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February 2, 2011

Mutual Funds in 2010: Performance and Trends
Understanding market cycles and how various fund classes performed in them is part of becoming a seasoned investor. In this article, we provide you with an overview of how various mutual fund classes fared last year and the drivers behind their performance.

by iFAST Research Team

Untitled Document

Industry Update

In the calendar Year 2010, the Indian Mutual Fund industry saw a fall in assets under management (AUM) of 5.84% (Rs. 38,832 crore). This was due to redemptions by large corporate houses and banks from ultra short term funds post the SEBI regulation that securities with a residual maturity of over 91 days should be marked-to-market on a daily basis effective 1 August 2010. In addition, the Indian Mutual Fund industry also saw huge redemption pressure on equity schemes on account of profit booking and mutual funds were net sellers of equity to the tune of Rs. 28,132 crore.

Investors showed some interest in ETF in the calendar year 2010, with Gold ETF AUM increasing by 160% and other ETFs seeing a 67.8% increase in AUM.

On the back of rising yields we also saw some interest in Fixed Maturity Plans (FMP) among investors. In the calendar year 2010 around 342 FMPs were launched.

Table 1: Following is the breakup of Assets Under Management for different asset classes

Fund Class Assets Under Management (Rs in Crores) % Change
31-Dec-10 31-Dec-09
Income 297,937 360,469 -17.35%
Equity 181,224 174,681 3.75%
Balanced 19,486 17,602 10.70%
Liquid/Money Market 88,681 80,102 10.71%
Gilt 4,103 3,609 13.69%
ELSS – Equity 27,011 23,197 16.44%
Gold ETF 3,516 1,352 160.06%
Other ETFs 1,730 1,031 67.80%
Fund of Fund - Overseas 2,626 3,103 -15.37%
Total 626,314 665,146 -5.84%
Source: AMFI, iFAST Compilation


Equity Market

After a spectacular performance in 2009, the equity market continued its rally in 2010 on the back of record inflows from Foreign Institutional Investors. The new inflow from FIIs into the Indian equity market was close to US $ 29.36 billion.

 In 2010, Sensex and Nifty delivered return of 17.43% and 17.94% respectively. The mid-cap segment underperformed large-cap in the year and the BSE Mid-cap and BSE Small-cap delivered returns of 16.15% and 15.71% respectively. On the sector front, 2010 was a year for domestic consumption-led growth story and stocks considered defensive and low beta sectors. BSE Consumer Durable Index, the best performing sector in 2010, delivered a return of 67.93%, followed by BSE Auto which gave a return of 37.65% and Health Care index giving return of 34.19%. Apart from that other sectors which outperformed BSE Sensex were Bankex, FMCG and IT and each delivering a return of 33.39%, 31.97% and 23.49% respectively. The worst performing sector was BSE Realty which delivered a negative return of (25.92%) and followed by BSE Power giving a negative return of (6.27%).

Performance of Equity Category

Large-cap Funds

Of a universe of 41 Large-cap biased funds which have completed at least 1 year, as many as 22 funds have outperformed the benchmark S&P CNX Nifty. HDFC Mutual Fund has two large-cap funds and both of them are in the top performing funds for 2010. HDFC Top 200, HDFC Capital Builder and Franklin India Bluechip Fund, three of the top performing equity funds, have a track record of more than 14 years and have created long term wealth for their investors. ICICI Prudential Focused Fund is a relatively new scheme but has performed well since its inception. Quantum Long Term Equity Fund managed by Atul Kumar is about to complete 5 years and is the best performing large cap fund in the year 2010.

Table 2: Top 5 Outperformers in Large-cap Funds Category

Scheme Name Return (in %)
Quantum LT Equity 28.82
HDFC Capital Builder 28.44
ICICI Prudential Focused Blue Chip Equity 27.07
HDFC Top 200 25.05
Franklin India Bluechip 22.96
S&P CNX Nifty (Benchmark Index) 17.95
Source:ACE MF, iFAST Compilation

Multi-cap Funds

HDFC Mutual Fund completely rules the multi-cap space and three out of five top funds are from HDFC. Out of the universe of 47 schemes, 37 schemes outperformed the benchmark. HDFC Capital Builder and HDFC Equity have a track record of more than 15 years. The category on an average delivered a return of 18.67%.

