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The Rise of Equity Cult

A flurry of NFOs and the phenomenal rally in the stock markets have helped equity funds increase their share in the Indian mutual fund industry from just 26 per cent last year to 43 per cent

With the markets scaling new highs every other day, fund houses have seen a phenomenal growth in their equity assets over the past 12 months. Domestic mutual funds, flush with money accumulated through new schemes and subscriptions, are pumping money into the equity markets aggressively, taking them even higher.

In March last year, 29 AMCs had Rs 38,712.47 crore worth of equity assets across 200 funds. It has been a dream run since then with the Sensex closing at 11,279 on March 31, 2006, up from 6,492 on March 31, 2005. Equity assets of the fund houses increased almost 157 per cent during the one-year period from Rs 38,712 crore in March 2005 to Rs 99,675 crore by March 2006. Reliance - with six new fund launches since the beginning of 2005 - has now replaced UTI Mutual Fund with largest equity assets worth Rs 15,010.72 crore in March 2006.

Diversified equity funds held Rs 83,185.94 crore in equity assets in March 2006, up from Rs 32,613.48 crore during the corresponding month last year. Apart from the increase in the value of the portfolio due to the rise in the markets, as many as 57 NFOs (including tax planning funds) made huge contribution towards the growth.

Assets of tax planning funds registered a phenomenal 644 per cent rise, from Rs 684.01 crore in March 2005 to Rs 5,089.88 crore by the end of 2005-06. Seven new funds and the government's decision to hike the investment limit in ELSS from Rs 10,000 to Rs 1 lakh threw open the possibility of building wealth through tax-planning for the investors.

However, the performance of the index, technology and spatiality funds was not all that charismatic. The combined equity assets of the three categories recorded a growth of only 25 per cent during the year to March 31, 2006, primarily due to growth of their holdings.

Top 10 Equity Funds by Size
Fund  Launch   1-Yr Ret (%)  Size (Rs cr)^  Market Share*
Reliance Equity Mar-06 - 5820.10 7.00
Fidelity Equity Apr-05 - 3152.41 3.79
SBI Bluechip Jan-06 - 3013.67 3.62
HDFC Equity Dec-94 90.24 2907.34 3.49
Franklin India Flexi Cap Feb-05 89.83 2885.34 3.47
Reliance Growth Oct-95 92.28 2639.68 3.17
Franklin India Prima Nov-93 73.26 2481.87 2.98
Reliance Equity Opportunities Mar-05 85.98 2338.80 2.81
Franklin India Bluechip Nov-93 78.21 2280.66 2.74
Magnum MultiCap Sep-05 - 1903.98 2.29
* % of Total Assets in Category
^As on March 31, 2006

Balanced funds also mirrored the market momentum with a growth of 35.60 per cent in hybrid assets from Rs 11,410.66 crore in March 2005 to Rs 15,473.69 crore by March 2006. Equity-oriented funds recorded an asset growth of around 60 per cent between March 2005 and March 2006 from Rs 2,785.22 crore to Rs 4,454.25 crore, mainly due to the appreciation in the value of their portfolios. Kotak Balance's assets recorded the highest growth of 217.17 per cent during the period. On the performance front, Canbalance II delivered the best with a return of 84.06 per cent. Corpus of debt-oriented funds grew from Rs 8,146.79 crore in March 2005 to Rs 10,147.45 crore.

With the spread of the equity cult, footfalls on the Bond Street have dwindled in the past 12 months. Assets held by mutual funds in debt instruments (including medium-term debt funds, MIPs and long-term gilt funds) slipped from Rs 15,236.44 crore in March 2005 to Rs 10,673.54 crore in March 2006, a fall of around 30 per cent.

Medium-term debt funds held Rs 2,948.72 crore in assets in March 2006, way below Rs 4,846.99 crore a year ago. While Prudential ICICI Long-Term fund netted a huge 12,074 per cent increase in asset holding over the 12 month period - at Rs 160.14 crore in March 2006 up from Rs 1.32 crore in March 2005, Birla Bond Index saw the largest asset erosion of 80.76 per cent. CanIncome generated the highest return of 9.12 per cent as against a category return of 4.74 per cent.

In the period between March 2005 and March 2006, total liquid assets (including cash funds, short-term debt & gilt funds, floating rate and specialty funds) held by the fund houses surged from Rs 83,556.68 crore to Rs 105,690.72 crore. Total number of funds operating in the sphere too increased from 290 to 398 in the 12 month period.