There was no respite for investors as the volatility-marred equity markets closed the month in negative terrain, yet again. The BSE Sensex shed 11.01 per cent and ended at 15,644 points; the S&P CNX Nifty posted a loss of 9.36 per cent and closed at 4,735 points. It was a particularly testing month for investors in the midcap segment; the CNX Midcap dipped by 18.74 per cent and settled at 6,241 points.
Mid cap stocks (and subsequently mid cap funds) have been the worst hit in the recent stock market crash. Investors who added mid cap investments to their portfolios without understanding their true nature are a dismayed lot. Typically, mid caps are presented as an opportunity to make quick money; sadly, investors are rarely made aware of the higher risk involved.
While there is no doubt that if identified correctly, mid caps can contribute significantly to an investor's wealth, the higher gains don't come easy. Investors need to brace themselves for higher volatility as well. For investors in the mid cap segment, apart from having a commensurate risk appetite, accurately identifying the right mid cap stock/fund and staying invested for the long haul (we recommend at least 5 years) are key points.
During the month, Foreign Institutional Investors (FIIs) were net buyers of equities with purchases of Rs 1,244 m (as on March 28, 2008). On the contrary, mutual funds were net sellers to the tune of Rs 18,457 m.
Monthly top losers: Open-ended equity funds
|
Equity Funds |
NAV (Rs) |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
|
UTI Thematic Banking |
24.15 |
-23.16% |
-15.94% |
30.49% |
11.08% |
0.09% |
|
JM Financial Services |
12.77 |
-22.26% |
-15.87% |
45.64% |
12.62% |
0.15% |
|
JM HI FI |
11.00 |
-21.35% |
-22.87% |
26.78% |
13.18% |
0.01% |
|
JM Emerging Leaders |
12.27 |
-20.65% |
-16.98% |
32.64% |
12.58% |
0.09% |
|
LIC MF Equity |
22.45 |
-19.87% |
-14.89% |
21.90% |
11.85% |
0.03% |
(Source: Credence Analytics. NAV data as on March 31, 2008.)
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)
Expectedly, funds with predominant holdings in mid cap stocks suffered the most on account of the stock market volatility. UTI Thematic Banking (-23.16%) emerged as the biggest loser over the month followed by three funds from JM Mutual Fund i.e. JM Financial Services (-22.26%), JM HI FI (-21.35%) and JM Emerging Leaders (-20.65%).
Monthly top losers: Long-term debt funds
|
Debt Funds |
NAV (Rs) |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
|
ICICI Prudential Gilt IP |
24.26 |
-3.48% |
3.24% |
8.16% |
1.50% |
-0.03% |
|
HDFC Gilt |
16.63 |
-3.11% |
3.61% |
6.34% |
1.41% |
-0.10% |
|
Templeton India Income |
27.93 |
-2.99% |
2.85% |
8.69% |
1.45% |
0.04% |
|
UTI Gilt Advantage |
11.89 |
-2.90% |
1.89% |
4.76% |
1.14% |
-0.20% |
|
DBS Chola Triple Ace |
23.59 |
-2.88% |
-2.64% |
-2.66% |
1.01% |
-0.61% |
(Source: Credence Analytics. NAV data as on March 31, 2008.)
Rising inflation and the prevailing uncertainty over where the interest rates are headed, took their toll on funds from the long-term debt funds segment. ICICI Prudential Gilt IP (-3.48%) suffered the most. HDFC Gilt (-3.11%) and Templeton India Income (-2.99%) also featured among the top losers.
Monthly top losers: Balanced funds
|
Balanced Funds |
NAV (Rs) |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
|
LIC MF Balanced |
50.52 |
-14.05% |
-6.64% |
23.71% |
10.23% |
0.06% |
|
JM Balanced |
24.26 |
-13.02% |
-19.88% |
13.06% |
8.13% |
0.01% |
|
Escorts Balanced |
55.71 |
-12.52% |
-10.84% |
30.57% |
9.75% |
0.11% |
|
Kotak Balance |
21.70 |
-10.54% |
-4.92% |
24.85% |
7.32% |
0.10% |
|
UTI Balanced |
60.53 |
-10.49% |
-9.41% |
18.58% |
6.86% |
0.03% |
(Source: Credence Analytics. NAV data as on March 31, 2008.)
With both the equity and debt markets running into rough weather, the balanced funds segment was on the receiving end as well. LIC MF Balanced (-14.05%) topped the losers' list. JM Balanced (-13.02%) and Escorts Balanced (-12.52%) came in at second and third positions respectively.
It's that time of the year when fund houses roll out Fixed Maturity Plans (FMPs) in response to the attractive yields on corporate bonds. FMPs offer investors a 'fairly certain' return despite their market-linked nature. Hence, investors view them as a means to clock an attractive return at relatively lower risk. Sadly, there are many investors who are mistakenly led to believe that FMPs are risk-free investment avenues.
Investors should understand that yields on FMPs are only indicative. It is possible that the fund manager may not get the opportunity to invest in debt instruments with the yield indicated by him. Hence in the final analysis, the actual returns may deviate from the indicated yield.
Also, the possibility of a fund manager investing in lower rated instruments (read risky) in order to clock a higher growth cannot be ruled out. This can further accentuate the risk involved. Finally, the possibility of an FMP delivering negative returns intermittently i.e. before maturity, on account of interest rate movements cannot be ruled out.
In conclusion, investors would do well to acquaint themselves with all aspects of an FMP, so that they can make an informed investment decision.
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