Income Funds do well in October

Suresh Krishnamurthy

OCTOBER 2000 was a poor month for equity-oriented funds as their net asset values slipped further in line with declining stock prices.

However, most funds were able to outperform the market, with several bettering the performance of both the technology-heavy broader indices, such as the S&P CNX 500 and BL-250, as well as the narrower indices, such as BSE Sensitive Index and Nifty. In contrast, Income Funds, which ended in negative territory in the quarter ended September, staged a comeback.

Among equity-oriented funds, sector funds focussed on healthcare and basic industries performed better than other funds. Otherwise, diversified funds have done much better, some outperforming even tax-saving funds. However, on an equal-weighted basis, the average performance of diversified funds, sectoral funds and tax-saving funds were more or less the same.

Diversified funds: Funds with cash have turned out to be better performers during the month. The recently-launched HDFC Growth Fund, which had cash to the extent of 65 per cent, including borrowings of around 15 per cent, topped the charts. Other funds that figure in the top quartile are Reliance Growth Fund, Alliance Equity Fund (Dividend option -- a dividend of Rs.2.50 per share was declared in October), Zurich India Equity Fund, Templeton India Growth Fund, Taurus Discovery and ILFS Growth & Value Fund.

The technology-sector-focussed ING Growth Fund was the worst performer during October. With ING Growth at the bottom are funds such as SBI Magnum Multiplier 1993, Kothari Pioneer Prima Fund, IDBI Principal Equity Fund, Birla Advantage and Kotak K-30.

Barring K-30, the other equity funds at the bottom of the heap have large exposures to the IT sector. Funds with predominant exposures to the healthcare sector did well. However, barring healthcare, no other dominant theme was evident. Funds with exposures in such select stocks as ITC, NIIT, Ballarpur Industries, Britannia Industries and MTNL were able to weather the downside much better.

Sectoral funds: In the sectoral funds category, healthcare funds and funds focussed on manufacturing industries performed better. Among tech-heavy schemes, funds with a higher exposure to mid-sized firms have in relative terms outperformed those with a higher exposure to large firms. This could mainly be due to the significant fall in the stock price of Satyam Computers.

Income funds: In income funds, October was not a good month to pull out funds, which is what happened to scheme options where dividends were distributed. This was because of the rally in prices of corporate bonds and government securities in October.

The dividend option of funds such as SBI Magnum LiquiBond, Chola Triple Ace, Chola Freedom Regular Income, Tata Income Fund -- Appreciation Option, in which dividends were declared, occupied the bottom of the charts, while, once again, mid-sized debt schemes were at the top.

Balanced funds: The performance of balanced funds continued to be lacklustre. Most balanced funds ended up in negative territory. Among the few to buck the trend and perform impressively were Zurich India Prudence, JM Balanced Fund and Templeton-Franklin India Balanced Fund. The Kothari Pioneer Pension Plan, which is slowly increasing the equity weightage, and the newly-launched HDFC Balanced Fund topped the charts.

Funds such as Kothari Pioneer Balanced Fund and Kotak K-Balance performed worse than their 100 per cent equity-oriented funds. Generally, if investors had maintained their exposures in equity funds, debt funds and liquid funds on their own in proportions similar to that maintained in a balanced fund, they would have relatively better off.