Table 3: Top 5 Outperformers in Multi-cap Category

Scheme Name Return (in %)
Reliance Equity Opportunity 30.45
HDFC Equity 29.22
Birla SL India GenNext 28.49
HDFC Core & Satellite 28.31
HDFC Growth 27.71
S&P CNX 500 (Benchmark Index) 14.13
Source:ACE MF, iFAST Compilation

 Mid-cap Funds

DSP Blackrock grabbed two slots in top 5 mid-cap funds in 2010. The DSPBR Micro-Cap fund invests a majority of its holding in small capitalisation stocks; hence the fund is more volatile and has higher returns than its peer group. In our analysis we had 27 mid-cap funds, of which only 14 funds outperformed the benchmark. The category delivered an average return of 20%.

 Table 4: Top 5 Outperformers in Midcap Category

Scheme Name
Return (in %)
DSPBR Micro-Cap 43.71
SBI Magnum Emerging Businesses 33.08
HDFC Mid-Cap Opportunity 32.13
IDFC Premier Equity 32.07
DSPBR Small & Mid Cap 29.62
CNX Midcap (Benchmark Index) 19.16
Source:ACE MF, iFAST Compilation

 Equity Linked Saving Scheme (ELSS) Funds

The new entrant in the market, Axis Tax Saver fund is the best performing ELSS scheme for the calendar year 2010. Fidelity and HDFC Tax Saver fund, our two recommend ELSS schemes, also top the chart in the year 2010. FSM has considered 30 schemes in our analysis, of which 25 have outperformed the benchmark; the category has delivered 20.16% return on an average.

Table 5: Top 5 Outperformers in the ELSS Category

Scheme Name Return (in %)
Axis Tax Saver 29.99
Fidelity Tax Advantage 29.24
HDFC Long Term Advantage 28.37
Quantum Tax Saving 28.17
HDFC Tax Saver 26.42
S&P CNX 500 (Benchmark Index) 14.13
Source:ACE MF, iFAST Compilation

 Global Funds

Mirae Asset China Advantage Fund is the best performing Global Fund. The fund is a feeder fund whose parent fund invests in Chinese stocks. All the top five global funds are Fund of Funds.

Table 6: Top 5 Outperformers in the Global Fund Category

Scheme Name Return (in %)
Mirae Asset China Advantage 11.56
Principal Global Opportunities 11.53
ING Latin America Equity 11.42
Sundaram Global Advantage 10.78
Kotak Global Emerging Market 10.38
MSCI World Index (Benchmark Index) 9.55
Source:ACE MF, iFAST Compilation
 

 Debt Market

2010 saw the following major events affecting the debt market:

  • Rising policy rates
  • Government borrowing
  • High fiscal deficit
  • High inflation
  • Increased FII limits and huge FII inflow
  • Extremely tight liquidity in some parts of the year.

During 2010, RBI increased the Repo rate, Reverse Repo rate and Cash Reserve Ratio rate by 150 basis points, 200 basis points and 100 basis points respectively. The net borrowing for the Government of India announced for financial year 2010-11 was Rs. 3,45,000 crore. The inflation for the year was very high with an average of 9.44%. During the last three months, liquidity was extremely tight and banks were borrowing on an average around Rs. 913 crore from RBI on a daily basis.

There was net inflow of US$ 10.11 billion in the Indian debt market in 2010 as compared to only US$ 1.05 billion in 2009. In addition, FII limits have been increased to US$ 30 million.

Impact on the debt market: The yield on the shorter end of the curve rose sharply. 3 month Certificate of Deposit (CD) and 3 month Commercial Paper (CP) moved up by more than 500 basis points and 1 year CD and 1 year CP rates moved up by 340 and 360 basis points. On the longer end of the curve, benchmark 10 Year G-sec yields and 5 year G-sec yield rose by 33 bps and 56 bps respectively.

Performance of Debt Category

Short Term Funds

There were 31 short term funds in consideration, out of which 18 funds outperformed the category benchmark and 13 funds have underperformed the benchmark. All the top five funds have given positive return on a monthly basis for all 12 months.

