In absolute terms, the Sensex gained over 400 per cent since 2003. But it was not a smooth ride. We looked at the market upturns and downturns over this five-year period. Some funds have delivered impressively with a 50 per cent CAGR. Naturally, the entire industry benefitted. The assets under management (equity) rose from Rs 11,000 crore in January 2003 to close to Rs 1,69,000 crore by April 2008. During this period, we divided the performance of the stock market into five bull phases and five bear phases. During this period, we looked at the performance of individual funds (only equity funds were considered). In all the five crash period since 2003, barring the 12 per cent Sensex fall in October 2005, equity diversified funds on an average were able to hold firm and fell less than the Sensex. Even in the recent market meltdown, when the markets tanked by around 40 per cent (January 14 - March 18, 2008), the category of equity diversified funds fell less than the Sensex. Out of 228 schemes, 150 shed more than 30 per cent. But when the bulls overtake, the well-rated funds always manage to outperform the index. All in all, equity funds have been able to prove their worth in these phases.
The Bull Runs
If you look at the best performers in the bull run, it is rare that you see a fund repeated. Taurus Discovery Stock does stand out here with an appearance thrice while Taurus Starshare appears twice. Sundaram Select Focus and Magnum Global also make an appearance twice. Reliance Regular Savings Equity was the best performer once and also the worst. Just goes to prove that you cannot pick a fund based on short term performance. What was also noticeable was that no funds from the stables of Birla, Franklin Templeton, HDFC, Fidelity and DSPML made an appearance as the best funds of the bull runs.
The Bear Runs
Just as Taurus Discovery Stock and Taurus Starshare shone during bull runs, they were prominent in their appearance of worst performers during market crashes. In one of the market crashes, two funds that fell the least were the ones with international exposure: Fidelity International opportunities and Templeton India Equity Income.
Diversification does help!
The Resilient Players
Fund of Funds (FoFs) have impressed. They are always considered to be expensive when compared to any other equity diversified scheme. The reason being the higher expenses associated with them because in addition to the expenses of the FoF, all funds in which they invest have an associated expense. But when it comes to protecting the downside, FoFs have done an excellent job. In the past three major crash periods since 2006, they have been amongst the top performers in a crash (in terms of protecting the downside). But as the downside is limited, so is the upside. Birla Asset Allocation Aggressive for instance has returned 25 per cent CAGR in the past three years, whereas the equity diversified category returned 35 per cent in the same period. Going by the past performance and limited downside, FoFs seem to be a good option for conservative investors.
The stable & the unpredictable
When the bulls are on fire, you can be sure to find a few mid- and small-cap funds featuring in the best performers list. But a look at the data reveals that large-cap funds failed to figure in the top losers or gainers. But die-hard large-cap investors need not fret. On digging further we observed that there are large cap funds that consistently have proved their worth in various market conditions (see Large Cap Funds Outperform).
The erratic players
Sector or thematic funds will naturally outperform the diversified equity funds when their stocks are on a rise. But once the boom is over and the sector crashes or the theme is out of favour, they tend to fall hard
The volatile
Some funds like JM HI FI, Taurus Discovery Stock, Taurus Star Share and UTI Mid Cap have delivered fabulous returns when the going was good. But they prominently appear in the worst performers list when the stock market tanks. A classic example of a high-risk, high-return investment.
During the market turmoil in 2005, 2006 and 2008 funds like Taurus Starshare, Taurus Discovery Stock and UTI Mid Cap have always been amongst the top losers. These funds have a high concentration of assets in mid- and small-cap stocks, which are basically more risky and volatile.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
