• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Suresh Krishnamurthy

IN THE two years between March 2003 and March 2005, diversified equity funds have notched up a sustained impressive performance.

They have managed to keep their reputations intact with index-beating performances while taking risks that are below that of the index.

The negative aspect about their performance is that there is a mind-numbing similarity in the characteristics of most of the funds on offer.

Almost all of them are designed to take advantage of broad market movements. Consistency is also not their virtue.

Strong show: Between March 2003 and March 2005, BSE-200 on average gained 4 per cent. The average mutual fund, on the other hand, gained 4.64 per cent.

The average funds were also a tenth less risky in terms of fluctuation in monthly returns.

Of the 56 funds considered for the analysis, 46 outperformed the BSE-200 in average monthly returns. That is, four out of five equity funds outperformed the index.

Of the outperformers, the fluctuation in monthly returns of 36 funds was lower than that of the BSE200. That is, two out of three equity funds out performed BSE-200 on both parameters — returns and risk.

Vis-à-vis theNifty or Sensex or BSE-100, the level of out-performance by equity funds would have been even more striking.

Since this had been the case even before 2003, there cannot be a better case for active investing as compared to investing in index funds.

Identical characteristics: A negative factor, however, is the almost identical nature of the fund profiles.

Almost all of them can be classified as moderately risky. Very few fall under the classification of either low-risk or high-risk categories.

Investors do not need to look beyond a handful of top-performing schemes with a long performance record as investing beyond three or four schemes will not bring in any benefit from diversification.

Many of the funds are also not too consistent. On an average, equity funds out performed BSE-200 in only 15 out of 24 months. And 32 of the 56 schemes also under-performed in less than 15 months. So, if you got your entry timing wrong, then the addition to wealth may be less than what the mere point-to-point change in net asset value per unit would indicate.

This lack of consistency is the reason why investors would be better off opting for a systematic plan and also holding on to their equity investments longer.

Beyond HDFC and Templeton: Another interesting feature is the emergence of outperformers from mutual fund houses other than HDFC and Franklin Templeton. Funds from Reliance, HSBC and DSP Merrill Lynch have built up an impressive record over the past few years.

Funds from the stable of public sector asset management companies SBI and UTI have also done very well.

In particular, schemes such as Magnum Global, Reliance Growth, HSBC Equity, DSP ML Equity and UTI Grandmaster have turned in attractive performances.

As regards HDFC and Franklin Templeton, the relative risks of investing in Templeton India Growth and HDFC Top 200 have increased over the past two years.

There has, however, been a strong resurgence in the performance of HDFC Capital Builder. The performance of Magnum Global and HDFC Capital Builder, in particular, has been outstanding.

The diverse range of outperformers also signals that the bleak scenario in which equity investors found themselves when Kothari Pioneer and Zurich India were acquired, with very few attractive investment options, has now changed substantially.

Diversified equity fund investing is thriving and building wealth for investors.

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

Stories in this Section
Women's Accounts

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line