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Diversified funds provide 40% return in a year

Nilanjan Dey

FMCG funds delivered 43 per cent or so, while tech funds 32 per cent, followed by auto and pharma with 26 per cent and 18 per cent.

Returns generated by diversified equity funds have fallen drastically ever since the stock market came off its recent peak. Now, that's stale news, and we are not here to talk about something that has been discussed threadbare. The point we want to raise instead is simple: Returns from diversified funds, considering their last one-year performance as on June 30, stand at an average 40 per cent.

The last time we checked, there were not too many investment options that had given 40 per cent in a year. Sure, there are specific instances of individual stocks, real estate and art - which perhaps appreciated far more than just this - but these are not within the ambit of this column.

Simple logic, therefore, tells us that investing in normal, broad-based equity schemes will still makes sense, even in a market that has come down sharply. More particularly, these are apt for investors who have time on their side.

Fund houses are currently telling their clients that diversified products are holding out and they may consider further allocations at this stage. However, whether fresh investments should be made at all is a matter that is best left to the individual investor. The latter has to feel convinced that such a decision will add value to his portfolio.

Talking about having time on one's side, let us repeat that fundmen would ideally want you to stay invested for at least three years. After every correction, they add, stocks become more attractive and patient investors have a greater chance of getting decent returns. In fact, some of the alternative investment avenues (debt, for instance) may even turn less attractive for money that has moved out of equity funds during a decline.

But before we proceed, shall we take a look at one-year performance figures for various categories of equity schemes? For the record, FMCG funds have delivered 43 per cent or so, maintaining their lead over all the others. In fact, that lead has actually come down considerably in recent months, if you remember the superior performance put up by this category. Tech funds have provided 32 per cent, followed by auto and pharma with 26 per cent and 18 per cent respectively.

While one-year is certainly not a long time in the world of managed funds, a point noted by Mr A.K. Sridhar, CIO of UTI MF, may be worth quoting: Long-term equity investors need not worry about volatility as long as the supporting economic fundamentals do not deteriorate and corporate earnings growth is sustained.

Timing - futile exercise?

Timing one's investment during volatile periods would be a futile exercise, Mr Sridhar says. Instead, investing in fundamentally strong businesses with strong positive cash flows will be the winning strategy. Those investments would command a premium once the market volatility gets reduced, he adds.

Before we close, it is time to look at a recent SEBI initiative - even if this has no relation with what we have discussed so far. The regulator has advised trustees to certify that the name of a fund approved by them is for a completely new product and not a minor modification of one that already exists.

The interesting thing is that the SEBI edict will cover close-ended schemes that are to be converted into open-ended products on maturity. With such schemes being mooted very actively these days, it remains to be seen how fund houses react to the regulator's view.

Feedback may be sent to nilanjan@thehindu.co.in

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