While equity funds have left their investors in the lurch, it has been Manna from heaven for investors in debt funds. With returns coming in thick and fast, the diverse category of debt funds has given its equity counterparts a run for their money.
Bonds gained amid ample liquidity. Medium-term Bond Fund's went up by an average 4.51% or an annualised 18.03% for the quarter ended June 30, 2001! Bonds surge on the back of interest rate cuts and this has been the prime reason behind the stellar debt category numbers. However, the lowering of interest rates will eventually bring down the fund yields in line with those offered by other fixed income products. Thus, bond funds essentially remain attractive for what they basically offer - marginally higher returns than most fixed income options with higher liquidity. So, consider these funds ignoring the recent past, since abnormal returns will not last.
Medium
Term Funds
Debt Funds
An impressive gain of 4.51% from this
35-fund category in the last quarter has been largely possible with an enhanced
allocation to Government securities. With their high liquidity, these
instruments gain the maximum in times of falling interest rates.
Even while investors are flocking to debt funds in hordes, the law of averages has started to catch up with larger-sized bond funds. There has been a slowdown in returns from funds with asset-base of over Rs 1,000 crore. Clearly, a bloating size in a relatively illiquid market impacts the fund's ability to follow a nimble-footed strategy. Also, funds run the risk of coming under big-ticket redemption in the event of returns going awry. This keeps fund managers on tenterhooks and they refrain from taking any undue risk.
Grindlays Super Saver Income , however has been an exception to the rule. Launched in July 2000, the fund has emerged a topper in the last quarter despite a whopping Rs 1025 crore under its belt. With a 3-D strategy that tracks economic fundamentals, market fundamentals and market valuation, the fund has posted an impressive return of 5.32% in the last quarter. The performance notwithstanding, the fund is yet to face an adverse market.
While there are no losers in this category, funds that have
relied solely on coupon income without any active management have lagged their
peers. UTI Bond
Fund , which has invested its Rs 1158 crore asset-base in corporate
instruments of varying asset quality, is a case in point.
Leaders and
Laggards in this category
Gilt Funds
With their investments dedicated to
Government Securities, gilt funds are like sectoral funds in the bond league.
Armed with high liquidity, they instantly reflect any changes in the interest
rate outlook. With bonds surging amidst softening of interest rates, the
category of medium-term Gilt funds has posted an average gain of 5.94% in the
last quarter. The newly launched SBI Magnum Gilt Fund
Long-term (G) has arrived with a bang, gaining 7.17% in the last quarter to
emerge a category topper.
(Leaders and
Laggards)
Leaders and Laggards in this category
Debt with marginal equity
Popularly known as
MIPs, these funds invest predominantly in debt instruments while taking up to
with 15 % exposure to equity instruments. However, funds have started pitching
portfolios separately with some simply staying away from equity to align with
investors' risk return spectrum.
Templeton MIP-M , which holds pure debt portfolio to facilitate regular payouts, makes it to the topper's league with a gain of 4.28%.
On the other hand, Alliance MIP firmly
holds on to its equity exposure at 6.7% and seeks long term capital
appreciation. With this, the fund's short-term performance stands dampened with
a three-month gain at 3.41%.
Leaders and Laggards in this category
Short term Funds
Debt Funds
Short-term funds are good substitutes
for bank deposits if you are looking at a parking lot for your cash surplus.
With a return of 2.0934% in the last quarter and enhanced liquidity, these funds
can be considered if you are looking at a short-term investment horizon. Tata Liquid-D
tops this category with a return of 2.6777%.
Leaders and Laggards in this category
Gilt Funds
This class of funds invests in
treasury bills and Government securities with short- term maturity. While they
are relatively insulated from interest rate gyrations due to their short-term
maturity focus, it is still better to consider these funds for a longer time
frame. Birla
Gilt Plus Liquid Plan tops its category with a return of 3.8377%.
Leaders and Laggards in this category
Debt Speciality
This non-comparable category
comprises of all funds whose investments are linked to certain maturity. These
funds buy into securities maturing on a particular date and hold on till
maturity. Thus, these funds insulate investments from interest rate volatility
and offer an implicit assured return.
Leaders and Laggards in this category