No surprises here, equity funds grab honours

CRISIL RANKINGS FOR MUTUAL FUNDS IN THE THIRD QUARTER

During the quarter ended March 2006, the Assets Under Management (AUM) of the mutual fund industry increased by 16 percent to Rs.2,31,856 crore from Rs.1,99,248 crore in December 2005. Nearly half the increase in AUM during the quarter happened during March 2006.

The month also saw Reliance Equity Fund mobilising Rs.5759 crore through its NFO. This is the record collection for any NFO in India. Overall, there were 87 NFOs during the quarter and raised Rs.41,366 crore in aggregate compared to 35 NFOs aggregating Rs.8182 crore in the previous quarter. Among new schemes, Fixed Maturity Plans (FMPs) attracted special attention and a chunk of inflows was through FMPs. Debt funds especially floaters lost sheen.

Equity schemes continued to attract investors and investments in equity as an asset now contributes almost 45 percent of the total AUM by the domestic fund industry. A booming stock market and lack of investor interest in bond funds was the prime reason for the AUM growth in equity assets.

Equity diversified schemes
Indian stocks were among the best performers among global markets with the S&P CNX Nifty posting about 20 percent returns for the quarter ending March 06. The CRISIL Fund"�eX, an index which tracks the performance of equity diversified schemes, generated point-to-point returns of 20 percent for the quarter ended March 2006 compared to 7 percent in the previous quarter.

For the quarter, Capital goods was the best performing sector with the BSE Capital Goods Index returning 41 percent followed by metals at 37 percent and FMCG at 34 percent. Mid-cap stocks gathered momentum as the CNX Midcap Index posted returns of 18.57 percent during the quarter, slightly lower than S&P CNX Nifty returns, and compared to 5.86 percent during the previous quarter.

FIIs were the prime movers of the market and invested over USD 4 billion (Rs.18000 crore approx) into equities during the quarter. The FII investment during the first calendar quarter of the year 2006 is about 40 percent of the total investments by FIIs during the year 2005. Mutual funds, on the other hand, made net purchases of Rs.3065 crore during the quarter ended March 2006. This formed about 23 percent of the net mutual fund investments during the year 2005. Further, mutual funds were net sellers during January and February 2006 and were net buyers during March 2006.

In the Equity Diversified category, fifty-nine schemes were eligible for ranking for the quarter ended March 2006. Six schemes were ranked CRISIL"�CPR 1. CRISIL"�CPR 1 indicates "Very Good Performance" and constitutes the top 10 percent of the category. DSP Merrill Lynch Equity Fund, Reliance Growth Fund, SBI Magnum Global Fund, SBI Magnum Multiplier Plus Scheme 1993, SBI Magnum Sector Umbrella - Contra Fund and Sundaram Select Midcap were ranked CRISIL"�CPR 1.

While all other schemes were CRISIL"�CPR 1 in the previous quarter too, SBI Magnum Multiplier Plus Scheme 1993 joined the toppers in the quarter under review. SBI Magnum Multiplier Plus Scheme 1993 - moved up from CRISIL"�CPR 2 to CRISIL"�CPR 1 mainly on account of its improved performance on the Superior Return Score parameter.

The Superior Return Score is the relative measure of the return and risk for schemes compared to their peer group. Improvement in performance was mainly contributed by BHEL, which constituted about 5 percent to 5.75 percent of the portfolio during the quarter. The stock appreciated by 62 percent during the quarter.

UTI Thematic - Basic Industries Fund, HSBC India Opportunities Fund, Tata Growth Fund, UTI Thematic - Mid Cap Fund, CAN Fortune - 1994, UTI Thematic - Large Cap Fund were the new entrants to equity diversified category.

The next 20 percent of the schemes in the ranking universe are ranked CRISIL"�CPR 2, indicating "Good Performance". Birla Sun Life Equity Fund, DSP Merrill Lynch Opportunities Fund, Franklin India Prima Fund, HDFC Capital Builder Fund and Tata Equity Opportunities Fund have retained their CRISIL"�CPR 2 rank. Birla Midcap Fund moved up one notch to CRISIL"�CPR 2 on the basis of a better score on the company and industry concentration parameters.

Principal Growth Fund moved up the ranking with improved Superior Return Scores, Company and Industry concentration parameters. BHEL and Godrej Consumer Products Ltd contributed the highest to the scheme's gain during the quarter.

Among various stocks in which the scheme took fresh exposure, CESC Ltd, Wipro, EID Parry Ltd and UTI Bank Ltd. contributed positively to its overall gains. Prudential ICICI Power, Sundaram Growth Fund, Sundaram Select Focus and Tata Select Equity Fund moved up one notch to CRISIL"�CPR 2 on account of better Superior Return Scores. Prudential ICICI Power was helped by gains in BHEL and L&T, which were in the top 5 holdings of the scheme.

