Ask any investment advisor how long you must stay invested in equity (shares) and the answer will be: for the long term.
Long term, of course, could be anywhere from five to seven years.
Since diversified equity funds invest in the shares of companies of different sectors, the same logic holds. Invest for the long term.
Unfortunately, all funds don't perform that well over time.
We decided to look at those funds that have performed really badly when compared to their peers.
The worst players
For our selection, we followed certain criteria.
1. Only diversified equity funds are taken into account.
2. We then narrowed down to funds that have been around for at least seven years. The reason being that this is a large enough time frame for an equity fund to prove its mettle. Remaining a laggard continuously over such a long time frame speaks volumes.
Secondly, in the block of the last seven calendar years, the Indian stock markets have witnessed all phases a market crash, a recovery and now a bull run.
Therefore, during this period, all kinds of equity funds have got an opportunity to perform at some point of time or the other. A fund which failed to do so requires a long hard look.
3. We have zeroed in on funds that have remained in the bottom half of the category since 1998, on the basis of calendar year returns of the funds.
LICMF Equity Fund Growth option
Net Asset Value: 14.26
Date the fund was launched: February 1993
Return since launch: 2.2%
Return over 5-years: 7.9%
This fund has a strong focus on large cap stocks. Since January 2004, the exposure to such stocks has averaged 88.35%.
Market capitalisation of a company is its share price multiplied by the total number of shares. Based on this, companies are classified as large-cap, mid-cap and small cap. Right now, mid-caps are the rage. Read Why mid-caps are hot to understand this better.
Also, the fund tends to invest substantial amounts in a few stocks. As per its June 2005 investments, 33.5% of total investments were in just five stocks.
J M Equity Fund Growth option
Net Asset Value: 22.07
Date the fund was launched: December 1994
Return since launch: 7.3%
Return over 5-years: 11.2%
Traditionally a large-cap oriented fund, it recently went for a portfolio makeover. In November 2004, the exposure to large caps dropped to 39%, from the previous month's 71%.
This fund has found the going quite tough. However, in the last couple of years, it has managed to come a little closer to the category average.
Though the fund is showing signs of recovery, it has a long, uphill task before it catches up with the long-term performance record of some of its peers.
Principal Equity Fund Growth option
Net Asset Value: 22.94
Date the fund was launched: May 1995
Return since launch: 7.7%
Return over 5-years: 12.5%
To be fair to this fund, it missed the category average (average performance of all diversified equity funds) only by a narrow margin in three of the past seven years. But there were years like 2003 when the fund missed it by more than 33%.
The fund is well diversified amongst sectors as well as number of stocks. No single sector or stock claims the bulk of its investments.
Note: NAV is of July 22, 2005
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