The first half of the current fiscal has come as a bonanza for the unsung family of short-term debt funds and their fund managers. With equities hammered and debt turning topsy-turvy, cash funds have provided the maximum return on investment for the six months ended September 30. Clearly, in times of uncertainty, cash is the uncrowned monarch!
Cash funds are hardly talked about and are not fancied by most investors since returns here come at a painstakingly slow pace, unlike bond or equity funds with flashy gains. Besides, cash funds do not enjoy a mass appeal since most of them have a high minimum investment and are targeted at high networth investors and corporates. During the period, the category of short-term debt funds has given an average return of 4.26 per cent. The uncertain scenario has also seen investors stash their investments in cash funds, as is evident from a sharp jump in their sizes. On the other hand, medium-term debt funds are a distant second with an average appreciation of 3.49 per cent - a yawning gap of 77 basis points. The short-term investments of cash funds have helped them survive the hardening of interest rates in the first half. Besides, with sizeable holding in cash, these funds have also made a killing due to high repo and call rates on account of a skittish rupee. The other member of the short-term family, short-term government security or gilt funds have also raced ahead of long-term gilt funds with an average difference in returns at a whopping 1.28 per cent. While short-term gilt funds have returned an average 4.14 per cent, their long-term compatriots are way behind, with a return of 2.85 per cent.
Cash funds have not only beaten debt funds with a longer maturity profile. The tortoise of the fund industry has also galloped past the fancied equity funds. In fact, it has been a perilous six months for the equity fund investor with sharp losses on investments. None of the 92 funds in the Value Research category of equity funds have posted a positive return. No surprises here as technology funds have dropped like nine pins and suffered the maximum erosion among equity funds. A technology fund has lost an average 37.27% in the first half. On the other hand, the diversified basket of equity funds with a tech-heavy portfolio has slipped by an average 27 per cent.
While cash funds have highlighted their utility as a short-term parking space in times of a direction-less environment, it is back to equity and bond funds if you want to be a long-term winner with your investments.