Sundaram Growth Fund increased its exposure in Shree Renuka Sugars Ltd. from 1.4 percent to 4.25 percent during the quarter. The stock witnessed an appreciation of 185 percent during the quarter. BHEL, ACC and Balrampur Chini Mills Ltd. gave a fillip to the overall gains of Sundaram Select Focus. Tata Select Equity Fund gained on account of appreciation in Siemens Ltd., which was the top holding of the scheme during the quarter. UTI Thematic - Basic Industries Fund was a new entrant on the basis of the two-year NAV criteria.

To find the most popular stocks with the equity fund managers, CRISIL analysed the March 2006 portfolios. Accordingly, the most popular stocks among fund managers of general equity schemes at the quarter end were Infosys Technologies Ltd., Bharat Heavy Electricals Ltd., State Bank of India, ITC Ltd., Reliance Industries Ltd., Larsen & Toubro Ltd., Oil & Natural Gas Corporation Ltd., Grasim Industries Ltd., in that order, among others. The most popular industries where fund managers took their bet were Software, Banking and Electrical Equipment.

Equity-linked savings schemes
In the case of Equity Linked Savings Schemes (ELSS), twelve schemes were eligible for ranking in this category. Two schemes entered the category, i.e., ING Vysya Tax Saving Fund at CRISIL"�CPR 3 and Principal Personal Tax Saver entered at CRISIL"�CPR 5. The ELSS category witnessed 81 percent increase in AUM for the CPR ranked schemes during the quarter, as investors made investment in these schemes for getting tax benefits.

The category witnessed stability in the rankings with SBI Magnum Tax Gain 1993 retaining its top slot at CRISIL"�CPR 1 for the quarter ended March 2006. HDFC Tax Saver Fund and Prudential ICICI Tax Plan continued to jointly hold the CRISIL"�CPR 2 slot. Principal Tax Saving Fund improved its ranking from CRISIL"�CPR 4 to CRISIL"�CPR 3 mainly on account of improvement in Superior return core ranking. BHEL, which constituted about 5 percent of the portfolio during the quarter, was the highest contributor to the gains, with 62 percent appreciation in its price.

Income Schemes
The returns of debt funds continued to decline in the quarter under review mainly due to rising interest rates amidst a tight liquidity scenario. With equity being the flavour of the markets, there were few takers for debt funds leading to a decline in AUM by 13 percent for the ranked schemes. The CRISIL Fund"�dX, the benchmark for income schemes, generated point-to-point returns of 0.14 percent for the quarter ended March 2006 compared with 0.73 percent in the previous quarter.

The quarter witnessed tightening of the money market and consequently a rise in interest rates. Call money rates touched 8 percent in January mainly due to the outflow on account of the India Millennium Deposits (IMDs) in December, lack of government spending during most of the quarter as well as the advance tax outflows in March.

External factors like the rising interest rates in the US as well rising oil prices also contributed to the situation. RBI stepped in to defuse the situation by infusing liquidity through repos and dollar buying. Increased government spending in March also helped ease the situation as call rates settled around 6 percent towards end of March.

In the Income segment, nineteen schemes were eligible for ranking for the quarter ended March 2006. Principal Income Fund and UTI Bond Fund retained their CRISIL"�CPR 1 rank. Kotak Bond Regular and Reliance Income Fund retained its position at CRISIL"�CPR 2 while Birla Income Plus Plan B moved up by two notches to CRISIL"�CPR 2 as a result of better performance on Superior Return Score, Company Concentration and Debt Liquidity parameters. HSBC Income Fund - Investment Plan, a new entrant to this category (as a result of increase in corpus above Rs.25 crore) also bagged the CRISIL"�CPR 2 slot.

Grindlays Super Saver Income Fund - Investment Plan, LICMF Bond Fund, Prudential ICICI Income Plan, Templeton India Income Builder Account - Plan A and Templeton India Income Fund maintained their rank at CRISIL"�CPR 3 while Tata Income Fund was also ranked at CRISIL"�CPR 3. Birla Sun Life Income Fund was a new entrant to the cluster owing to the AUM criteria of Rs.25 crore.

The average maturity of ranked income schemes declined over the two-year period between April 2004 to March 2006 from about 5.6 years in April 2004 to 1.44 years in March 2006. The main reason for the move towards lower average maturity being the rising interest rate scenario. Increasing interest rate has a negative impact on the value of the bond when marked to market. Shorter maturities enabled income funds to reduce volatility vis-à-vis longer maturity portfolios.

