August saw equity markets close in negative terrain. The BSE Sensex shed 1.49% during the month to close at 15,319 points; the S&P CNX Nifty posted a loss of 1.44% to close at 4,464 points. The CNX Midcap dipped 2.17% to settle at 6,044 points.
Of course, while in the end, the numbers indicate a sedate performance, make no mistake that there was plenty of volatility along the way mainly from the sub-prime problem.
In August 2007, Foreign Institutional Investors (FIIs) were net sellers of equities with sales of Rs 4,868.6 crore (Rs 486.86 billion) -- as on August 30, 2007. On the contrary mutual funds were net buyers to the tune of Rs 3,009.8 crore (Rs 300.98 billion).
Over time we have had repeated requests from visitors to unravel how the mutual fund growth and dividend options work. We wrote an article to address this issue. Broadly, growth and dividend are the two options offered at the time of investment.
Since the growth NAV is higher then the dividend NAV, investors mistakenly believe that they have a better chance of clocking higher returns with the growth option as opposed to the dividend option.
However the reason for the difference in the NAVs (of the growth and dividend options) has nothing to do with the performance of the two options, rather it's all related to the dividends paid out under the dividend option (assuming that both options have the same portfolios).
Leading open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | 3-Yr |
| JM Emerging Leaders | 13.55 | 6.04% | 35.63% | 27.20% | - |
| Escorts Growth | 66.83 | 2.37% | 29.00% | 35.36% | 45.34% |
| JM HI FI | 12.48 | 1.51% | 31.88% | 32.31% | - |
| Reliance Power | 49.12 | 1.13% | 40.16% | 77.30% | 66.48% |
| ICICI Pru. FMCG | 44.47 | 0.82% | 14.05% | 20.84% | 51.74% |
JM Emerging Leaders (6.04%) emerged as the best performer in the equity funds segment, followed by Escorts Growth (2.37%) and JM HI FI (1.51%). Reliance Power (1.13%), a sector fund, also featured among the top performers.
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | 3-Yr |
| Principal Gilt IP | 16.71 | 0.92% | 4.26% | 5.81% | 5.46% |
| ICICI Pru. Long Term | 16.19 | 0.80% | 4.24% | 7.74% | 9.23% |
| Birla Gilt Plus | 24.56 | 0.77% | 5.36% | 10.52% | 6.34% |
| ICICI Pru. Floating | 12.03 | 0.66% | 4.11% | 7.74% | 6.20% |
| HSBC Floating | 11.90 | 0.64% | 4.58% | 8.04% | - |
Principal Gilt IP (0.92%) occupied top slot in the long-term debt funds segment. ICICI Prudential Long Term (0.80%) and Birla Gilt Plus (0.77%) came in at second and third positions respectively. Another fund from ICICI Prudential Mutual Fund i.e. ICICI Prudential Floating (0.66%) also featured in the list.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Mth | 6-Mth | 1-Yr | 3-Yr |
| JM Balanced | 27.84 | 1.61% | 26.52% | 38.02% | 36.02% |
| Escorts Balanced | 55.14 | 0.32% | 22.19% | 29.68% | 35.81% |
| UTI Variable Investment | 17.53 | -0.33% | 10.79% | 12.16% | 16.14% |
| Birla Sun Life 95 | 209.77 | -0.68% | 20.00% | 36.29% | 36.00% |
| Canbalance | 31.45 | -1.08% | 16.60% | 22.13% | 18.83% |
JM Balanced (1.61%) led the pack in the balanced funds category, followed by Escorts Balanced (0.32%) and UTI Variable Investment (-0.33%).
At Personalfn, we have never been advocators of new fund offers (NFOs). Our philosophy is that NFOs being an untested entity must first be evaluated across various parameters over the long-term (at least 3 years) before investors consider investing in them. Meanwhile investors should opt for existing, well established funds with a proven track record over the long-term. Also, we believe that an NFO should be considered only if it offers an investment proposition that is distinct from existing funds.
This month we evaluated two funds; one we had refrained from recommending at the NFO stage, while the other was recommended by us during the NFO period.
Sundaram Rural India Fund (SIRF) was one of the more popular NFOs launched in 2006. Our view then was that investors should give the SRIF NFO a miss. Instead we had advised investors to invest in conventional diversified equity funds with proven track records. Our note on SRIF bears out our recommendation to investors during the NFO period.
Sundaram Rural India Fund: Yet to reap benefits
Our view on Fidelity Equity Fund (FEF) was that albeit an NFO, given Fidelity's track record in global markets and its team-based investment approach, investors could invest in it from an AMC (asset management company) diversification perspective. Again, our view on FEF (during its NFO period) is borne out by its performance so far.
Fidelity Equity Fund: So far so good
In our view, investors must regularly re-evaluate their NFO investments. A lot of NFOs were mis-sold and we frequently come across clients who request us to re-assess their NFO-heavy portfolios.
Our recommendation to them is straightforward -- sell the NFO and book your losses now before you lose more money on it; invest the redemption proceeds in existing funds with well established track records over the long-term.
By Personalfn.com
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