At Personalfn, we have never been advocators of sector funds since they go against the very grain of mutual fund investing, by depriving investors of the benefits of diversification across sectors. Also we have consistently maintained that sector funds are best equipped to deliver over shorter time frames, however over longer time horizons (3 years and above), diversified equity funds are investors' best bets.
This week Personalfn's research team profiled the performance of software funds. Launched in the 1999-2000 period in the midst of the tech rally, these funds then ranked among investor's favourites. Their performance slumped dramatically when the tech rally fizzled out by March 2000.
Our findings show that software funds have fared poorly over long time frames on the returns parameter; also expectedly their showing on the risk-adjusted return front left a lot to be desired. This corroborates our long-standing view that retail investors are better off giving sector funds a skip in favour of diversified equity funds.
Leading Diversified Equity Funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| ING VYSYA L.I.O.N. | 10.19 | 3.14% | 21.60% | 3.98% | - | 14.24% | 0.08% |
| DEUTSCHE ALPHA EQUITY | 42.00 | 3.04% | 25.41% | 19.73% | 56.31% | 8.99% | 0.36% |
| MAGNUM COMMA | 12.71 | 3.00% | 19.79% | 7.71% | - | 12.69% | 0.18% |
| JM EQUITY | 30.74 | 2.91% | 24.55% | 11.90% | 41.20% | 8.05% | 0.41% |
| DEUTSCHE INVESTMENT OPP. | 17.84 | 2.82% | 18.38% | 7.21% | 39.70% | 8.49% | 0.33% |
(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.)
A motley mix of funds featured as this week's top performers. ING Vysya L.I.O.N. (3.14 per cent) surfaced as the top performer in the diversified equity funds segment. Deutsche Alpha Equity (3.04 per cent) and Magnum COMMA (3.00 per cent) occupied second and third positions respectively.
Leading Debt Funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| PRUICICI LONGTERM | 14.88 | 0.14% | 0.56% | 2.85% | 5.33% | 0.60% | 0.38% |
| ABN AMRO FLEXI DEBT | 10.84 | 0.13% | 0.57% | 3.32% | 5.98% | 0.31% | -0.55% |
| KOTAK FLEXI DEBT | 11.04 | 0.13% | 0.56% | 3.32% | 6.28% | 0.06% | -0.74% |
| PRUICICI INCOME | 20.58 | 0.13% | -0.05% | 0.90% | 3.21% | 0.47% | -0.61% |
| BIRLA SUN LIFE INCOME | 24.43 | 0.12% | 0.44% | 2.22% | 4.69% | 0.60% | -0.41% |
The 10-Yr 7.59 per cent GOI yield closed at 8.35 per cent (July 14, 2006), 15 basis points above the previous weekly close. Rising yields translate into falling bond prices and net asset value (NAV) for debt fund investors.
As expected, flexi debt funds came to the fore. Flexi debt funds, powered by their fluid investment style are equipped to counter adverse market conditions. PruICICI Long Term (0.14 per cent) emerged as the top performer; ABN AMRO Flexi Debt (0.13 per cent) and Kotak Flexi Debt (0.13 per cent) also featured in the list.
Leading Balanced Funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 1-Yr | 3-Yr | SD | SR |
| ING BALANCE | 15.08 | 2.24% | 12.12% | 18.37% | 28.06% | 5.97% | 0.30% |
| LIC BALANCE | 37.69 | 1.75% | 12.00% | 28.32% | 24.26% | 5.98% | 0.30% |
| HDFC BALANCE | 26.69 | 1.73% | 11.80% | 24.54% | 30.11% | 4.96% | 0.36% |
| MAGNUM BALANCED | 21.09 | 1.54% | 12.66% | 36.92% | 49.92% | 6.68% | 0.40% |
| FT INDIA BALANCED | 26.11 | 1.45% | 12.41% | 26.74% | 33.39% | 5.51% | 0.32% |
ING Balance (2.24 per cent) topped the balanced funds segment, followed by LIC Balance (1.75 per cent). Magnum Balanced (1.54 per cent) and FT India Balanced (1.45 per cent) also pitched in noteworthy performances.
With the equity markets enjoying a sustained rally over the last few years, equity-oriented products like mutual funds have emerged as preferred investment avenues for investors. However in a large number of cases, the allocation to such products has become lopsided and has come at the cost of prudent asset allocation which is a prerequisite for a sound financial plan.
Simply put, asset allocation is the process of building a portfolio comprising of multiple asset classes like equities, fixed income instruments, gold and real estate among others in varying proportions. The investor's risk profile and investment objectives determine the allocation to each asset class.
Asset allocation enables investors to enjoy the benefits of diversification; as a result, a downside in one asset class can be set-off by the presence of another. Effectively the portfolio can become adequately insulated from adverse market conditions.
Click here to know more about Personalfn's Asset Allocation Review
During the recent meltdown in equity markets, investors holding well-diversified portfolios with allocations to other asset classes like fixed income instruments would have been spared a lot of the brunt as opposed to those who held leveraged ones in equity-oriented products.
Our advice to investors - now is as good a time as any to get your asset allocation in sync with your risk profiles and investment objectives.
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