Income short-term schemes
The performance of Income Short Term schemes was highly volatile during the quarter under review. The CRISIL STBEX, which is a benchmark for short-term schemes, posted returns of 0.69 percent for the quarter compared to 0.43 percent for the previous quarter. The high volatility was attributed to tight liquidity. The overnight MIBOR graph shown below indicates the volatility in short-term rates in the last two quarters. The sub - 5 percent MIBOR at the beginning of April 2005 touched 8% in January 2006 post redemption of India Millennium Bonds. Rates, however, cooled off towards the end of the quarter.

In the Income short-term category, sixteen schemes were eligible for ranking. Reliance Short Term Fund maintained its top rank at CRISIL"�CPR 1 while UTI Liquid Short Term Plan moved up by one notch to the top spot. UTI Liquid Short Term Plan performed better mainly on four fronts, viz., Mean Return, Volatility, Company Concentration and Asset Quality. In the CRISIL"�CPR 2 cluster Principal Income Fund - Short Term Plan and Tata Short Term Bond Fund maintained their ranks at CRISIL"�CPR 2.

Birla Bond Plus - Retail, HDFC Short Term Plan and Prudential ICICI Short Term Plan maintained their rank at CRISIL"�CPR 3. HSBC Income Fund - Short Term Plan and JM Short Term Fund moved up one notch to CRISIL"�CPR 3 while Birla Sun Life Short Term Fund was a new entrant in the cluster owing to the AUM criteria of Rs.150 crore.

Floating rate schemes
The Floating rate category has been further sub-divided into Long Term and Short Term. Nine schemes were ranked under Long Term Floaters while fifteen schemes were ranked under Short Term Floaters. Twenty-eight schemes (both Long Term and Short Term) were eligible for ranking in the previous quarter.

Among Long Term Floaters, Reliance Floating Rate Fund topped the list at CRISIL"�CPR 1 while Grindlays Floating Rate Fund - LTP and Principal Floating Rate Fund - Flexible Maturity Plan made to the second spot at CRISIL"�CPR 2. Birla Floating Rate Fund - Long Term, HDFC Floating Rate Income Fund - Long Term Plan and Templeton Floating Rate Income Fund - Long Term Plan were ranked at CRISIL"�CPR 3.

Floaters Long Term
Among Short Term Floaters, CanFloating Rate - STP and HDFC Floating Rate Income Fund - Short Term Plan made it to CRISIL"�CPR 1 while JM Floater Fund - Short Term Plan, LICMF Floating Rate Fund and Prudential ICICI Floating Rate Plan - Option B made it to the CRISIL"�CPR 2 cluster. Kotak Floater - Short Term, Principal Floating Rate Fund - Short Maturity Plan, Tata Floating Rate Fund - Short Term, Templeton Floating Rate Income Fund - Short Term Plan and UTI Floating Rate Fund - STP were ranked at CRISIL"�CPR 3.

Monthly Income Plans
Monthly Income Plans (MIPs) witnessed a slight improvement in returns with the benchmark CRISIL MIPEX registering a return of 2.80 percent for the quarter from 1.8 percent in the previous quarter.

In the MIP category, twenty schemes were eligible for ranking including five new entrants. All new entrants were eligible after completion of two years of their NAV history. UTI MIS Advantage Plan continued to remain at the top spot at CRISIL"�CPR 1 while Kotak Income Plus moved up two notches to share the first rank at CRISIL"�CPR 1.. In the CRISIL"�CPR 2 cluster, FT India Monthly Income Plan maintained its position LICMF Monthly Income Plan moved up by one notch and Prudential ICICI MIP Plan - Cumulative moved up two notches to CRISIL"�CPR 2. LICMF Monthly Income Plan scored better mainly on the Superior Return Score parameter while Prudential ICICI MIP Plan performed better on three parameters, viz., Superior Return Score, Company Concentration and Industry Concentration.

Liquid Schemes
This category witnessed no major change in returns with the benchmark CRISIL"�LX registering a return of 1.39 percent in the quarter under review from 1.3 percent in the previous quarter. The tightness in the debt markets amidst rising interest rates led to call rates touching 8 percent in January. Rates subsided later in the quarter owing to RBI infused liquidity and government spending. AUMs in the category also dropped owing to lower subscriptions and higher redemptions.

Gilt-long schemes
Gilts performed poorly owing to poor liquidity in the debt market as the CRISIL MF"�Gilt Index generated negative point-to-point returns of 0.01 percent for the quarter under review compared to 1.54 percent returns for the previous quarter. The average residual maturity for the ranked schemes decreased to 3 years from 7 years.

Balanced Schemes
The surge in the equity markets saw a better performance from balanced funds with the CRISIL Fund"�bX generating point-to-point returns of 14.13 percent for the quarter under review compared to 7.14 percent in the previous quarter.

