This week saw markets at their volatile best or worst, depending on whether you made or lost money. But there are some investors who aren't too concerned about the volatility. In fact, they are making the most of it because they made the right investment decisions.
If you are wondering what could have been a smart investment strategy in this bizarre market scenario, then the good news is that there are at least a couple of moves to take on volatile markets.
One, which we have been promoting for several years now -- systematic investment plan is a tried and tested way of making money from volatile markets. As opposed to lump sum investments, by investing smaller amounts at regular intervals, you stand to reduce the average cost of your mutual fund investments over the long-term. This is possible because when markets are volatile, SIPs activated during that period lower the overall average cost of purchase. So investors who have opted for the SIP route are pleased with the volatility in the markets and are probably hoping for more going forward.
Over the week, the BSE Sensex rose by 4.18% to end at 19,698 points, while the S&P CNX Nifty closed at 5,907 points (up by 4.31%). The CNX Midcap posted a gain of 7.62%, before settling at 7,949 points.
Weekly top performers: Open-ended equity funds
|
Equity Funds |
NAV (Rs) |
1-Wk |
1-Mth |
6-Mth |
1-Yr |
|
Reliance Media & Ent. |
34.37 |
11.07% |
15.19% |
17.76% |
61.42% |
|
Tata Dividend Yield |
27.11 |
9.72% |
17.62% |
44.94% |
56.49% |
|
Birla Dividend Yield |
57.20 |
8.70% |
13.20% |
24.51% |
35.42% |
|
Tata Contra |
15.64 |
8.37% |
14.57% |
28.79% |
36.73% |
|
Principal Dividend Yield |
22.14 |
8.16% |
16.28% |
37.01% |
39.33% |
(Source: Credence Analytics. NAV data as on November 16, 2007.)
Dividend yield funds dominated the equity funds segment. Reliance Media and Entertainment (11.07%) lead the pack, followed by Tata Dividend Yield (9.72%). Birla Dividend Yield (8.70%) and Tata Contra (8.37%) also featured among the top performers
Weekly top performers: Open-ended long-term debt funds
|
Debt Funds |
NAV (Rs) |
1-Wk |
1-Mth |
6-Mth |
1-Yr |
|
ICICI Pru. Gilt |
23.76 |
0.59% |
0.99% |
4.97% |
6.32% |
|
HDFC Income |
17.63 |
0.44% |
1.05% |
5.99% |
5.95% |
|
Reliance Gilt Sec. |
13.42 |
0.41% |
1.03% |
4.45% |
6.18% |
|
DSP ML GSec |
24.18 |
0.41% |
0.64% |
4.52% |
4.77% |
|
Kotak Bond RP |
20.97 |
0.41% |
1.03% |
6.27% |
8.84% |
(Source: Credence Analytics. NAV data as on November 16, 2007.)
The 10-Yr 8.07% GOI yield closed at 7.95% (November 16, 2007, source: Reserve Bank of India website), 1 basis point 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.
ICICI Prudential Gilt (0.59%) emerged as the best performer in long-term debt funds segment. HDFC Income (0.44%) and Reliance Gilt Securities (0.41%) occupied second and third positions respectively.
Weekly top performers: Open-ended balanced funds
|
Balanced Funds |
NAV (Rs) |
1-Wk |
1-Mth |
6-Mth |
1-Yr |
|
LIC MF Balanced |
63.34 |
5.57% |
11.86% |
42.58% |
44.82% |
|
BOB Balanced |
34.23 |
5.52% |
12.60% |
42.92% |
51.19% |
|
DSP ML Balanced |
53.60 |
4.56% |
7.97% |
28.16% |
42.99% |
|
ING Balanced |
25.14 |
3.97% |
8.50% |
31.55% |
39.82% |
|
Escorts Balanced |
71.68 |
3.75% |
12.68% |
40.77% |
57.96% |
(Source: Credence Analytics. NAV data as on November 16, 2007.)
LIC MF Balanced (5.57%) occupied the top slot in the balanced funds segment. BOB Balanced (5.52%) and DSP ML Balanced (4.56%) also featured in the top performers' list.
While SIPs are acknowledged as a means to counter volatile markets (even fund houses are happy to speak about them), one avenue that rarely gets any 'footage' is the balanced fund. Balanced funds by virtue of their debt investments (most invest upto 35% of assets in debt instruments, balance is invested in equities) have a crucial role to play in falling markets, when being fully invested in equities can be detrimental. Thanks to the debt component, balanced funds can stem the erosion in your mutual fund portfolio.
However, there aren't enough fans of SIPs and balanced funds; at least most mutual fund distributors/agents are not very enthused with them. Mutual fund agents are usually keen to get their clients invested lump sum (since this translates into immediate larger commission earnings). And balanced funds are probably among the least preferred investments with agents. It's equity funds, especially thematic funds that get the agent's vote of confidence.
However, as is evident from these markets, what gets your agent's vote of confidence is not necessarily the right thing for you. That is why it is critical for you to connect with an honest and competent financial planner who can just as proficiently advise you in falling markets, as in rising markets.
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