The Hindu Business Line : Index funds return 19.57% in fiscal 2006-07

If you are a sincere, committed follower of equity funds, you will probably love the fact that your holdings had a fairly decent ride for a good part of the year. You will also probably feel upset with what you saw over the past few weeks - a terribly unstable market and a general tone-down in sentiments.

A few numbers will help us appreciate the year-end position. Returns generated by actively-managed, diversified equity funds will probably close the year with a modest 10 per cent or so. As of March 22, their average one-year score was 9.32 per cent.

Index funds, which are also diversified in their holdings but are passively managed, have done a lot better - 19.57 per cent as of the same day. Now, if you had stayed invested in index funds only for the past six months, the score would have been quite different: 8.25 per cent. And if you are a follower of active managers, the score would have been 7.21 per cent. These figures have been worked out by Value Research.

Such varying fortunes, mutual fund circles point out, are a direct result of a definite slowdown in the equity market. Suddenly, sentiments are not so buoyant. Investors these days are talking about risks more openly than before. All this makes us wonder whether the equity growth story is on the wane, at least for the time being.

Cash is king

For those of us who are interested in things like reviews and assessments, a quick reference to the latest survey of fund managers by Merrill Lynch - billed as the "first comprehensive study of investor sentiment since the market decline (in late February)" - may not be out of place.

It seems that portfolio managers are stepping up cash positions even as investors are re-assessing global prospects. However, global recession has been largely ruled out. At the same time, ML maintains, sections of investors have not abandoned equities.

"Having sheltered in cash, respondents plan to increase equity exposure: a net 25 percent of asset allocators intend to raise exposure to equities over the next three months," the study has noted.

For those who took considerable risk, thanks to their exposure to certain sectoral funds, the last 12 months proved to be a roller coaster ride. Technology funds gave an impressive 38 per cent, followed by banking funds that notched up 23 per cent (as on March 22). Life, however, was very difficult for those who chose to stay with auto, pharma and FMCG funds.

Each category dished out negative performance. FMCG funds took the worst hit - their score is minus 6.8 per cent as on that date.

Where will all this leave the debt fund investor at the end of the year? Single-digit returns - not a surprise really, not with the sort of trends we saw during 2006-07 - are all over the debt fund space.

There is little to suggest that longer term funds will do markedly better than this in the next one year or so. A lot of action, however, is expected to materialize insofar as shorter term debt products are concerned.

Feedback may be sent to nilanjan@thehindu.co.in

More Stories on : Mutual Funds | Mutual Funds | Mutual Confidence

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Infrastructure funds now diversifying into new areas

Index funds return 19.57% in fiscal 2006-07

Centre clears 20-lakh tonne sugar buffer, export sops

Impact of non-fundamental factors may continue in gold

High maize cost worries poultry farmers

FMCG stocks trail market benchmarks

Benchmarks may remain sideways

Trading in g-secs listless as fiscal year-end draws near

Phase-I testing on for host of e-gov services

BHP Billiton helps take the load off Railways

Yahoo India plans new offerings on the Net

Cruise tourism gains momentum in India