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Equity Funds Set All-Time Record

The category posted the highest quarterly returns in history, but were beaten by the banking fund category

The month of June has been an average one for mutual fund (MF) investors, but the quarter -- April to June -- as a whole has more than made up for the lag with a historically best performance being logged by the industry.

This is in no small measure due to the performance posted by the stock markets in the second quarter of 2009 – it has been enough to bring about the widest of smiles on the faces of investors across the spectrum of investment activity.

During this three-month period, the BSE Sensex gained a heartwarming 49.29 per cent, despite negative returns of 0.9 per cent in June. The Sensex was, however outscored by the BSE Small Cap Index (76.80%) and BSE Mid Cap Index (71.72%) during the quarter.

But in June, while the BSE Small Cap Index lost 4.12 per cent, the BSE Mid Cap Index did manage positive returns of 0.39 per cent.

The effect on MFs was electrifying, to say the least. The diversified equity category posted the highest quarterly returns in history, but were beaten by the banking fund category.

The equity diversified category posted returns of 49.26 per cent, which is the highest in any quarter in history, even going on to beat the 15-year-old record set way back in March 1994 – the markets were on a major high then. The same privilege, of setting historically best records, was enjoyed by investors of index funds (46.69 per cent), which broke a more than 5-year record, and banking funds (66.03 per cent), which broke a more than 4-year-old record, too.

To put things in perspective, the worst quarterly performance-ever by the diversified equity funds’ category was logged in the first quarter of 2008 when equity funds fell by 28.35 per cent.

These gains have enabled the recovery of a lot of losses. For an equity fund investor who had entered the market on December 31, 2007, his investment which had lost 57 per cent by the end of March 2009, would be down by just 36 per cent at the end of June 2009, helped by the gains of the quarter.

During the quarter, the rally was led by the realty, capital goods, metal, banks and consumer goods stocks. BSE Realty Index gained more than 105.48 per cent during the quarter, followed by BSE Capital Goods (97.92%) and BSE Metals (86.90%) while BSE FMCG, at the lower end of the spectrum, gained a modest 11.12 per cent during the same period.

June was, however, a dull month on the street as BSE Realty lost 16.04 per cent, followed by the BSE Oil and Gas (-9.88 per cent). Gains, however, accrued to stocks in the IT, FMCG, capital goods, consumer goods and healthcare sectors.

June may well be a pointer to investors’ attitude after they booked great returns in the months of April and May and just about average in June. Perhaps, this had to do with profit-booking, too high valuations as well as waiting for the Budget to give cues that investors could follow. The watered-down sentiment of investors also drove the Fast Moving Consumer Goods (FMCG) sector to gain somewhat. It is a defensive sector and comes to the forefront when sentiment turns negative and people are looking for stable gains. The FMCG funds with 6.92 per cent and Technology funds with 5.64 per cent gained the maximum during the month.

Among the diversified equity funds, the top gainers in June, were IDFC Small & Mid-cap Equity (6.78%), Tata Capital Builder (5.10%) and Sahara Mid-cap Fund (4.53%). At the bottom of the chart, the losers were led by Sundaram BNP Paribas Equity Multiplier (-6.07%) and Bharti AXA Equity Fund (-5.79%).

Amid all the gains that accrued to the equity funds, the markets also propelled the monthly income funds, which gave their historically best quarterly returns of 8.11 per cent breaking a 9 year record.

For the pure debt breed, the quarter was absolutely normal with funds neither losing nor posting any kind of flashy returns. During the quarter, medium-term debt funds gained 2.86 per cent while cash funds gained 1.11 per cent.

The gilt funds also remained humble during the quarter with the longer duration gilt fund gaining 2.67 per cent and the shorter duration gilt funds gaining 1.05 per cent. The 10 year GOI yield during the quarter rose from 6.70 per cent to 7.03 per cent during the month, but largely remained unchanged from the March end levels of seven per cent.

Gold ETFs, which invest in physical gold, once again turned losers (-2.08 per cent) after gains small gains posted in May. They lost 3.99 per cent during this quarter.

The quarterly performance has been a welcome sign of things to come. With the Budget around the corner, this magnificent performance may go on to drive sentiment upwards across the board.

Category Returns: Open-ended Mutual Funds
Category    1 Month    3 Months    1 Year    3 Years
Debt: Floating Rate Long-term   0.54   1.51   8.21   7.91
Debt: Floating Rate Long-term Inst   0.62   1.91   8.84   8.38
Debt: Floating Rate Short-term   0.40   1.27   7.92   7.85
Debt: Floating Rate Short-term Inst   0.36   1.15   7.66   8.08
Debt: Liquid Plus   0.45   1.33   7.81   7.85
Debt: Liquid Plus Inst   0.46   1.36   8.21   8.01
Debt: Medium-term   0.63   2.86   11.33   7.84
Debt: Medium-term Institutional   0.58   3.29   11.09   8.42
Debt: Short-term   0.59   2.27   11.33   9.06
Debt: Short-term Institutional   0.61   2.21   9.69   7.43
Debt: Speciality   0.52   1.46   9.05   7.03
Debt: Ultra Short-term   0.34   1.11   6.97   7.34
Debt: Ultra Short-term Institutional   0.37   1.22   7.78   7.76
Equity: Banking   0.50   66.03   26.69   30.39
Equity: Diversified   -0.09   49.26   5.32   9.57
Equity: FMCG   6.92   21.76   4.60   4.35
Equity: Index   -1.94   46.69   15.23   10.51
Equity: Pharma   2.44   32.94   0.30   6.07
Equity: Speciality   -0.76   29.17   -6.14   9.55
Equity: Tax Planning   -0.43   46.88   4.72   8.86
Equity: Technology   5.64   49.18   -18.89   -1.46
Gilt: Medium & Long-term   0.31   2.67   14.50   8.71
Gilt: Short-term   0.11   1.05   7.51   6.41
Gold ETF   -2.08   -3.99   10.98   -
Hybrid: Arbitrage   0.74   1.31   6.84   7.71
Hybrid: Asset Allocation   -0.63   36.35   11.24   6.23
Hybrid: Debt-oriented   0.80   10.76   9.83   7.72
Hybrid: Equity-oriented   0.23   35.00   9.44   9.55
Hybrid: Monthly Income   0.42   8.11   11.17   8.37
All returns as on June 30, 2009.
Returns over 1 year are annualised.