It was a good week for mutual fund investors as the equity markets closed in positive terrain, thanks to the nearly 450-point upswing on the last day of the week.
The BSE Sensex posted a gain of 2.00% to close at 10,609 points, while the S&P CNX Nifty closed at 3,128 points (up by 2.79 per cent). Conversely, the CNX Midcap fell by 0.73 per cent and ended the week at 3,945 points. As has been a regular feature in recent times, markets experienced their fair share of volatility this week as well.
With all the excitement (read turbulence) in the equity markets, debt products have largely been given the miss by investors. The unconducive market conditions have not helped their cause either. Interest rates globally and in the Indian economy are on the rise.
The US Federal Reserve raised rates by a quarter percentage point (0.25 per cent) on Friday; in India, the benchmark 10 year government debt instrument hit a four year high of 8.20 per cent recently. While such a scenario could mean losses for existing investors in the debt funds segment, it simultaneously throws up attractive opportunities from a fresh investment perspective.
This week Personalfn's Research Team profiled 3 offerings from the debt funds segment that can prove to be the perfect foil for rising interest rates. Liquid funds, short-term debt funds and floating rate funds can serve a variety of needs from parking surplus funds to making long-term investments.
Leading Debt Funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| DEUTSCHE PREM. BOND | 11.67 | 0.15% | -0.96% | -0.34% | 1.37% | 0.73% | -0.39% |
| TATA DYNAMIC BOND | 11.55 | 0.15% | 0.42% | 2.30% | 4.95% | 0.33% | -0.43% |
| PRUICICI LONGTERM | 14.84 | 0.14% | 0.56% | 2.80% | 5.20% | 0.75% | 0.30% |
| RELIANCE INCOME | 22.21 | 0.13% | -0.08% | 1.45% | 3.37% | 0.45% | -0.39% |
| KOTAK FLEXI DEBT | 11.01 | 0.13% | 0.56% | 3.33% | 6.22% | 0.07% | -0.65% |
(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.)
The 10-Yr 7.59 per cent GOI yield closed at 8.11 per cent (June 30, 2006), 1 basis point above the previous weekly close. Bond yields and prices are inversely related, with rising yields translating into lower bond prices and net asset value for debt fund investors.
Deutsche Premier Bond (0.15 per cent) and Tata Dynamic Bond (0.15 per cent) shared the top position in the debt funds segment. PruICICI Long Term (0.14 per cent) occupied second position.
Rising yields have prompted fund houses to launch a number of fixed maturity plans offering attractive returns. Broadly speaking, FMPs are akin to assured return products within the realm of debt funds. The keyword here is "akin to" i.e. the indicative yield on FMPs is just that - indicative and not an assured one.
A minor deviation from the stated yield cannot be ruled out. FMPs are only open for subscription for shorter time periods during the new fund offer stage. Fund houses utilise the corpus to invest in debt instruments and lock-in the targeted yield.
Leading Diversified Equity Funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 6-Mth | 1-Yr | 3-Yr | SD | SR |
| PRINCIPAL LARGE CAP | 13.27 | 2.63% | 15.49% | - | - | 7.97% | 0.25% |
| ING VYSYA EQUITY | 25.71 | 2.23% | 2.76% | 25.97% | 38.44% | 5.71% | 0.38% |
| FRANKLIN BLUECHIP | 100.38 | 1.98% | 10.70% | 49.38% | 52.52% | 6.23% | 0.43% |
| HSBC EQUITY | 54.69 | 1.98% | 4.39% | 49.04% | 60.29% | 6.52% | 0.40% |
| DSP ML TOP 100 | 43.56 | 1.94% | 11.78% | 51.62% | 52.68% | 6.22% | 0.46% |
Diversified equity funds drew from the conducive conditions in the equity markets. Expectedly, predominantly large cap funds featured among the top performers. Principal Large Cap (2.63 per cent) surfaced as the top performer. ING Vysya Equity (2.23 per cent) and Franklin India Bluechip (1.98 per cent) occupied second and third positions respectively.
Leading Balanced Funds
| Balanced Funds | NAV (Rs) | 1-Wk | 6-Mth | 1-Yr | 3-Yr | SD | SR |
| LIC BALANCE | 37.69 | 1.22% | 3.48% | 31.50% | 25.78% | 4.90% | 0.32% |
| HDFC BALANCE | 26.42 | 1.11% | 4.48% | 27.64% | 30.59% | 3.95% | 0.42% |
| PRUICICI BALANCE | 28.69 | 1.09% | 6.42% | 38.27% | 38.03% | 4.62% | 0.48% |
| KOTAK BALANCE | 21.42 | 0.97% | 12.12% | 42.85% | 42.03% | 4.99% | 0.55% |
| ESCORTS BALANCE | 39.58 | 0.84% | 9.44% | 40.54% | 41.47% | 4.78% | 0.51% |
LIC Balance (1.22 per cent) emerged as the top performer in the balanced funds segment followed by HDFC Balance (1.11 per cent). PruICICI Balance (1.09 per cent) also featured in the list.
Investors today have to deal with an ever-growing number of investment options. And the uncertain market conditions will not make their choice any easier. A situation like this necessitates the presence of a sound investment advisor. While the incidence of attractive investment options is a welcome sign, there is a pertinent need of quality advice to be able to capitalise on and profit from those opportunities.
Our advice - be associated with an advisor whose core competence is offering advice and investment solutions. Such an advisor can prove to be the vital link that will help you achieve your financial goals and obligations.
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