Year 2006 came to an end in the month of December, but not before witnessing another bout of high volatility in the stock markets. Notwithstanding the turbulence, stock markets closed the month in positive terrain. The BSE Sensex appreciated by 0.66% to close at 13,787 points; the S&P CNX Nifty rose by 0.28% to close at 3,966 points. But the winners were clearly the mid cap stocks; CNX Midcap settled at 5,200 points, up by 2.58%
This month, Personalfn's research team focused on educating investors about some of the popular investment myths and malpractices prevalent in the mutual fund industry.
For example, in the present scenario, investors find themselves in a situation wherein there is a plethora of investment choices and advice available to them. This situation has given rise to a number of nvestment myths. Unscrupulous investment advisors and agents use these myths to their advantage and in the process, compromise investors interests. This month, we debunked 5 common investment myths. These will not only help investors safeguard their interest, but also enable them to make well-informed investment decisions.
In December 2006, Foreign Institutional Investors (FIIs) were net sellers of equities to the tune of Rs 35,936 m (as on December 29, 2006). On the contrary mutual funds were net buyers with purchases of Rs 17,375 m.
This month, we also exposed a malpractice, religiously followed by commission-driven distributors and agents. This malpractice involves churning the investor's portfolio i.e. the distributor gets the investor to redeem his investments in an existing scheme and then gets him invested in another scheme (usually both are equity-oriented scheme), for no valid reason. The reason for conducting this exercise - the distributor earns exorbitant commissions from fund houses on the fresh investments vis-à-vis what he would have earned had the investor simply stayed invested.
In effect, the fund houses get the money, distributors get the commissions and it's the investor who has to suffer as he gets the burden of the expenses.
Leading open-ended diversified equity funds
| Diversified Equity Funds |
NAV (Rs) |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
| PruICICI Dynamic (G) |
65.81 |
6.24% |
37.50% |
60.50% |
7.13% |
0.52% |
| Kotak Contra (G) |
14.70 |
5.68% |
25.71% |
28.02% |
7.43% |
0.23% |
| Reliance Equity Opp. (G) |
21.69 |
5.46% |
32.90% |
52.93% |
7.37% |
0.47% |
| Magnum Multiplier Plus (G) |
54.03 |
4.87% |
35.69% |
52.37% |
7.75% |
0.54% |
| Kotak Global India (G) |
26.47 |
4.84% |
26.08% |
31.45% |
6.15% |
0.41% |
(Source: Credence Analytics. NAV data as on Dec. 29, 2006. Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)
PruICICI Dynamic (6.24%) emerged as the best performer in the diversified equity funds segment, followed by Kotak Contra (5.68%) and Reliance Equity Opportunities (5.46%). Another scheme from Kotak Mutual Fund i.e. Kotak Global India (4.84%) also made it to the top performers list.
Leading open-ended long-term debt funds
| Debt Funds |
NAV (Rs) |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
| ABN AMRO Flexi Debt (G) |
11.35 |
0.60% |
4.97% |
8.43% |
0.33% |
-0.15% |
| Kotak Flexi Debt (G) |
11.41 |
0.60% |
3.56% |
7.14% |
0.07% |
-0.31% |
| Sahara Income (G) |
12.87 |
0.60% |
4.10% |
5.92% |
0.36% |
-0.34% |
| Kotak Bond RP (G) |
19.47 |
0.45% |
4.61% |
6.71% |
0.32% |
-0.27% |
| BOB Income (G) |
12.53 |
0.39% |
1.98% |
3.83% |
0.06% |
-4.29% |
(Source: Credence Analytics. NAV data as on Dec. 29, 2006. Growth over 1-Yr is compounded annualised)
ABN AMRO Flexi Debt (0.60%), Kotak Flexi Debt (0.60%) and Sahara Income (0.60%) pitched in similar performances and shared the top position in the debt funds segment. Kotak Bond RP (0.45%) and BOB Income (0.39%) occupied second and third positions respectively.
Leading open-ended balanced funds
| Balanced Funds |
NAV (Rs) |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
| PruICICI Balanced (G) |
34.63 |
2.61% |
20.45% |
30.29% |
4.38% |
0.48% |
| HDFC Prudence (G) |
113.76 |
2.21% |
27.58% |
33.62% |
3.94% |
0.62% |
| Kotak Balance |
23.59 |
1.82% |
14.31% |
31.53% |
4.79% |
0.46% |
| DSP ML Balanced (G) |
38.48 |
1.72% |
21.97% |
33.67% |
4.55% |
0.43% |
| ING Balanced (G) |
18.18 |
1.45% |
21.36% |
21.28% |
4.74% |
0.34% |
(Source: Credence Analytics. NAV data as on Dec. 29, 2006. Growth over 1-Yr is compounded annualised)
PruICICI Balanced (2.61%) surfaced as the top performer in the balanced funds segment. HDFC Prudence (2.21%) and Kotak Balance (1.82%) came in at second and third positions respectively.
Inadequate information can be deceptive, and investment decisions based on the same could lead to a financial mishap. There are various agencies/publications that give stars to mutual fund schemes. These stars denote the rankings and ratings of the particular fund. Investors should understand that the basis of these rankings/ratings is largely quantitative and that the qualitative factors like the fund management team's skill sets and the processes followed by the fund house are almost never factored in. We believe that rankings and ratings when considered in isolation can add little value to investors. They could perhaps serve as starting points for identifying a broader set of investment-worthy funds; but investing in a fund, based solely on number of stars against its name may not be the right move.
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Do the stars really foretell?
With less than 3 months left for the close of the financial year, investors should now concentrate on their tax-planning investments. For those who are yet to commence their tax-planning exercise, there's help on hand. We have launched the latest issue of Money Simplified - The 2007 Guide to Tax-Planning. Investors would do well to remember that tax-planning is no different form investing in the normal course and that the principles of investing in line with one's risk profile and investment objectives is equally relevant.
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