We routinely interact with clients who need help with their financial planning including investments in mutual funds. And an increasingly perceptible trend is that investors are now better informed. For example, not too long ago, net asset value appreciation was the parameter on which most investors would gauge mutual funds; now there are investors (albeit in a minority) who are willing to go beyond NAV performance and consider risk parameters like Standard Deviation and Sharpe Ratio. Clearly, at least a section of the investing community is now willing to look beyond the obvious.
On a downside, investors are often guilty of considering various parameters in isolation and ignoring the bigger picture. For example, a fund that fares well on the SD and SR parameters, alongside returns may yet not be the right fund simply because it failed to adhere to its stated investment mandate. The fund could well be a professed large cap fund that contravened its mandate and invested in mid cap stocks to benefit from an upturn in that segment.
Clearly evaluating a mutual fund is not as easy as it is often believed to be. A number of parameters like returns, volatility control, risk-adjusted return, adherence to mandate and the fund's investment style, among others need to be considered simultaneously. Furthermore, the evaluation needs to be conducted across time frames, market cycles and vis-�-vis the benchmark index and peers.
Also, factors like the fund house's investment philosophy and the presence of well-defined investment processes vis-�-vis the presence of a star fund manager need to be looked into. If all this sounds too complex, then rest assured � it is! This is where a competent and honest financial planner will have an important role to play. Not only can he evaluate funds in an objective manner, he can also help you select funds that are right for you.
In conclusion -- while investing, 'don't miss the forest for the trees'; evaluate the fund's performance on various parameters, but with the right perspective.
Amid volatility, equity markets closed the week in the positive terrain. The BSE Sensex rose (although marginally) by 0.33 per cent to end at 20,031 points, while the S&P CNX Nifty closed at 6,048 points (up by 1.24 per cent). The CNX Midcap posted a gain of 5.47 per cent, before settling at 8,939 points.
Weekly top performers: Open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| JM Healthcare | 18.95 | 8.96% | 10.36% | 2.65% | 13.36% | 7.36% | 0.05% |
| Franklin Pharma | 30.01 | 8.20% | 8.78% | -2.89% | 8.62% | 6.87% | 0.03% |
| ICICI [Get Quote] Pru. FMCG | 53.75 | 7.87% | 9.90% | 30.05% | 32.29% | 5.69% | 0.26% |
| UTI Pharma & Healthcare | 24.12 | 7.82% | 9.19% | 3.83% | 14.58% | 6.87% | 0.03% |
| Magnum Pharma | 35.67 | 7.80% | 9.62% | 0.76% | 4.60% | 7.20% | 0.00% |
(Source: Credence Analytics. NAV data as on December 14, 2007.)
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument)
Sector/thematic funds of the pharma and healthcare variety dominated the equity funds segment. JM Healthcare (8.96 per cent) led the pack, followed by Franklin Pharma (8.20 per cent). ICICI Prudential FMCG (7.87 per cent) and UTI Pharma and Healthcare (7.82 per cent) also featured among the top performers.
Weekly top performers: Long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| ICICI Pru. Gilt | 24.17 | 0.29% | 1.80% | 6.20% | 7.88% | 0.82% | 0.09% |
| Principal Gilt IP | 17.15 | 0.25% | 1.32% | 6.12% | 5.63% | 0.86% | -0.10% |
| Kotak Gilt Invest. | 24.78 | 0.22% | 1.13% | 4.67% | 4.35% | 0.71% | -0.25% |
| Tata GSec. | 24.26 | 0.21% | 1.02% | 3.98% | 5.76% | 0.58% | -0.30% |
| Magnum Gilt | 18.09 | 0.20% | 0.98% | 3.10% | 6.61% | 0.46% | -0.24% |
(Source: Credence Analytics. NAV data as on December 14, 2007.)
The 10-Yr 8.07% GOI yield closed at 7.91% (December 14, 2007, source: Reserve Bank of India [Get Quote] website), unchanged over the previous weekly close. Bond yields and prices are inversely related, with falling yields translating into higher bond prices and NAV for debt fund investors.
Gilt funds surfaced as top performers in long-term debt funds category. ICICI Prudential Gilt (0.29%) emerged the best performer, followed by Principal Gilt (0.25%). Kotak Gilt Invest. (0.22%) and Tata GSec. (0.21%) occupied the third and fourth positions respectively.
Weekly top performers: Balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| LIC [Get Quote] MF Balanced | 73.03 | 5.86% | 16.55% | 68.66% | 65.53% | 7.07% | 0.37% |
| Principal Balanced | 32.36 | 4.62% | 8.05% | 44.08% | 50.65% | 5.71% | 0.34% |
| Birla Sun Life 95 | 250.58 | 3.55% | 8.90% | 29.33% | 46.13% | 4.74% | 0.44% |
| DSP ML Balanced | 57.04 | 3.04% | 7.98% | 36.18% | 52.04% | 5.08% | 0.48% |
| HDFC Balanced | 40.33 | 2.93% | 4.91% | 27.78% | 28.12% | 5.06% | 0.30% |
(Source: Credence Analytics. NAV data as on December 14, 2007.)
LIC MF Balanced (5.86 per cent) occupied the top slot in the balanced funds segment. Principal Balanced (4.62 per cent) and Birla Sun Life 95 (3.55 per cent) also featured in the top performers' list.
With the financial year drawing to a close, we are in the midst of the 'tax-planning' season. Investing for the purpose of tax-planning is no different from investing in the normal course. Hence, having an investment plan in place and investing in line with one's risk appetite is as relevant while conducting the tax-planning exercise. This in turn will involve spending some time and giving the exercise due thought. So if you haven't commenced the tax-planning exercise as yet, now's the time to get started.
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