Equity markets have risen sharply in recent times and so has the euphoria among investors. Fund houses are doing their bit to capitalise on the upbeat mood by launching a host of new fund offers (NFOs).
However, there is a discernible difference in the communication from some of the fund houses this time around. Instead of stressing on what the NFO has to offer or how the NFO's investment proposition is unique, the message suggests invest in this NFO because it will be managed by a star fund manager.
While the importance of a competent and experienced fund manager cannot be overstated, there are certain perils attached to investing in a fund managed by a star fund manager. The performance of such a fund is entirely dependant on the star fund manager's presence. In the event of the fund manager quitting the fund house to seek the greener pastures elsewhere, he takes the "performance" with him.
Then investors are faced with a rather unenviable proposition of either following the star fund manger to the next fund house and perhaps dealing with exit and entry loads in the process; alternatively, they can continue to stay invested with the same fund house that no longer is equipped to deliver the performance that the investor expects.
The solution lies in getting invested with a process-driven fund house. In such a fund house, well-defined investment processes rule the roost; investment decisions are made based on the same.
Hence the event of any individual (read fund manager) quitting the fund house, doesn't adversely affect the fund's performance. Another fund manager can easily replace the outgoing one. Investors would do well to understand that longevity in performance comes from the presence of investment processes, rather than star fund managers.
Equity markets finally snapped their "winning" streak. The BSE Sensex shed 2.13% to close at 15,235 points; the S&P CNX Nifty closed at 4,445 points (down by 2.65%). The CNX Midcap fell by 3.78%, before settling at 6,032 points.
Leading open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Reliance Power | 46.25 | 1.64% | 10.66% | 27.40% | 99.74% | 7.68% | 0.47% |
| Reliance LT Equity | 11.60 | 1.50% | 7.82% | 15.17% | - | 4.29% | 0.43% |
| Franklin India Index | 42.43 | 1.43% | 8.82% | 10.80% | 47.74% | 6.55% | 0.40% |
| Franklin Flexi Cap | 23.53 | 1.41% | 6.96% | 12.21% | 51.48% | 6.79% | 0.40% |
| Franklin Bluechip | 147.75 | 1.37% | 9.19% | 12.30% | 53.21% | 6.99% | 0.39% |
(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)
Funds from Reliance Mutual Fund and Franklin Templeton Mutual Fund dominated proceedings in the equity funds segment. Reliance Power (1.64%) led the pack, followed by Reliance LT Equity (1.50%). Franklin Flexi Cap (1.41%) also featured among the top performers.
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| ING Income | 18.80 | 1.20% | 2.10% | 3.72% | 6.43% | 0.41% | -0.40% |
| Birla Income Plus | 32.37 | 0.68% | 4.71% | 6.82% | 10.00% | 0.95% | 0.02% |
| Templeton Income | 27.07 | 0.64% | 3.97% | 5.72% | 8.65% | 0.82% | -0.10% |
| Tata Income | 26.03 | 0.59% | 2.30% | 4.77% | 7.65% | 1.71% | 0.07% |
| Birla Sun Life Income | 27.53 | 0.54% | 3.35% | 7.33% | 12.35% | 0.73% | 0.17% |
The 10-Yr benchmark 8.07% GOI yield closed at 7.83% (July 27, 2007, source: Reserve Bank of India website), 5 basis points below the previous weekly close. Bond yields and prices are inversely related, with falling yields translating into higher bond prices and net asset value (NAV) for debt fund investors.
ING Income (1.20%) towered head and shoulders above the competition in the long-term debt funds segment. Birla Income Plus (0.68%) and Templeton Income (0.64%) occupied second and third positions respectively.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Canbalanced II | 40.95 | 1.30% | 6.27% | 9.22% | 30.35% | 6.03% | 0.37% |
| FT Balanced | 37.06 | 1.01% | 6.72% | 12.26% | 44.92% | 4.91% | 0.39% |
| JM Balanced | 26.47 | 0.47% | 10.88% | 14.96% | 47.35% | 5.81% | 0.40% |
| Canbalance | 31.07 | -0.16% | 5.14% | 7.66% | 30.66% | 4.77% | 0.22% |
| UTI Variable Invest. | 17.38 | -0.74% | 2.76% | 4.97% | 14.14% | 2.37% | 0.27% |
Canbalanced II (1.30%) topped the balanced funds segment, followed by FT Balanced (1.01%). JM Balanced (0.47%) occupied third position.
This week the Personalfn Research Team reviewed the performance of SBI Blue Chip Fund. Launched in December 2005, the NFO ranked as one of the most popular ones of its period; it had then mobilised a record asset size for an open-ended fund, during the NFO stage. We thought it would be interesting to find out how the fund has fared so far.
Interestingly, the fund in its short existence (it doesn't have a track record of 3 years, which we consider as a minimum time frame for evaluating equity investments), has trailed both its benchmark index and large cap peers.
At Personalfn, we have always maintained that investors should stick to funds that have a proven track record across parameters and market phases. NFOs should be considered for investment only when the offering is truly unique and if its proposition is distinct from that of existing funds.
Investors would do well to appreciate the importance of blocking the noise and sticking to the basics of investing, especially at times when irrational exuberance is the order of the day. Over longer time frames, exuberance doesn't last, but basics do!
By Personalfn.com, a financial planning initiative Just released - The Guide to Financial Planning. Get it FREE! Click here!
