Mutual Fund Roundup: December 2009
Jan 12, 2010

Author: PersonalFN Content & Research Team

Market Overview

The equity markets closed in the positive terrain in the month of December. The BSE Sensex gained 3.2% while the midcap index (CNX Midcap) gained 4.0%. The early opening of NSE and BSE bourses did not increase the trading volumes.

Monthly Market Roundup

	Close	Change	% Change
BSE Sensex	17,464.8	538.6	3.2%
S&P CNX Nifty	5,201.1	168.4	3.3%
CNX Midcap	7,432.8	283.6	4.0%
Gold (Rs/10 gram)	16,690.0	(995.0)	-5.6%
Re/US $	46.5	0.0	0.0%
Crude Oil ($/BBL)	77.5	1.1	1.4%
10-Yr G-Sec (%)	7.7	0.4	5.9%
1-Yr FDs	5.00% - 6.50%

(Monthly change as on December 31, 2009)

India is one of the fastest growing economies and a favourite destination for Foreign Institutional Investors (FIIs) to park money. The graph below shows that FIIs were net buyers of equities to the tune of Rs 95,030 m in the month of December and in the year 2009, they have pumped around Rs 825,909 m in the Indian equity markets.

BSE Sensex vs FII inflows

(Source: BSE India and SEBI)

Mutual Fund Overview

Mutual Funds (MFs) were net sellers of equities to the tune of Rs 8,273 m. Thus, indicating that the domestic investors are still unconfident of holding their investments in Indian equities. At Personal FN we believe that Indian economy will continue to do well, since GDP would grow at a rate of 6.0%-6.5% over medium to long-term period.

BSE Sensex vs MF inflows

(Source: BSE India and SEBI)

Hence we opine that, investors should not time the market; instead they should invest in a phased manner in the form of SIPs in the equity mutual funds.

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Balanced Funds	1-Mth	Sector/Thematic Funds	1-Mth
Canara Emerging Eqty. (G)	10.36%	LICMF Balanced (G)	6.41%	Reliance Pharma (G)	12.16%
Reliance Equity Opp. (G)	9.47%	Escorts Balanced (G)	6.07%	Sundaram Ent. Opp. (G)	11.86%
UTI Master Value (G)	9.13%	ICICI Dynamic (G)	5.70%	Birla New Millennium (G)	9.57%

(1-Mth returns as on December 31, 2009)
(Source: Crisil Fund Analyser)

The above table depicts that sector and thematic funds have done better than diversified equity funds. However, such funds are best suited for informed investors who have a view on the underlying sector/theme; the same will enable them to time their entry into and exit from the funds. Others would do well to steer clear of sector/thematic funds and invest in well-managed diversified equity funds with proven track records over longer time frames.

Monthly top gainers: Open-ended debt funds and Gold ETFs

Monthly Income Plans	1-Mth	Ultra Short Term Funds	1-Mth	Gold ETFs	1-Mth
DSP Savings Mngr. Agg. (G)	1.51%	Edelweiss ST Bond (G)	0.43%	UTI Gold ETF	-5.39%
LICMF MIP (G)	1.39%	LICMF Income Plus (G)	0.42%	Kotak Gold ETF	-5.40%
HDFC Multiple Yield 05 (G)	1.39%	IDFC Money Mngr. Invt. Plan (G)	0.40%	Quantum Gold	-5.40%

(1-Mth returns as on December 31, 2009)
(Source: Crisil Fund Analyser)

In the debt funds’ category, investors should invest in liquid and ultra short-term funds which hold short-term maturity papers. They should avoid investing in long-term debt funds and gilt funds till the interest rates touch higher levels.

Performance across various categories of mutual funds

(1-Mth average returns of funds in various categories as on December 31, 2009)

As per the above graph, Midcap funds were the top gainers while Gold ETFs were the top losers in the mutual fund category in the month of December. Gold lost its sheen and ended in the negative terrain (-5.6%). Off late gold has witnessed correction at the end of the year, from its peak level, on account of dollar strengthening and profit booking. We opine that investors should consider this as an opportunity to accumulate gold into their investment portfolio.

MF industry news

The online mutual fund trading platform of the NSE and BSE, which was started in early December, failed to increase the trading volumes of the mutual funds. AMFI on the other hand, has delayed its online mutual fund trading platform since it faces tough competition from BSE & NSE.

Though the online trading platform provides an easy route for investors to trade in mutual funds, they are certainly an expensive proposition to transact. The demat and trading account opening charges itself are quite high (Rs 750). Similarly, if an investor is a frequent portfolio churner, then apart from the exit load, the broking charges (0.25%-0.50%) which he defrays would also pinch his pocket.

In another move to provide convenience to investors, SEBI has made it clear that investors can now shift their mutual fund distributors without obtaining the No-Objection Certificate (NOC) from existing distributor. Earlier, switching a mutual fund distributor was the most inconvenient task which mutual fund investors faced, since several Asset Management Companies (AMCs) insisted that investors’ procure a NOC from the existing distributor for switching over to another distributor and in turn, distributors would always “go slow” in issuing the NOC.

Tax-Planning

Many of you would be commencing to plan and save tax. Hence in order to make your planning exercise more lucid, Personal FN brings to you a simplified tax guide that will cover various topics ranging from insurance to PPF, ULIPs, ELSS, home loans, HRA etc.