Last week investors got all the confusing signals from the stock markets, part of that blame goes to Bernanke's (chairman of the US Federal Reserve) 'read between the lines' testimony to the Congress on inflation and interest rates.
Not surprisingly, it injected needless volatility in the domestic markets leading to wild oscillations. Eventually, the BSE Sensex slumped 5.54% to close at 10,086 points, while the S&P CNX Nifty settled at 2,945 points (down 5.70%). Midcaps fared even more dismally, with the CNX Midcap shedding 6.14% to close at 3,640 points.
Franklin Fixed Tenure Series VI - 60 months, is the latest capital guaranteed product on offer. Capital guaranteed funds are close-ended mutual fund schemes that invest predominantly in debt. The percentage of assets that are invested in debt is calculated based on the yield prevailing on the debt paper at the time of investing.
The debt component is structured in a manner that allows the fund to (at least) recoup the capital for investors at the time of redemption/maturity. A portion of assets that do not need to be set aside for the capital guarantee are invested in equities or held in cash. With the combination of the debt component (which can guarantee capital) and equities (that can act as a capital appreciation investment avenue), investors get the best of both worlds - growth and capital preservation.
The 10-Yr 7.59 per cent GOI (Government of India) paper is presently yielding 8.24% (July 21, 2006). We haven't seen the 10-Yr GOI yield consistently riding such high levels in quite some time now. Combine that with the attractive valuations of the stock markets post-correction. Investors who invest in both these markets today and are willing to wait patiently over the long-term (5 years in Franklin Fixed Tenure's case) are likely to clock superior returns at relatively lower risk.
Leading Diversified Equity Funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| UTI DIVIDEND YIELD | 12.00 | -3.77% | -0.74% | -11.24% | 15.27% | 6.78% | 0.16% |
| BIRLA INDIA GENNEXT | 10.94 | -4.12% | -1.71% | -13.11% | - | 6.85% | 0.05% |
| HDFC GROWTH FUND | 34.58 | -4.15% | 0.03% | -0.89% | 29.22% | 6.16% | 0.42% |
| BIRLA TOP 100 | 11.88 | -4.29% | -1.80% | -0.75% | - | 7.75% | 0.25% |
| GIC GROWTH II | 30.23 | -4.49% | -1.56% | -9.65% | 14.33% | 6.65% | 0.34% |
(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.)
UTI Dividend Yield (-3.77%) was the fund that witnessed the lowest erosion in returns over the week. It was followed by Birla Gen Next (-4.12%) and HDFC Growth Fund (-4.15%). On a positive note, all the five funds in weekly rankings posted lower losses than the BSE Sensex (-5.54%).
While capital guaranteed mutual funds have only recently made their presence felt in the country, one product that was launched with much fanfare in 1993, but hasn't quite received the recognition it deserves is the Exchange Traded Fund (ETF). Why haven't ETF's got their due recognition? Blame it on Morgan Stanley Growth Fund that gave investors the impression (which proved to be quite long-lasting) that ETFs are poorly managed and therefore always trade at a discount to their NAVs. As usual, the reality is far removed from perception. ETFs do not necessarily trade at a discount to their NAVs and their lower expenses make them a compelling investment for the cost conscious mutual fund investor.
Leading Debt Funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| LIC BOND | 19.57 | 0.69% | 1.03% | 2.86% | 5.91% | 0.30% | -0.54% |
| PRINCIPAL INCOME | 16.69 | 0.31% | 0.26% | 2.27% | 4.44% | 0.40% | -0.48% |
| CHOLA TRIPLE ACE | 23.58 | 0.24% | 0.18% | 0.81% | 2.54% | 0.28% | -1.24% |
| GRINDLAYS DYNAMIC BOND | 12.90 | 0.21% | 0.59% | 1.92% | 4.35% | 0.43% | -0.62% |
| RELIANCE INC | 22.3 | 0.21% | 0.31% | 1.61% | 4.15% | 0.42% | -0.31% |
Bond yields fell slightly this week. The yield on the 10-Yr GOI (Government of India) paper settled at 8.24% (down 11 basis points or 0.11% over last week). Falling bond yields translate into rising bond prices and by extension, rising debt fund NAVs.
LIC Bond (0.69%) pitched in with the best performance of the week. At a very distant second position was Principal Income (0.31%). Chola Triple Ace (0.24%) was in third place.
Leading Balanced Funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 1-Yr | 3-Yr | SD | SR |
| UTI VARIABLE INVEST ILP | 14.99 | -1.01% | 0.39% | 15.37% | 18.86% | 1.95% | 0.38% |
| BIRLA BALANCE | 22.1 | -2.77% | -1.65% | 17.74% | 28.44% | 3.73% | 0.35% |
| FT INDIA BALANCED | 25.27 | -3.20% | -0.03% | 21.27% | 33.09% | 4.25% | 0.35% |
| BIRLA SUN LIFE 95 | 135.5 | -3.30% | -3.26% | 17.32% | 34.85% | 4.25% | 0.42% |
| UTI US 2002 | 11.8 | -3.36% | -1.67% | 17.18% | 23.79% | 3.95% | 0.30% |
UTI Mutual Fund's balanced funds performed exceptionally as not one, but two of its funds made it to the weekly rankings. UTI Variable Investment (-1.01%) was in first position, while UTI US 2002, earlier US64, was in fifth position (-3.36%).
At present, markets offer several opportunities for all kinds of investors. There are capital guaranteed mutual funds for investors with a low to moderate risk appetite. There are well-managed diversified equity funds and balanced funds for the investor with considerable risk appetite. Then there funds like the Tata Capital Builder Equity Fund for the investor with the NFO (new fund offer) appetite. Watch this space for our coverage on the NFO.
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