This month, writing on how funds measured up week-after-week, has been quite an exercise. Well, that's because negative sentiments prevail, same story, so what do you say? The script reads the same with some marginal changes: a not-so-great week for funds, particularly equity funds. While debt funds inched up marginally, equity funds plunged headlong. However, when most investors stayed at the periphery due to market conditions, UTI Bond Fund brought some good news to its investors. The fund declared a bonus (4:10 ratio) in the dividend plan. A bonus option can be used to book losses against the capital gains made elsewhere. But all this is possible provided the market regulator, SEBI, doesn't withdraw the current tax status accorded to bonus issues. Incidentally, the dividend plan since its launch in October 2001 has declared two quarterly dividends, of 3% and 5%, respectively.
On the other hand, Alliance Capital Mutual Fund, in response to the new dividend tax measures announced in the budget, has decided to suspend declaration of dividend for its ultra short-term debt fund, Alliance Cash Manager, effective June 1, 2002. Last week, Zurich India Mutual Fund too did the same for its four plans under Zurich India Liquidity Fund. The budget this year reduced the appeal of bond funds in general and cash funds in particular by taxing the dividend income in the hands of the investor. For all investments with a timeframe of over one year, it makes sense for investors to switch to growth options of bond funds which will help in circumventing the dividend tax headache as the capital gains tax structure remains beneficial. But for cash funds -- which are short-term investments -- this has little relevance.
While some funds withheld dividend payout, others such as Sun F&C Mutual and Birla Sunlife Mutual declared a monthly dividend of 0.75% and 0.8%, respectively, for their monthly income plan schemes. Birla Sunlife also announced a 0.5% dividend for its short-term debt fund, Birla Bond Plus.
Moving away from other activities of mutual funds, let us now take a look at the returns turned in by them this week. On average, an equity-diversified fund lost as much as 3.07% while an average bond fund gained 0.14%. However, it was technology funds that were the worst affected -- among other reasons -- owing to the impact of war on the business of tech firms. An average technology fund lost 4.84% over the week. Selling pressure accompanied by disappointing performances of tech majors like Sun Microsystems in the US pulled down some front-runners. Infosys was down 10.4%, Satyam 4.02% and Wipro took a 2.8% fall. Infosys and Satyam figure among the holdings of all 12 tech funds while Wipro figures in only 10 funds. However, bond fund investors needn't worry. While an average bond fund gained 0.14%, an average gilt fund went up by 0.26%. In fact, gilt funds, as was the case last week, were the best performers this week too. As for equity investors, once war clouds disappear, equity should make a comeback.
Fund Update: During the week, the Sensex lost 130 points while the broadbased BSE National Index lost about 51 points. The key gainers among the open-end equity funds were Libra Taxshield '96 (1.27%), Pioneer ITI prima (-0.48%), Escorts Opportunities fund (-0.75%) and Reliance Growth (-0.77%). The major losers were Alliance New Millenium (-5.92%), Pioneer ITI Infotech (-5.84%), Pru ICICI Technology (-5.69%) and Birla IT (-5.35%).
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