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Equity Funds Make A Comeback

The first quarter results of 2002 show that the high performers of the last fiscal, the bond funds, seem to be on the downslide. And equities are beginning to look up. A trend reversal may well be under way.

The beginning of the financial year is a good time to recap the performance of funds. And the results of the first quarter of calendar 2002 show that the high performers of last fiscal seem to be on the downslide.

Our performance review at this month-end revealed some interesting figures. Financial year 2001-02 was a great year for debt funds. An average bond fund turned in returns way above those of the average equity fund. The bond funds, 32 in all, posted an average return of 15.45 percent in the last fiscal. Equity funds also inched back into positive territory. 51 equity-diversified funds gained an average 8 percent. Not a big gain in absolute terms, but a significant change from the negative returns of 2000. Of course, the real blockbuster performance came from the government bond funds, up 25.49 percent through 2001-02.

The picture changes when you look at the first quarter results of this calendar. Equity funds had something to cheer about after a long time: The average equity fund gained 12.70 percent. Last year, during the same period they lost 16.57 percent. And the bond funds have slowed down a bit ­ they were up 3.21 percent, a shade less than the 3.61 percent gain in the same period last year. Even the government bond funds showed decelerating returns, with a 5.23 percent gain this quarter against the 5.40 percent they toted up in the first quarter of 2001.

The numbers point to a possible trend reversal. Equities are beginning to look up, while bond funds are slowly losing ground. And going by the interest rate outlook, bond fund returns could keep on shrinking. Equity, as ever, remains unpredictable. Things could get brighter, going by the low market valuations, the possibility of a strong earnings season and the movement in disinvestment. If you have been sitting out the action in equities, it may be time to think about long-term participation. The right way of course, is through a disciplined regular investment plan in a well-diversified fund.

Meanwhile, funds got more investor friendly. Some dropped their loads, while others reduced their minimum-investment requirements. IL&FS Mutual Fund has removed the exit load from two of its equity funds -- Growth & Value and IL&FS eCOM Fund. LIC Mutual also tinkered with the load of two funds -- LIC GSF and Dhanaraksha '89.

UTI too did not lag behind. It has removed the lock-in period in force under MIP 99, 2000, 2000(II), 2000(III) and 2001. The fund has also revised the load structure in its 38 schemes. The exit load on 12 equity schemes has been scaled down to 2 percent while that on its 24 debt schemes has been completely removed. As it is feared that the fund won't be able to meet the redemption of its MIPs due in this calendar, the removal of exit loads on the same draws attention. However, investors may do well to remain invested as the face value of Rs 10 is guaranteed under these schemes at the time of redemption.

That's it. There will be two eagerly watched events this fiscal ­ the performance of equity funds and the much-awaited sequel to the UTI story.

Fund Update: During the week, the market gained 31 points on the Sensex and 29 points on the broad based National Index. The key gainers during the week were UTI Petro (6.30%), Magnum Contra (5.68%), Magnum Taxgain (5.65%) and Zurich India Top 200 (5.04%).