Table 7: Top 5 Outperformers in Short Term Funds category

Scheme Name Return (in %)
Birla Sunlife Opportunity Fund 6.01
Templeton India Short Term Income Fund 5.58
JM Short Term Fund 5.57
DSP BlackRock Short Term Fund 5.56
Reliance Medium Term Fund 5.55
Crisil Short-Term Bond Fund Index (Benchmark Index) 4.70
Source: ACE MF, iFAST Compilation

Income Funds

In 2010 yields on AAA and AA rated corporate papers moved up by around 32 basis points and 64 basis points respectively. For the analysis, there were 52 funds in the category out of which only 20 funds have outperformed the benchmark and 32 funds have underperformed the benchmark.

Table 8: Top 5 Outperformers in the Income Funds Category

Scheme Name Return (in %)
Baroda Pioneer Income Fund 7.84
Templeton India Income Opportunity Fund 7.11
DWS Premier Bond Fund 6.90
IDFC SSIF-MT 6.71
Religare Active Income 6.14
Crisil Composite Bond Fund Index (Benchmark Index) 4.96
Source: ACE MF, iFAST Compilation

 Government Securities Fund - Long Term

On the back of rate hikes by RBI and the large borrowing programme of the government, yields have inched up across the board. Benchmark 10 Year, 5 year and 1 year G-sec yields have gone up by 33 bps, 56 bps and 284 bps respectively. With rising yield, the category has significantly underperformed the benchmark. Out of the universe of 31 funds, only 4 funds outperformed the benchmark I-BEX, while 26 funds underperformed the benchmark. Active management of duration have really helped the outperforming funds.

Table 9: Top 5 Outperformers in Gilt Funds-Long Term Category

Scheme Name Return (in %)
Baroda Pioneer Gilt 18.12
Religare Gilt-Long Duration 12.36
Birla SL G-Sec-LT 9.33
Edelweiss Gilt 7.28
I-BEX (I-Sec Sovereign Bond Index) (Benchmark Index) 6.25
Source:  ACE MF, iFAST Compilation

 Hybrid Category Funds

Monthly Income Plan (MIP)

Three out of top 5 MIP funds are from HDFC Mutual Fund due to good performance by the equity component. HDFC Multiple Yield and HDFC Multiple Yield 2005 do not have monthly dividend option; however the other top 3 funds have issued dividend in all 12 months of the year.

Table 10: Top 5 Outperformers in Monthly Income Plans

Scheme Name Return (in %)
HDFC MIP-LTP 10.79
HDFC Multiple Yield 10.52
SBI Magnum MIP-Floater 10.44
HDFC Multiple Yield 2005 9.72
ICICI Pru MIP 25 9.03
Crisil MIP Blended Index (Benchmark Index) 7.00
Source: ACE MF, iFAST Compilation

 Balanced Funds

Of the universe of 35 balanced funds, 14 outperformed the benchmark. HDFC Prudence and HDFC Balanced Funds were the top performers  during the year and  they delivered  returns of more than 20% .

Table 11:  Top 5 Outperformers in Balanced Funds Category

Scheme Name Return (in %)
HDFC Prudence 26.32
HDFC Balanced 25.49
Reliance Regular Savings-Balanced 22.11
Birla SL '95 19.66
ICICI Prudential Balanced 18.58
Crisil Balanced Fund Index (Benchmark Index) 13.57
Source: ACE MF, iFAST Compilation

Conclusion

Overall, analysis shows that actively managed funds have outperformed the benchmark by a good margin. On the debt fund front, two funds each from Baroda Mutual Fund, Birla Mutual Fund, Religare Mutual Fund and Franklin Templeton Mutual fund feature in the Top funds in debt category. In Hybrid section, the fund house that was dominant in the category was HDFC Mutual Fund by having 5 funds out of 10 funds in the category. On domestic equity side, again HDFC Mutual Fund rules the space by having 8 funds of the top 20 funds in the category. This was followed by DSP BlackRock and Quantum Mutual fund having 2 funds each in the overall category.  


iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.

 

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