Shine Wear off Quickly

When markets are up, funds are bullish. The result: AMCs begin launching new schemes. The bull market of 2003 has led to 13 new diversified scheme IPOs in the first five months of 2004. There were eight mutual fund new issues in 2003. And in the relatively dull year of 2002, nine funds had entered the markets.

However, when the going gets bearish, investors in these very funds have to face the brunt of the pain. This is because the timing of these launches has ensured that nearly all the investors in these funds have entered at a time when the market is at a higher level. As the market tumbles so do the NAVs of these funds. An entry at a higher point in the immediate past when markets move down can only result in losses. That is generally the story of all bull market funds. Remember the tech funds that were launched during the last boom?

Of the 13 new schemes, UTI Banking Sector, UTI Auto Sector and Reliance Diversified Power Sector are sector funds. Their fate thus depends entirely on the performance of their respective sectors. In case of Reliance Diversified Power Sector, the fund has the freedom to move the entire corpus into debt if the situation so warrants.

UTI PSU Fund has already fallen the most among all diversified equity funds. With the sentiment having sharply turned against these public sector stocks, the fund has been hurt the most. The other funds from UTI include a mid-cap fund and a large-cap one. Mid-caps are known to be more volatile than large-cap funds and so a more-rocky-ride can be expected in this fund, too.

Another fund where the capitalisation is preordained is the ING Vyasa Nifty Plus. The restriction that the fund will only invest in Nifty stocks effectively makes this a large cap fund.

Among the new schemes the best performing one has been Principal Global Opportunities. If nothing else this highlights the diversification benefits of international investing.

New Funds: How They Fared? Fund    Launch Date    Returns (%) Principal Global Opportunities   Mar-04   5.04 UTI Mid Cap   Apr-04   -8.09 Kotak Global India   Jan-04   -12.25 Birla Asset Allocation Aggressive   Jan-04   -12.28 HSBC India Opportunities   Feb-04   -12.77 UTI Auto Sector   Apr-04   -14.07 UTI Large Cap   Apr-04   -15.17 ING Vyasa Nifty Plus   Feb-04   -16.82 UTI Banking Sector   Apr-04   -19.03 UTI Basic Industries   Apr-04   -21.32 UTI PSU   Apr-04   -22.34 DSPML TIGER   May-04   n.a. Reliance Diversified Power   Apr-04   n.a. Category Average        -15.80 Returns from 30/04/2004 to 25/06/2004