A typical problem associated with market-linked avenues like mutual funds is that investors often tend to ignore the 'risk' factor. This problem is compounded in situations like the present one, when stock markets are soaring.
Making money seems easy and caution is often thrown to the winds.
We have some advice for investors - don't ignore the 'risk' factor. Stock markets are not a one-way street. Taking on higher risk can prove lucrative in rising markets. However, rising markets need not last forever. Over a longer time frame (which is imperative for market-linked investments), markets can and do witness cycles.
And at times like these, being invested in 'prudent' investment avenues is the key. Prudent being defined as investment avenues that match the investor's risk appetite and one's that can contribute towards achieving his investment objectives.
Speaking of risk, recently we highlighted a few aspects about arbitrage funds, which are often touted as 'risk-free' investment avenues by fund houses. Simply put, this is a blatant lie. Fund houses conveniently forget to inform investors of the various risks that arbitrage funds are susceptible to.
In the article Are arbitrage funds really risk-free? we have listed various scenarios when arbitrage funds can fail to perform in an expected manner, leading to losses for investors. Make no mistake; arbitrage funds have an element of risk, and to slot them as risk-free investments amounts to mis-representation.
In market-linked investments the risk factor is pervasive; the onus to make informed decisions lies with investors.
It was a good month for investors as the markets closed in the positive terrain. The BSE Sensex posted a gain of 0.74% to close at 14,651 points, while the S&P CNX Nifty closed at 4,318 points (up by 0.51%). Mid cap stocks were clearly the winners; the CNX Midcap posted a gain of 5.88% and closed at 5,976 points.
In June 2007, Foreign Institutional Investors (FIIs) were net buyers of equities with purchases of Rs 13,323 m (as on June 28, 2007). On the contrary mutual funds were net sellers to the tune of Rs 226 m.
Leading open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | 3-Yr | SD | SR |
| StanChart Premier | 17.47 | 13.23% | 32.21% | 84.13% | - | 7.76% | 0.33% |
| Reliance Pharma | 25.37 | 8.62% | 24.78% | 63.73% | 36.36% | 7.98% | 0.28% |
| Tauras Discovery Stock | 18.14 | 8.43% | 17.26% | 60.39% | 49.95% | 9.26% | 0.15% |
| JM Financial Services | 12.65 | 8.27% | 28.77% | - | - | - | - |
| JM Healthcare Sector | 19.04 | 7.45% | 6.49% | 36.01% | - | 6.38% | 0.18% |
(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 and mid cap funds dominated the proceedings in the equity funds segment. StanChart Premier (13.23%) emerged as the top performer, followed by Reliance Pharma (8.62%) and Tauras Discovery Stock (8.43%).
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | 3-Yr | SD | SR |
| DBS Chola Gilt Inv. | 19.04 | 1.38% | 2.27% | 7.98% | 2.44% | 0.98% | -0.32% |
| LIC Bond | 20.58 | 1.31% | 3.79% | 6.14% | 4.93% | 0.41% | -0.22% |
| HSBC Income | 12.58 | 0.85% | 1.98% | 5.50% | 4.21% | 0.32% | -0.54% |
| Escorts Income | 23.05 | 0.85% | 2.14% | 5.33% | 4.57% | 2.63% | 0.29% |
| Birla Sun Life Income | 26.66 | 0.81% | 4.00% | 9.41% | 5.38% | 0.45% | 0.03% |
DBS Chola Gilt Inv. (1.38%) occupied the top slot in the long-term debt funds segment. LIC Bond (1.31%) and HSBC Income (0.85%) came in at second and third positions respectively.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | 3-Yr | SD | SR |
| HDFC Prudence | 124.72 | 4.07% | 9.63% | 43.65% | 42.51% | 3.82% | 0.57% |
| Tata Balanced | 55.88 | 3.49% | 13.28% | 43.12% | 39.80% | 4.93% | 0.40% |
| Sundaram Balance | 35.44 | 3.42% | 9.89% | 33.63% | 30.33% | 4.62% | 0.37% |
| FT Balanced | 36.16 | 3.30% | 10.80% | 43.86% | 33.12% | 4.58% | 0.42% |
| BOB Balanced | 25.69 | 3.30% | 16.24% | 32.29% | 32.76% | 5.78% | 0.24% |
HDFC Prudence (4.07%) led the pack in the balanced funds segment. Tata Balanced (3.49%) and Sundaram Balance (3.42%) also featured in the top performers' list.
Recently there was a talk in the mutual fund industry of getting fund managers certified. The thought behind this move was to ensure that fund managers are qualified with a standard qualification; this will ensure that they manage money in line with certain minimum guidelines. While the aforementioned move may seem pertinent, we believe there is still a lot of work to be done with regards to certification of mutual fund distributors.
Availability of test centres, quality of test material and ethics (or lack of it) -- these are just some of the issues, wherein there is still a huge scope for improvement. One can gauge the gravity of the situation, when one considers the vital role that a distributor is required to play in the investor's financial planning process.
We are presently faced with a scenario wherein the certification course for distributors has failed to introduce standardisation even in service standards. In our view, this issue is far more pressing and pertinent vis-à-vis the issue of certifying fund managers.
By Personalfn.com, a financial planning initiative
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