After witnessing a sharp fall in the month of February, the stock markets staged a recovery of sorts and closed in the positive terrain in March. The BSE Sensex posted a gain of 1.04% to close at 13,072 points; the S&P CNX Nifty ended at 3,822 points (up by 2.05%).
However, the same conceals the intense volatility experienced during the month. Investors in the mid cap segment had no reason to cheer; the CNX Midcap shed 0.56%, before settling at 4,850 points.
Despite being one of the basic tenets of financial planning, diversification is often overlooked by investors. Simply put, holding a diversified portfolio would entail being invested in various investment avenues, thereby mitigating the risk that the portfolio is exposed to.
If an adverse event were to occur, diversification would ensure that only a part of the portfolio is impacted, while the balance is protected from the event.
Given to the importance of diversification, Personalfn put forth a 5-step investment strategy to enable investors to achieve a desirable degree of diversification in their portfolios.
In March 2007, Foreign Institutional Investors (FIIs) were net buyers of equities with purchases of Rs 14,033 m (as on March 30, 2007). On the contrary mutual funds were net sellers to the tune of Rs 20,275 m.
Over the last 12 months or so, we have witnessed domestic markets rise fairly sharply. Most diversified equity funds found it difficult to keep pace with their benchmark indices, leading some to question the utility of actively managed funds.
At Personalfn, we decided to undertake a comprehensive study of both index funds and actively managed funds across various time frames.
The results of our study were quite interesting. While index funds were successful in outperforming actively managed funds over shorter time frames of 12 months or thereabouts, over the long-term (3-5 years) actively managed funds rule the roost.
The study reinforced our long-standing view that for domestic investors actively managed funds must occupy larger share of the portfolio; index fund can find place in the portfolio but only from a diversification perspective.
Leading open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Birla Sun Life Frontline Equity | 49.42 | 3.45% | 10.12% | 22.94% | 5.31% | 0.50% |
| Franklin Pharma | 28.67 | 3.39% | 4.29% | -3.37% | 6.33% | 0.22% |
| UTI Pharma & Healthcare | 21.46 | 3.07% | 0.47% | -6.82% | 6.73% | 0.14% |
| Birla India GenNext | 15.54 | 2.71% | 11.64% | 12.12% | 6.64% | 0.29% |
| PruICICI Index | 34.04 | 2.50% | 6.44% | 13.61% | 5.79% | 0.43% |
(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.)
A motley mix of funds made it to this month's top performers' list in the equity funds segment. Birla Sun Life Frontline Equity (3.45%) emerged as the best performer followed by Franklin Pharma (3.39%) and UTI Pharma & Healthcare (3.07%). Another fund from Birla Sun Life Mutual Fund i.e. Birla India GenNext (2.71%) also featured in the list.
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| DBS Chola Triple Ace | 24.23 | 1.30% | 1.72% | 3.33% | 0.30% | -0.93% |
| Libra Bond | 14.22 | 1.18% | 5.04% | 7.09% | 0.54% | -0.53% |
| Birla Floating | 12.33 | 0.83% | 3.80% | 6.76% | 0.10% | -0.51% |
| Birla Dynamic Bond | 11.45 | 0.80% | 2.97% | 6.44% | 0.20% | -0.39% |
| Reliance Floating | 11.68 | 0.79% | 3.97% | 7.43% | 0.09% | -0.21% |
DBS Chola Triple Ace (1.30%) occupied the top slot in the long-term debt funds segment. Libra Bond (1.18%) and Birla Floating (0.83%) came in at second and third positions respectively. Birla Dynamic Bond (0.80%) also featured among the top performers.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| BOB Balanced | 22.07 | 1.80% | 0.78% | -5.79% | 5.69% | 0.18% |
| ING Vysya Balanced | 18.05 | 1.29% | 6.62% | 6.05% | 4.48% | 0.32% |
| UTI Variable Invest | 15.93 | 0.92% | 1.28% | 4.14% | 2.08% | 0.28% |
| Tata Balanced | 48.57 | 0.89% | 9.56% | 8.70% | 4.84% | 0.35% |
| JM Balanced | 22.18 | 0.86% | 5.22% | 11.57% | 5.02% | 0.37% |
BOB Balanced (1.80%) led the pack in the balanced funds category, followed by ING Vysya Balanced (1.29%) and UTI Variable Invest (0.92%).
At Personalfn, we have always urged investors to start planning for their retirement early in their careers. Investors would do well to understand that, saving and planning for retirement is a real and urgent need and it is too pressing an activity to be taken up when they are a just few years away from retirement.
The key to successful retirement planning lies in ensuring that investors have sufficient time on their side. Our advice -- engage the services of a qualified and competent financial planner and start planning for retirement before it is too late in the day to wake up to the rigours of retirement planning.
By Personalfn.com, a financial planning initiative. It can be reached at info@personalfn.com. Personalfn.com also publishes a free-to-download financial planning guide, Money Simplified. To get a copy of the latest issue - How ULIPs fit in - please click here.
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