The mutual fund industry has come a long way (although that is not the same as saying that it has come of age). Why do we say that? Because with so many mutual fund schemes, there is virtually something for just about any investor (i.e. for investors with varying risk appetites). However, a multitude of schemes gives rise to its set of problems.
At Personalfn, some of the most frequent queries we receive are on why we like a particular equity fund as opposed to another equity fund. In most cases, the client has made a comparison that is erroneous, a bit like comparing apples to oranges.
Sample this -- we received a query from a client who was wondering why a diversified, flexi cap equity fund (which is backed by a fund management team with near-15-year track record) should not be dumped in favour of a sectorally concentrated equity fund with a track record that does not even go beyond 5 years.
In another instance, a client wanted to know why he should not be investing in an aggressively managed flexi cap/opportunities fund instead of the conservatively managed predominantly large cap fund, we were recommending.
In both cases, you will notice that equity funds with completely different risk profiles were being compared and obviously the ones that took on higher risk performed better than their conservative counterparts. This led investors to believe that the riskier equity funds were better investment options than the funds we were recommending.
In their pursuit of NAV (net asset value) appreciation, the investors completely ignored the higher risk levels of the aggressive equity funds, which made them non-comparable with the conservative funds that we were recommending.
Sadly (although not surprisingly), in one of the instances, there was an investment advisor (with his fancy report) who made that inaccurate comparison for the client, with a view to selling his preferred mutual fund and meeting his target for that fund.
Stock markets continued to march upwards and closed the week in positive terrain. The BSE Sensex posted a gain of 3.83% to close at 13,897 points; the S&P CNX Nifty rose by 4.26%, before settling at 4,084 points. The CNX Midcap closed at 5,161 points (up by 2.73%).
Leading open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| UTI GSF Petro | 26.84 | 6.68% | 8.75% | 4.52% | 1.28% | 8.40% | 0.13% |
| Reliance Pharma | 21.50 | 5.66% | 10.06% | 10.21% | 4.39% | 8.59% | 0.21% |
| Magnum Comma | 15.59 | 5.20% | 9.25% | 3.04% | -1.64% | 10.47% | 0.16% |
| ICICI Prudential Discovery | 26.18 | 5.01% | 8.23% | -1.76% | -2.86% | 8.39% | 0.26% |
| HDFC Index Sensex Plus | 149.09 | 4.00% | 7.91% | 10.48% | 14.83% | 5.89% | 0.39% |
(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.)
Sector funds dominated proceedings in the equity funds segment. UTI GSF Petro (6.68%) occupied the top position, followed by Reliance Pharma (5.66%) and Magnum Comma (5.20%) at second and third positions respectively.
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Reliance Gilt Sec | 12.78 | 0.40% | 0.54% | 2.00% | 5.84% | 0.77% | -0.12% |
| Templeton GSec | 16.55 | 0.39% | 0.16% | 2.01% | 4.62% | 0.78% | -0.23% |
| HDFC Gilt | 15.60 | 0.36% | 0.30% | 0.71% | 1.94% | 0.54% | -0.67% |
| Magnum Gilt | 17.32 | 0.36% | 0.72% | 2.66% | 5.32% | 0.49% | -0.29% |
| DSP ML GSec | 23.04 | 0.31% | 0.37% | 0.68% | 3.09% | 0.77% | -0.29% |
The 10-Yr 8.07% GOI yield closed at 8.07% (April 20, 2007, source: Reserve Bank of India website), 3 basis points below the previous weekly close. Bond yields and prices are inversely related, with falling yields translating into higher bond prices and net asset value (NAV) for debt fund investors.
Gilt funds (government securities funds) featured as the top performers in the long-term debt funds segment. Reliance Gilt Sec (0.40%) emerged as the best performer, closely followed by Templeton GSec (0.39%). HDFC Gilt (0.36%) and DSP ML GSec (0.31%) also featured in the list.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Escorts Balance | 47.01 | 3.43% | 8.04% | 7.37% | 6.02% | 5.97% | 0.29% |
| Magnum Balanced | 25.88 | 2.82% | 5.20% | 7.97% | 7.83% | 5.92% | 0.34% |
| JM Balanced | 23.45 | 2.58% | 6.64% | 9.38% | 11.30% | 6.21% | 0.29% |
| HDFC Balanced | 30.83 | 2.44% | 6.91% | 0.05% | 3.21% | 5.86% | 0.19% |
| Tata Balanced | 51.29 | 2.42% | 7.41% | 12.98% | 10.22% | 6.13% | 0.27% |
Escorts Balance (3.43%) lead the pack in the balanced funds segment. Magnum Balanced (2.82%) and JM Balanced (2.58%) came in at second and third positions respectively.
To conclude, investors must be careful while comparing mutual funds. They must ensure that they are comparing funds with comparable risk profiles within the same category (large cap funds, mid cap funds, opportunities funds). And they must be even more wary of the investment advisor (especially if it's a bank) that is making the comparison for them.
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 -- Real Estate & You - please click here.
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