of these are run of the mill, the third one has caught our eye.
The first of the NFO trio is UTI-Wealth Builder Fund, a close-ended diversified equity fund with a 5-year lock-in. About the only differentiating factor in the fund is the flexibility to use derivatives for hedging the equity portfolio. We believe that the fund offers nothing new to investors and can add little value to their portfolios. It is safe to give it a miss.
The second NFO is SBI Arbitrage Opportunities Fund, an open-ended equity-oriented fund. It aims at capitalising on the arbitrage opportunities arising out of mis-pricing in the prices of stocks in equities and derivatives market. The fund also proposes to use some unconventional arbitrage strategies.
The use of arbitrage by mutual funds is a relatively new concept and has not yet evolved completely. Moreover, contrary to popular perception, arbitrage is not a surefire strategy to clock gains. In our view, investors should avoid investing in arbitrage funds and instead give them some time to prove their mettle.
Click here to read our research note on SBI Arbitrage Opportunities Fund NFO
The BSE Sensex appreciated by 1.77% during the week to close at 12,454 points, while the S&P CNX Nifty ended at 3,588 points (up by 1.24%). Mid cap stocks staged a strong come back with CNX Midcap gaining 3.99% to close at 4,692 points.
Leading open-ended diversified equity funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-year | SD | SR |
| Magnum Global | 28.41 | 3.57% | 6.01% | 0.11% | 40.57% | 7.13% | 0.57% |
| ING Vysya Midcap | 16.15 | 3.46% | 5.14% | -3.06% | 27.57% | 8.08% | 0.34% |
| UTI Dynamic Equity | 30.57 | 3.45% | 5.02% | -13.25% | 4.16% | 7.78% | 0.27% |
| JM HI FI | 10.02 | 3.19% | 7.97% | 0.20% | - | 10.79% | -0.17% |
| Birla Midcap | 58.02 | 3.17% | 8.77% | -1.43% | 36.58% | 6.47% | 0.47% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)
Gaining from the surge in mid cap stocks, funds with predominantly mid cap holdings featured in the top performers' list. Magnum Global (3.57%) topped the list followed by ING Vysya Midcap (3.46%) and UTI Dynamic Equity (3.45%).
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-year | SD | SR |
| PruICICI Income | 21.17 | 0.37% | 1.49% | 3.91% | 4.70% | 0.46% | -0.17% |
| Deutsche Premier Bond | 11.96 | 0.34% | 1.07% | 2.50% | 2.15% | 0.71% | -0.25% |
| Birla Dynamic Bond | 11.12 | 0.31% | 0.78% | 3.32% | 5.64% | 0.15% | -0.71% |
| Principal Income | 17.13 | 0.28% | 1.23% | 4.30% | 5.95% | 0.40% | -0.17% |
| Birla Sun Life Income | 24.94 | 0.27% | 0.99% | 3.98% | 5.58% | 0.54% | -0.23% |
The 10-year 7.59% GOI yield closed at 7.65% (September 29, 2006), 3 basis points above the previous weekly close. Bond yields and prices are inversely related with rising yields translating into lower bond prices and NAVs (Net Asset Values) for debt fund investors.
PruICICI Income (0.37%) emerged as a top performer in the debt funds segment. Deutsche Premier Bond (0.34%) and Birla Dynamic Bond (0.31%) occupied second and third positions respectively.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-year | SD | SR |
| HDFC Prudence | 103.2 | 2.39% | 5.02% | 6.74% | 31.81% | 3.79% | 0.65% |
| JM Balanced | 21.08 | 1.74% | 5.29% | 2.93% | 35.56% | 4.98% | 0.41% |
| Birla Balance | 26.22 | 1.71% | 5.64% | 3.11% | 26.06% | 3.72% | 0.44% |
| Principal Balanced | 20.73 | 1.57% | 3.70% | -3.76% | 20.52% | 4.78% | 0.35% |
| UTI Balanced | 53.18 | 1.49% | 5.39% | 3.00% | 27.59% | 4.22% | 0.35% |
In the balanced funds segment, HDFC Prudence (2.39%) led the pack followed by JM Balanced (1.74%) at second position. Birla Balance (1.71%) and Principal Balanced (1.57%) also featured in the list.
The NFO that has generated considerable interest in our research team is the DSP Merrill Lynch Small and Mid Cap Fund (DSP ML SMC). The fund is an open-ended diversified equity fund, which seeks to generate long-term capital appreciation by investing in mid and small cap stocks.
Click here to read our research note on DSP ML Small and Mid Cap Fund NFO
Given the fund house's impeccable track record in managing funds across categories, we believe risk-taking investors finally have a much-needed investment opportunity in the midst of some very forgettable NFOs.
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