In the Indian context, investing in actively managed mutual funds is more popular compared to investing in index funds. The reasons are not hard to fathom -- the track record of index funds proves that they have outperformed actively managed funds only across shorter time frames of 12 months or thereabouts.
Over the long term (3-5 year time frame) diversified mutual funds are supreme. In developed economies like the United States, index funds are popular among mutual fund investors for two reasons -- performance and cost-efficiencies. US stock markets are more efficient and research on companies is widely disseminated.
This makes it all the more difficult for actively managed funds to unravel investment opportunities. So most investors find it worth their while to go with an index fund since a majority of actively managed funds struggle to outperform the index in any case. Also, no-loads and lower recurring fees endear index funds to investors over there.
In India, index funds are found wanting in both aspects -- long-term performance and cost efficiencies. When they turn around on both these parameters, we could see a change of mindset on that front.
Another reason why index funds are so popular in US is because they are straightforward. Investors know exactly what they are getting into and investment advisors have little scope to mis-sell an index fund. The mis-selling usually happens when the investment advisor is out to pocket his commission at the cost of the investor's interest.
In India, mutual funds agents are not just out to pocket the commissions, they are keen to bag all the prizes doled out in mutual fund contests. So the risk of the mutual fund investor being saddled with the wrong investment could be pretty high, depending of course, on the number of active mutual fund contests.
The BSE Sensex posted a weekly gain of 1.10% to close at 13,429 points, while the S&P CNX Nifty appreciated by 0.47% to end at 3,853 points. The CNX Midcap remained unchanged to close at 4,968 points.
Leading open-ended diversified equity funds
| Diversified Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-year | SD | SR |
| ABN AMRO Equity | 25.88 | 3.71% | 7.70% | 16.73% | 48.92% | 7.13% | 0.45% |
| HSBC India Opportunities | 27.05 | 3.63% | 10.23% | 16.49% | 56.78% | 7.18% | 0.44% |
| LIC Equity Plan | 20.29 | 3.36% | 5.04% | 13.81% | 31.99% | 7.01% | 0.26% |
| Fidelity Special Situations | 12.37 | 3.35% | 8.11% | 25.34% | - | 5.91% | 0.68% |
| HSBC Advantage India | 12.25 | 3.31% | 7.31% | 15.13% | - | 8.74% | 0.13% |
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.
ABN AMRO Equity (3.7%) was the leader over the week, followed by HSBC India Opportunities (3.63%) and LIC Equity (3.36%).
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-year | SD | SR |
| Birla Sun Life Income | 25.44 | 0.78% | 1.55% | 4.93% | 7.04% | 0.38% | -0.13% |
| Templeton Inc Builder | 24.95 | 0.49% | 1.21% | 3.31% | 3.56% | 0.42% | -0.52% |
| PruICICI Income | 21.53 | 0.40% | 1.18% | 4.90% | 6.01% | 0.45% | -0.22% |
| Birla Income Plus | 30.25 | 0.39% | 0.77% | 3.66% | 5.41% | 0.28% | -0.44% |
| DWS Premier Bond | 12.17 | 0.33% | 1.02% | 3.37% | 3.34% | 0.70% | -0.16% |
Birla Sun Life Income (0.78%) led the weekly debt fund rankings. Templeton Income Builder (0.49%) was a distant second; PruICICI Income (0.40%) was third. Clearly, conventional long term debt funds have made a comeback of sorts after relegating the leading position to flexi style debt funds and floating rate funds.
The 10-year 7.59% GOI yield closed at 7.53% (November 17, 2006), 7 basis points below the previous weekly close. Bond yields and prices are inversely related, so falling yields translate into higher prices and net asset values (NAVs) for debt fund investors.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-year | SD | SR |
| Tata Balanced | 47.80 | 1.85% | 6.20% | 11.08% | 40.73% | 5.08% | 0.44% |
| Sundaram Balance | 31.54 | 1.39% | 3.48% | 6.48% | 34.06% | 4.29% | 0.38% |
| FT India Balanced | 31.72 | 1.32% | 4.13% | 14.30% | 39.24% | 4.58% | 0.44% |
| DSP ML Bal | 37.17 | 1.32% | 4.08% | 13.33% | 40.56% | 4.57% | 0.46% |
| JM Balanced | 22.23 | 1.27% | 5.08% | 11.87% | 45.63% | 5.01% | 0.44% |
Tata Balanced (1.85%) ended the week with a significant lead over the competition. Sundaram Balance (1.39%) was a distant second, followed by FT India Balanced (1.32%).
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