It was a stupendous year for investors in equity mutual funds. The year was marked by an across-the-board revival in equity markets and equity funds. While the average diversified equity fund returned 107 per cent, even the worst performing class—technology sector funds—generated a mean return of 52 per cent. This performance looks even more impressive as the Sensex returned 72.89 per cent, its highest in the past 12 years. The Sensex's returns, however, pale in front of the 134.72-per cent growth notched by the CNX Midcap 200 index.
Thus, there are no prizes for guessing which type of diversified funds lead the pack. Mid-cap funds or those funds, which invested heavily in mid-caps blasted ahead. Franklin India Prima, the oldest pure mid-cap fund, was up 177 per cent, while Sundaram Select Midcap, a relatively new kid on the block, generated 157.73 per cent. Last year's number one, Reliance Vision had another good year recording a growth of 155 per cent. Even funds, which had a large-cap tilt, invested at least 30 per cent of their portfolio in mid-caps. Some of the prominent large cap winners were HSBC Equity, up 160 per cent, Reliance Growth and Alliance Basic Industries, which went on to grow by 155 and 154 per cent respectively.
Even more encouraging than these one-year returns was the diversified category's three and five-year returns, which stand at a healthy 24.72 per cent and 24.54 per cent respectively. Thus, investors who entered the markets any time in the past few years are seeing their investments grow at a rapid pace.
The recovery in the NAVs of most diversified funds also means that those who got in during the worst possible day of the last bull run and stayed on have recovered their losses. Of the 51 funds, which were around on February 11, 2000, when the Sensex was at 5933 points, 34 have generated positive returns. Ten of these have returned more than 15 per cent compounded. More than anything else, these numbers show that it is not timing that dictates returns but the amount of time spent in the market.
With all funds delivering stupendous returns, it seems that all funds are equally good investment vehicles. However, this is a rising tide, and in this all funds will rise. The true test will come in falling markets and funds that manage to stay afloat will be the true wealth creators.