In the Balanced schemes category, sixteen schemes were eligible for CRISIL"�CPR rankings for the quarter ended March 2006. SBI Magnum Balanced Fund maintained its CRISIL"�CPR 1 rank while Tata Balanced Fund moved up one notch to CRISIL"�CPR 1. Tata Balanced Fund performed better on parameters like Superior Return Score and Debt Liquidity. Kotak Balance maintained its rank at CRISIL"�CPR 2 while CAN Balanced II moved up one notch. CAN Balanced II performed better on Superior Return Score, Debt Asset Quality, Company Concentration and Equity Liquidity.

Balanced
In the CRISIL"�CPR 3 cluster Birla Sun Life 95 Fund, DSP Merrill Lynch Balanced Fund and Principal Balanced Fund maintained their rank while LICMF Balanced Fund - Plan C and Sundaram Balanced Fund moved up one notch to CRISIL"�CPR 3.

Note: An entity wishing to use the CRISIL"�CPR rankings in its prospectus / offer document / advertisement / promotion/ sales literature, or wishing to re-disseminate these rankings, may do so only after obtaining the written permission of the ranking entity, CRISIL FundServices, CRISIL Limited
For the methodology log on to www.crisil.com

DISCLAIMER: CRISIL has taken due care and caution in compilation of data for this analysis. Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL especially states that it has no financial liability whatsoever to the users of this report. Neither CRISIL, nor any director, employee or representative of CRISIL can accept liability for any direct or consequential loss arising from the use of this data.

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The Methodology

CRISIL"�Composite Performance Ranking - (CRISIL"�CPR) is the relative performance ranking of mutual fund schemes within the peer group. The basic eligibility criteria for inclusion in the ranking universe are two-years NAV history (one-year for Liquid, Floating rate funds (Long - term & Short - term) and Debt-short funds), assets under management in excess of category cut-off limits and complete portfolio disclosure. The ranking is done on the following parameters depending on the category to which the scheme belongs.

Superior Return Score: The Superior Return Score (SRS) is the relative measure of the return and the risk for the schemes compared to their peer group. It is computed for Diversified Equity, Equity Linked Savings Schemes (ELSS), Debt, Balance, Monthly Income Plan and Gilt schemes for a two - year period.

Mean Return and Volatility: Mean return and volatility are considered separately in case of Liquid, Floating Rate (Long Term & Short Term) and Debt-Short term schemes for a one - year period. Mean return is average of daily return on fund NAV for one-year period and the Volatility is the standard deviation of the returns. The weightages for the four six monthly or quarterly {Liquid, Floating Rate (Long Term & Short Term) and Debt-Short term schemes} period, starting from the latest, are 32.5%. 27.5%, 22.5% and 17.5% respectively.

Portfolio Concentration Analysis: Concentration measures the risk arising out of improper diversification. For Equity portfolios, NIFTY is used as the benchmark in measuring Industry Concentration and deviations are computed for over exposure. Diversity Score is used as a means of measuring Company concentration. In case of Debt and Liquid portfolios, the concentration is analysed only for over exposure in Gilt, Manufacturing, NBFC, Securitised Debt and Banking, Financial Institution and Housing Finance companies.

Liquidity Analysis: It measures the ease with which the portfolio can be liquidated. In case of Equity, the liquidity is computed by comparing the security level turnover of the security with average six monthly turnover of that particular security on BSE and NSE. The Gilt liquidity is measured by comparing the security level turnover with the market turnover, days traded and size of trade for six months period for that security. Corporate Debt Liquidity is computed by classifying the portfolio into 3 components Liquid, Semi Liquid and Illiquid.

Asset Quality: Asset Quality measures the probability of default by the issuer to honour the debt obligation in time. Regrouping the portfolio in the various ranking group and multiplying the percent exposure in each rating category by relevant default/migration statistics gives a measure of asset quality.

Average Maturity: Average Maturity is considered across all debt categories to capture the interest rate of the portfolio. Lower the value better it is.

Downside Risk Probability (DRP): DRP gives the probability of capital destruction. It measured by counting the number of times fund's return fall below the risk free return over the period of analysis. The risk free return is the 91-day T-Bill yield over the period.

Asset Size: It is considered only for Floating Rate Fund (Short - Term), Debt-short and Liquid schemes to take into account the effect of large fund flows on the funds performance. Higher the asset size better it is.

The definition of various CRISIL"�CPR categories is as follows:

CPR Category Interpretation CRISIL"� CPR 1 Very Good performance in the category (Top 10% of the universe)

CRISIL"� CPR 2 Good performance in the category (Next 20%)

CRISIL"� CPR 3 Average performance in the category (Next 40%)

CRISIL"� CPR 4 Below average performance in the category (Next 20% )

CRISIL"� CPR 5 Poorest performance in the category (Last 10% )