A 5-step strategy for investors

It was yet another positive week for investors as markets continued their northbound journey and scaled record highs.

The BSE Sensex posted a gain of 2.74% to close at 11,589 points; the S&P CNX Nifty appreciated by 1.53% during the week to end at 3,455 points. The CNX Midcap closed at 4,949 points (up by 3.38%).

However, these figures fail to disclose the intense volatility experienced during the week.

Leading Diversified Equity Funds

Diversified Equity Funds	NAV (Rs)	1-Wk	1-Mth	6-Mth	1-Yr	SD	SR
TAURUS STARSHARE	36.68	7.35%	11.86%	46.14%	90.64%	7.12%	0.63%
MAGNUM GLOBAL	29.36	6.61%	11.89%	46.07%	110.15%	5.98%	0.88%
MAGNUM COMMA	15.08	6.57%	16.18%	45.56%	-	5.04%	0.92%
FRANKLIN OPPORTUNITIES	22.63	6.40%	16.36%	43.88%	98.36%	6.11%	0.55%
SUNDARAM MIDCAP	79.94	5.96%	14.98%	54.73%	104.06%	5.22%	0.71%

(Source: Credence Analytics. NAV data as on April 7, 2006. Growth over 1-Yr is compounded annualised)
(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.)

Funds with predominantly mid cap holdings ruled the roost in the diversified equity funds segment. Taurus Starshare (7.35%) emerged as the top performer. Magnum Global (6.61%) and Magnum Comma (6.57%) from SBI Mutual Fund also featured in the top performers' list.

A significant event this week was the clamp down on initial issue expenses charged by mutual funds on new fund offers (NFOs) by the Securities and Exchange Board of India. Sebi also introduced regulations for the method of dividend declaration.

Earlier, fund houses used to amortise the initial issue expenses over a 5-year period. As a result a serious long-term investor would bear a higher portion of the expenses as compared to 'the punting' short-term investor.

This gaffe now stands rectified. Fund houses can no longer charge initial issue expenses on open-ended NFOs. Instead they will have to meet all NFO-related expenses only from the entry load.

Leading Debt Funds

Debt Funds	NAV (Rs)	1-Wk	1-Mth	6-Mth	1-Yr	SD	SR
TEMPLETON INCOME	24.59	0.41%	0.78%	0.44%	2.98%	0.67%	-0.64%
TEMPLETON INC BUILDER	23.98	0.40%	0.74%	0.24%	2.49%	0.72%	-0.66%
DEUTSCHE PREMIER	11.70	0.38%	0.64%	-0.10%	4.91%	0.96%	-0.37%
PRINCIPAL INCOME	16.46	0.31%	0.68%	1.72%	4.90%	0.63%	-0.54%
LIBRA BOND	13.27	0.30%	0.18%	-0.43%	-0.82%	NA	NA

(Source:
Credence Analytics. NAV data as on April 7, 2006. Growth over 1-Yr is compounded annualised)

The 7.38% 2015 GOI yield closed at 7.42% (April 7, 2006), unchanged over the previous week. Bond yields and prices are inversely related, with rising yields translating into lower bond prices and net asset value (NAV) for debt fund investors.

Funds from Franklin Templeton Mutual Fund dominated proceedings in the debt funds segment. Templeton Income (0.41%) and Templeton Income Builder (0.40%) occupied the first and second positions, respectively.

Leading Balanced Funds

Balanced Funds	NAV (Rs)	1-Wk	1-Mth	6-Mth	1-Yr	SD	SR
BOB BALANCED	24.85	4.41%	6.47%	28.89%	56.78%	4.44%	0.56%
UTI BALANCED	52.47	3.63%	6.39%	24.54%	45.71%	3.64%	0.46%
MAGNUM BALANCED	23.74	3.44%	9.60%	32.07%	72.90%	3.57%	1.03%
TATA BALANCED	46.21	3.15%	8.85%	33.45%	56.18%	4.40%	0.54%
ESCORTS BALANCE	43.91	3.12%	7.17%	30.67%	65.09%	4.68%	0.51%

(Source: Credence Analytics. NAV data as on April 7, 2006. Growth over 1-Yr is compounded annualised)

Balanced funds drew from the rising equity markets. BOB Balanced (4.41%) surfaced as the best performer in the balanced funds segment. UTI Balanced (3.63%) and Magnum Balanced (3.44%) came in at second and third positions, respectively.

Dividend distribution had turned into a major sales opportunity for mutual funds in recent times. Fund houses would flaunt attractive dividend figures like "100%" and use the opportunity to enhance their assets under management.

The record date (for being eligible to claim dividend) would be announced well in advance to facilitate the process. The trouble with this kind of marketing was that investors would end up getting invested for the wrong reasons, in schemes that were not necessarily right for them and perhaps even in the wrong option.

As per the new regulations, fund houses will only have a 5-day period for declaring and distributing dividends.

With equity markets scaling unprecedented highs, most investors are faced with the question 'what should we do now?.' We present a 5-step strategy that can help them tide over the present investment scenario.

Firstly, this is a good time to sell investments that make a poor fit in your portfolio. If you are invested in schemes that don't match your risk profile or investment objectives, now is a good time to sell them. Given the high market level, you will have made money even on a poor investment decision!
Realign your portfolio in line with your risk-profile and pre-determined asset allocation. The sharp run-up in the markets might have skewed your portfolio in favour of equities. You would do well to make necessary adjustments and bring your portfolio in line with your original allocation.
Refrain from making lump sum investments. Stick to the systematic investment plan (SIP) route of investing. Remember that equity investing is for the long-term and the SIP mode is best equipped to keep your cost of investing down over such horizons.
Look beyond diversified equity funds. Hybrids like balanced funds and monthly income plans (MIPs) can add value to your portfolio powered by their flexibility to diversify across assets classes i.e. debt and equity.
Finally, don't get carried away with the rising markets. Resist the temptation to make a 'quick buck' by taking on higher risk. As we have always maintained, investors' risk profiles don't change with changing market conditions.

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