With all the euphoria in the equity markets, there seems to be a mad rush to invest in diversified equity funds. Equity funds are touted as the next best thing to stock investments.
On the other hand plain vanilla income funds seem to have lost favour with investors, following a bearish phase in the debt markets. In confusing times like these let's take a look at how hybrid instruments like balanced funds measure up. Balanced funds purport to provide stability with growth.
Most balanced funds maintain a roughly 60-40 allocation in favour of equity; thus investors are given an opportunity to experience growth with a fair degree of stability on account of the debt component.
Leading Balanced Funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | 3-Yr | Incep. | SD | SR |
| UNIT SCHEME 95 G | 30.63 | 4.56% | 13.94% | 46.54% | 59.16% | 16.47% | 20.04% | 4.36% | 0.48% |
| ALLIANCE 1995 G | 79.38 | 4.25% | 10.96% | 49.88% | 68.05% | 12.96% | 27.56% | 4.63% | 0.47% |
| HDFC BAL G | 16.5 | 4.12% | 9.31% | 42.30% | 55.40% | 17.90% | 16.99% | 4.72% | 0.42% |
| ESCORTS BAL G | 20.92 | 3.95% | 8.17% | 51.79% | 63.67% | NA | 31.20% | 4.77% | 0.52% |
| CANGANGA | 13.38 | 3.88% | 13.18% | 57.09% | 69.84% | 9.56% | 5.46% | 5.80% | 0.34% |
(Standard deviation indicates by how much the values have deviated from the mean of the values. It measures by how much the investor has diverged from the mean return either upwards or downwards. It highlights the element of risk associated with the fund.)
Clearly balanced fund investors have had a decent run at the markets. What makes this performance even more impressive is that these returns have been delivered at relatively lower risk levels since approximately 40 per cent of the corpus is invested in income funds.
For investors who desire better returns than those offered by income funds with moderate to high risk levels, balanced funds are the right choice.
But this is one aspect of the story; balanced funds play a very vital role in overheated markets like the present one. They offer investors the opportunity to participate in the markets while the 30-40% debt component insulates investors against bouts of volatility.
Balanced funds delivered impressive returns this week as well. Unit Scheme 95 (4.56 per cent) topped the balanced funds category followed by Alliance 1995 (4.25 per cent). Category leader HDFC Prudence (2.78 per cent) had a mediocre week.
Leading Diversified Equity Funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | 3-Yr | Incep. | SD | SR |
| ALLIANCE FRONTLINE EQ. | 18.47 | 7.04% | 16.03% | 55.98% | 83.35% | NA | 74.04% | 5.94% | 0.71% |
| ALLIANCE EQUITY G | 54.17 | 6.03% | 15.08% | 80.50% | 112.32% | 13.50% | 36.61% | 6.69% | 0.48% |
| FRANKLIN PRIMA FUND G | 76.43 | 5.39% | 21.96% | 91.40% | 168.88% | 52.87% | 22.34% | 8.43% | 0.67% |
| SUNDARAM SELECT MIDCAP | 25.28 | 4.98% | 15.61% | 98.07% | 148.60% | NA | 95.80% | 7.37% | 0.72% |
| GIC FORTUNE 94 | 15.06 | 4.92% | 20.32% | 75.74% | 114.37% | 30.98% | 5.31% | 8.97% | 0.52% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)
Diversified equity funds table had a gala time thanks to the soaring markets. Top performing funds ranged from 4.92 per cent to 7.04 per cent. Alliance Frontline Equity emerged as the top performing fund with a weekly return of 7.04 per cent, followed by Alliance Equity (6.03 per cent). Yet again funds with predominant midcap holdings made it to the best performers list.
Considering the sharp run up in equity markets, investors should look at a various factors to understand the true picture. While comparing equity funds, investors should look at returns over a longer horizon, standard deviation of returns and risk adjusted returns to make an informed choice.
Leading Income Funds
| Income Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | Incep. | SD | SR |
| JM INCOME G | 26.28 | 1.01% | 0.62% | 4.24% | 9.31% | 12.09% | 1.49% | 0.32% |
| LIBRA BOND G | 12.03 | 0.92% | 1.49% | 4.03% | 2.98% | 8.20% | 2.00% | 0.03% |
| GRINDLAYS DYNAMIC BOND IP G | 11.92 | 0.92% | 0.31% | 4.32% | NA | 10.09% | 1.62% | 0.34% |
| GRINDLAYS DYNAMIC BOND | 11.88 | 0.91% | 0.28% | 4.12% | 10.73% | 12.32% | 1.82% | 0.24% |
| CANCIGO | 13.29 | 0.84% | 1.37% | 10.12% | 15.98% | 12.21% | 1.65% | 0.39% |
Debt funds seem to be gradually recovering from the after shocks of the monetary policy. The bench mark 7.27 per cent GOI yield closed at 5.15 per cent (December 19, 2003), 2 basis points below the previous close. Markets were flush with liquidity and mutual funds bought aggressively during the week.
JM Income (1.01 per cent) surfaced as the weekly topper. Libra Bond and Grindlays Dynamic Bond IP shared the second spot with weekly returns of 0.92 per cent.
Having crossed the 5,500 points mark, equity markets are at record highs. Where the markets are headed is anyone's guess. Despite the strong bullish sentiment investors would do well to exercise prudence while investing. Hybrid instruments like balanced funds have never made more sense!
