Most-favoured MF equity schemes give negative returns

Even as they beat benchmarks.

With fear of a slowdown looming, a steep fall in world’s markets last week and the US being downgraded first time in seven decades, domestic retail investors have made losses in their most-favoured schemes this year.

Indian investors accessing equities through the mutual fund route have been sitting on negative returns in the country’s top-ten equity schemes this year. The year-to-date (YTD) loss is in the range of 8-25 per cent.

However, a positive amid negative factors that should give some cushion to investors is that a majority of the most-favoured equity schemes has performed better than benchmarks and beaten BSE Sensex and CNX Nifty.

These top-ten mutual fund schemes, in terms of assets under management, make up close to a third of the total equity assets of the fund industry.

India’s largest equity fund HDFC Top 200, which has assets under management of Rs 10,507.61 crore as on June 30, has given a negative return of 11.37 per cent so far this year, while the third-largest, Reliance Growth, has fallen short of its benchmark, with a negative return of 14.85 per cent. Similarly, returns in Reliance Regular Savings Equity and Fidelity Equity stand at -13.23 per cent and -10.94 per cent, respectively.

Kaushik Dani, equity head at Peerless Mutual Fund, says: “It is mainly on account of the fact that equity markets began the current calendar year with a higher base. The market had discounted corporate earnings and margin of error then was little. However, with weak global cues, coupled with domestic issues of high inflation and monetary tightening, equities underperformed.”

Retail investors have already distanced themselves from direct dealing in the stock markets for quite some time now, amid uncertain economic scenario — domestically as well as globally.

“There is global nervousness,” says Nandkumar Surti, chief investment officer (CIO) at JP Morgan Asset Management. “If risk aversion continues, markets are likely to go further down from the current levels,” he adds. N Sethuram, chief investment officer of Daiwa Mutual Fund, agrees: “There is uncertainty across the globe. We believe the markets may further slide by 7-8 per cent as talks of a double-dip recession are resurfacing in the western world.”
   

DWINDLING FORTUNES Top 10 equity schemes on the basis of AAUM as on on June 30
Scheme	AAUM (Rs cr) Jun 30, ‘11	Fund YTD  Return (%)	NAV	Benchmark	Benchmark YTD  Return (%)
HDFC Top 200	10,507.61	-11.37	200.004	BSE 200	-15.01
HDFC Equity	9,220.20	-10.67	266.661	S&P CNX 500	-14.58
Reliance Growth	6,957.75	-14.85	426.429	BSE 100	-14.69
Magnum Taxgain	5,224.14	-13.33	56.57	BSE 100	-14.69
Franklin India Bluechip	3,841.20	-10.29	204.843	BSE Sensex	-15.62
ICICI Prudential Dynamic	3,814.40	-8.42	102.197	S&P CNX Nifty	-15.05
Reliance Diversified Power Sector Retail	3,403.41	-25.64	61.584	India Power Index	-
Reliance Regular Savings Equity	3,332.17	-13.23	28.845	BSE 100	-14.69
UTI Dividend Yield	3,304.26	-8.73	31.27	BSE 100	-14.69
Fidelity Equity	3,302.23	-10.94	33.802	BSE 200	-15.01
YTD and NAV as on 05th August 2011 Open-ended Equity funds have been considered                                                                                   Source: Value Research

Equity schemes have lost investors’ favour, not only because distributors are not willing to sell equity funds but also due to higher risk in the current market scenario. Industry experts say, when risk premium has squeezed down to as low as 1-2 per cent, investors prefer fixed deposits, where returns are attractive at around 8-10 per cent, over equities.

This is evident from the dwindling number of folios and abysmal inflows in the equity schemes. In the first quarter of the current financial year, net inflows stood at less than Rs 500 crore. In June, the figures dropped to as low as Rs 20 crore, against over Rs 1,500 crore in May. Overall, the equity assets have reduced to 25 per cent of the industry’s total assets in June, compared with 29 per cent at the end of March.