With bond yields on a surge, asset management companies are taking this opportunity to launch FMP (fixed maturity plans) with very attractive yields. The 10-Yr bond yield (which is the benchmark) is reigning at about 7.40 per cent. Given that there is little difference between the yield on a 1-yr paper and that on a 10-yr paper (i.e. a flat yield curve) right now, investors have the opportunity to invest in high-yielding debt paper of shorter duration. Since they are relatively riskier, the yield on corporate paper is usually about 1.00-1.50 per cent (about 100-150 basis points) higher than that on government paper.
That gives AMCs the opportunity to launch short-term and long-term FMPs at post-tax yields exceeding 8.00 per cent. The fact that the expenses involved in managing an FMP are very low (usually about 0.20-0.30 per cent), makes the yield even more attractive.
Leading Debt Funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| ESCORTS INCOME PLAN | 21.62 | 0.29% | 0.15% | 1.65% | 4.10% | 0.20% | -1.13% |
| PRINCIPAL INCOME | 16.42 | 0.21% | 0.51% | 1.49% | 4.67% | 0.49% | -0.67% |
| DEUTSCHE PREM. BOND | 11.67 | 0.20% | -0.54% | -0.37% | 4.38% | 0.71% | -0.50% |
| KOTAK BOND | 18.33 | 0.15% | 0.36% | 1.75% | 4.58% | 0.62% | -0.50% |
| LIC BOND | 19.08 | 0.15% | 0.11% | 2.25% | 4.76% | 0.44% | -0.74% |
The benchmark 7.38 per cent 2015 GOI yield closed at 7.37 per cent (March 24, 2006), 4 basis points (0.06 per cent) below the previous weekly close. Bond yields and prices are inversely related with rising yields translating into lower bond prices and net asset values for debt fund investors. Escorts Income Plan (0.29 per cent) was the leader with Principal Income (0.21 per cent) in second position.
Leading Diversified Equity Funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| KOTAK CONTRA | 13.38 | 3.22% | 8.68% | 22.95% | - | 4.38% | 0.57% |
| UTI THEMATIC MID CAP | 23.89 | 3.11% | 9.14% | 36.51% | 86.20% | 5.01% | 0.76% |
| KOTAK 30 | 58.56 | 3.03% | 10.91% | 34.82% | 84.53% | 6.27% | 0.48% |
| UTI - DYNAMIC EQUITY | 34.09 | 2.46% | 5.15% | 16.75% | 51.65% | 5.45% | 0.57% |
| KOTAK MID-CAP | 19.15 | 2.40% | 13.44% | 37.14% | 93.39% | 5.02% | 0.92% |
(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.)
Equity funds from Kotak Mutual Fund hogged the limelight with 3 of them featuring in the weekly rankings. Kotak Contra (3.22 per cent) was the leader followed by UTI Thematic Fund (3.11 per cent). Kotak 30 (3.03 per cent) and Kotak Mid Cap (2.40 per cent) were the other two equity funds from Kotak Mutual Fund that were in the limelight.
From the barrage of NFOs (New Fund Offers) that keep hitting the mutual fund industry regularly, there are a few that do manage to catch the attention of our Mutual Fund Research Team. Templeton India Equity Income Fund is one such NFO. The fund will pursue the value style of investing with an eye on high dividend yield stocks. Of course, that is not what caught our attention. What we like most about the fund is its mandate to invest a portion of its assets in international stocks thereby allowing domestic investors to diversify their investments across several economies and currencies.
Leading Balanced Funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 1-Yr | 3-Yr | SD | SR |
| KOTAK BALANCE | 26.43 | 2.45% | 8.27% | 67.68% | 52.37% | 4.48% | 0.65% |
| ING BALANCE | 16.72 | 2.26% | 6.63% | 46.41% | 37.87% | 4.14% | 0.40% |
| SUNDARAM BAL | 29.43 | 1.34% | 5.76% | 45.03% | 41.86% | 3.14% | 0.57% |
| HDFC PRUDENCE | 95.11 | 1.26% | 7.42% | 62.93% | 57.72% | 3.95% | 0.64% |
| CANBALANCE | 27.41 | 1.22% | 7.11% | 33.12% | 26.35% | 3.11% | 0.27% |
Expectedly, balanced funds benefited from rising stock prices and stable debt markets. Kotak Balance (2.45 per cent) and ING Balance (2.26 per cent) were in the forefront. Sundaram Balanced (1.34 per cent) was a distant third.
Coming back to FMPs and the jaw-dropping yields on offer, we have some words of caution for investors. The yield 'promised' by AMCs is only indicative. The actual yield could be a little different. For instance, if the AMC has indicated that it will get a yield of 8.10 per cent, then do not be surprised if the actual yield is 7.90 per cent. So long as the yields are only slightly off-mark it shouldn't really be upsetting
Some AMCs have indicated that the yields on their FMPs could go as high as 8.50 per cent. In our view, the fund may have to take on above-average risk (by investing in AA paper for instance) to get a yield that high. Ultimately, higher risk has the potential to deliver higher returns. However, investors must consider that investing in lower quality paper is tantamount to a potential capital loss.
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