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Mutual Funds in Year 2001

Year 2001 proved to be a wild experience for mutual fund investors. On one hand was the inevitable Unit Scheme '64 crisis, tumbling equity market pulling down equity funds and the growing pain of tech

Year 2001 proved to be a wild experience for mutual fund investors. On one hand was the inevitable Unit Scheme '64 crisis, tumbling equity market pulling down equity funds and the growing pain of technology fund investors with their free fall through the year. On the brighter side, year 2001 was clearly the year of bond funds giving equity kind of returns backed by successive rate cuts and series of bond fund innovations providing investors a wider choice for all possible income goals. And at the end of the year, things look grim without a ray of hope with looming fear of war, sluggish economy and sliding markets.

Bond Funds: Shining Bright
Year 2001 was clearly the year of bond funds with the top fund category being the Medium & Long-term Gilt funds which delivered a handsome 25.38% return through December 31, 2001, followed by medium-term debt funds which also gave 15.9%. Even the short-term bond funds proved rewarding given that they make idle cash work harder. The short-term gilt fund gave 11.38% and the short-term debt fund posted a 8.17% percent return beating the short-term bank rate by a wide margin. These sweet returns lured investors into these funds. In fact the total asset of the open-end bond funds has more than doubled to cross Rs 32,000 crore.

These returns were primarily driven by three rate cuts announced by the central bank. And the funds that were able to aggressively leverage this clear trend with their medium-sized asset base topped the category charts. Apart from government securities, the funds' took a flight to low quality instruments to add that extra bit to the returns. At the same time the year witnessed the downfall of mighty financial institutions - like IFCI and credit downgrade of once mighty debt IDBI, which brought to the forefront the credit quality issues in the medium-term debt funds.

Another Tough Year for Equities:
The pain of equity and technology fund investors only grew through the year 2001. While the average diversified equity fund fell by 21 per cent, the racy technology funds have slipped by 37 per cent in 2001. While the brief rally triggered by street beating second quarter performance did pull crowds, but the attacks on parliament punctured the gains.

As technology stocks remained downhill, the tech heavy equity funds gained diversity selectively with positions in healthcare and cement stocks. But these die-hard tech believers have only turned soft as they maintain a modest – an average 10 per cent allocation to technology stocks. The other noticeable trend was the equity portfolio shift to large cap stocks. Almost all equity funds weeded mid and small-cap in favour of large-cap stocks. In tough times, the preference was understandable given the liquidity in large-cap stocks. Despite these moves, none of the equity fund was able to escape fall.

The distaste for technology stocks was not limited to equity funds only. Even the technology funds moved to non-tech holdings besides sitting on a heap of cash. The scared technology funds have almost dumped their mid and small cap position to get concentrated in the heavyweights -- Infosys, Wipro, Satyam. On an average these three account for 26 percent of every technology fund portfolio. The fear of technology stocks scare still shows, with over 10 per cent cash position even now.

For equities, year 2001 can at best be a forgettable year.

Debt Funds: Leaders All the way
  Gilt Medium & Long-term  25.38
  Debt: Speciality 16.11
  Debt: Medium-term 15.99
  Gilt: Short-term 11.38
  Debt: Money Market  8.43
  Debt-Short term 8.17
  Debt With Marginal Equity 6.72
 
value

   

Equity Funds : Once Again Losers
  Equity Funds: Infotech/Technology  -36.78  
  Equity-Tax Planning  -22.63 
  Equity Funds: Diversified -20.82 
  Equity Funds: FMCG -16.94 
  Equity Funds: Speciality -16.54 
  Equity Funds: Pharma -10.27 
  Balanced Funds -6.64 
 
value