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Tumbling Markets Hit Mutual Funds

Most fund categories showed losses for October as equity markets fell

For the second year in a row, October has turned out to be the worst month for equity investors. As in 2008, this year too the markets have tanked in the month, with Sensex alone shedding 7.18 per cent. However, unlike last year, Sensex' gains are not in red for the 10 months of 2009 that have passed as its gains are still intact at a comfortable 64.77 per cent.

The best performing index of the year with a 167.34 per cent gain was BSE Metal, but it was down barely by 1.66 per cent for October. Curiously, the year's worst performer, BSE FMCG, was the star of this month with a 9.05 per cent return (only index to remain in green). And, after the Reserve Bank of India's ominous report, tightening credit norms, came in there was no doubt in anyone's mind who was going to be the worst performer of the month, BSE Realty. It was down by 15.13 per cent, although its year-to-date (YTD) return is still positive at 68.29%.

At least this time, unlike last year, the foreign institutional investors (FIIs) cannot be held responsible for the October pull-back by markets. FIIs were very much present in the markets, but their purchases (net) were nowhere near the levels seen last month. In September, 2009 they invested Rs 19,939 crore in the markets while it was just Rs 7,568 crore in October.

Mutual funds continued to be the party poopers, for the second consecutive month by remaining net sellers in the markets. In October they sold close to Rs 5,200 crore of stocks, making them net sellers for the whole of the year, having pulled out Rs 2,429 crore of their investments from the markets. The effect on the various fund categories has been mapped below:

Diversified

This is the most-populated category that we have and it showed some spine in trying conditions. The category was better-off than the broader market, recording a fall of just 4.48 per cent. But with this fall it broke the trend of positive returns of the last three months. But compared to October, 2008, when the category was down by a massive 24.30 per cent, this would not give sleepless nights to the investors. For the whole of the year (2009), the average return of the category is still in positive territory at 66 per cent. 53 per cent of the funds, or 132 funds, were able to outperform the category.

But there was just one fund, out of 248, that managed to retain its presence in the green in October - Birla Sun Life MNC, which gave a return of 1.15 per cent. The worst-performing fund turned out to be DBS Chola Global Advantage with a negative return of 12.08 per cent.

The biggest fund, Reliance Growth in the category was barely able to outperform the category with a 4.34 per cent fall. While the best fund among the big 10 (by size), HDFC Equity, fell 1.32 per cent, and the worst was ICICI Prudential Infrastructure having shed as much as 5.96 per cent.

Tax-Planning

The second-biggest category that we have, ended the month with a 4.51 per cent fall, yet its tally for the whole year is still 63.66 per cent gain. Exactly half of the funds in this 36-fund category were ably to out-perform the category average, with the best being down by just 1.20 per cent and the worst falling by as much as 9.73 per cent.

Index

The best index fund turned out to be Kotak PSU Bank ETF, but even then its return was a negative 0.61 per cent, while the worst was Shariah BeES fund with a fall of 7.98 per cent. UTI Nifty Index, the biggest index fund, tracking Nifty 50, was able to match Nifty's return of -7.33 per cent.

Sector Funds

Among the sector funds, as expected, three FMCG funds were the best-performing funds with an average return of 6.40 per cent (YTD: 54.64%). The worst turned out to be the Technology funds with an average fall of 4.38 per cent. Incidentally, Technology funds are also the best-performing sector funds this year with an average return of 85.05 per cent. The two big funds outside the equity diversified category, Reliance Diversified Power Sector Retail and Reliance Natural Resources Retail, were not much better off, having registered a fall of 2.75 per cent and 3.74 per cent respectively.

Balanced

These are the funds which invest up to 35 per cent in debt and around 65 per cent in equity. They were a little better off than the pure equity funds with an average category fall of 3.59 per cent (YTD: 44.54%). Of the 33 funds, 18 outperformed the category and rest were below the category average, with the worst fund, LICMF Children Fund, giving a negative return of 8.16 per cent.

Arbitrage

These funds invest both in the cash and derivatives segments to lock-in gains. Their low volatility is the main attraction. They gave a positive return of 0.50 per cent return this month compared to 0.37 per cent last month. Till the end of October, 2009, this category has given a return of 4.15 per cent.

 

Falling Fortunes
        Return (%)    
Category/Benchmarks   1-Month   1-Year   YTD
Equity: Diversified   -4.48   69.09   66.06
Equity: Index   -6.34   67.91   60.86
Equity: Tax Planning   -4.51   66.21   63.66
BSE 100   -6.69   68.21   -6.69
BSE 200   -6.30   71.33   -6.30
BSE Sensex   -7.18   62.40   -7.18
S&P CNX 500   -6.45   73.12   -6.45
S&P CNX Nifty   -7.32   63.28   -7.32
Equity: Technology   -4.38   62.73   85.05
BSE IT Index   -3.18   54.63   98.64
Equity: Pharma   0.68   81.82   69.43
BSE Healthcare Index   -0.61   57.53   47.57
Equity: FMCG   6.40   64.02   54.64
BSE FMCG Index   9.05   56.07   41.34
Equity: Banking   -3.22   76.35   64.93
BSE Bankex   -5.27   86.30   71.16
Equity: Speciality   -3.17   56.07   48.50
Hybrid: Equity-oriented   -3.59   48.75   44.54
Hybrid: Arbitrage   0.50   5.71   4.15
VR Balanced   -3.85   44.63   39.43
Hybrid: Debt-oriented   -0.49   19.35   15.56
Hybrid: Asset Allocation   -2.87   39.43   39.14
Returns as on 31st October, 2009