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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% |
(Source:
Credence Analytics. NAV data as on June 29, 2007.)
(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.)
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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% |
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(Source: Credence Analytics. NAV data as on June 29, 2007.)
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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% |
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(Source: Credence Analytics. NAV data as on June 29, 2007.)
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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. |
