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It's been quite a turnaround for risk-averse investors. About a year ago, equity markets were soaring and touching record highs at alarming regularity, much to the delight of equity/mutual fund investors. Conversely, interest rates had bottomed out and products like fixed deposits were offering modest returns, much to the dismay of risk-averse investors.
The scenario truly tested the resolve of risk-averse investors. Quite a few were tempted to get invested in market-linked instruments, and disregard their risk profile in the process. At Personalfn, we have always maintained that investors should invest in line with their risk profile, irrespective of factors like market conditions. Our advice for risk-averse investors was no different then.
And now the investment scenario has changed, and how! Interest rates have witnessed a cycle and are on the rise at present. Expectedly, FDs are offering attractive returns; a 1-Yr AAA/equivalent (indicating the highest degree of safety) FD can fetch a return in the range of 8.00%-8.25%. For investments made by senior citizens, a higher coupon rate is offered.
Mutual funds have joined the bandwagon by launching a slew of fixed maturity plans. FMPs are not assured return products in the strictest sense; in fact, they can be termed as the FD equivalent from the mutual funds segment. FMPs target a given yield (return) which is locked-in at the time of investment. Hence investors know with a reasonable degree of certainty the return that their investment will generate and also the investment tenure.
Investors can also consider adding to their portfolios "capital protection oriented schemes"; as the name suggests, the mainstay of such schemes is to provide capital protection, despite being invested in market-linked instruments.
Fixed Maturity Plans Vs Capital Protection Schemes
Finally, conservative investors who are willing to take on a slightly higher degree of risk, in a bid to clock superior growth can consider investing in monthly income plans. Despite what the name might suggest, investments in MIPs don't offer assured returns. The same is a factor of the fund's performance, which in turn is dependent on the markets. MIPs offer the proposition of combining the stability of debt (80-85 per cent of assets), with the power of equity (15-20 per cent of assets).
Clearly, risk-averse investors have a large number of attractive investment options to choose from. Our advice � engage the services of a qualified and experienced investment advisor, and ensure that you invest in line with your risk profile at all times.
It was a good week for investors as markets snapped their 5-week losing streak and closed the week in positive terrain. The BSE Sensex posted a gain of 6.89 per cent to close at 13,286 points; the S&P CNX Nifty ended at 3,861 points (up by 6.98 per cent). The CNX Midcap rose by 5.57 per cent, before settling at 4,855 points.
| Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| UTI Thematic Banking | 20.41 | 9.50% | -3.68% | 20.56% | 28.77% | 8.55% | 0.20% |
| Reliance Banking | 36.46 | 9.11% | -3.51% | 9.15% | 17.43% | 8.32% | 0.15% |
| Birla Index | 21.83 | 6.75% | -5.88% | 7.89% | 19.44% | 7.08% | 0.33% |
| UTI Thematic PSU | 15.78 | 6.66% | -3.35% | 3.59% | -1.37% | 7.05% | 0.15% |
| PruICICI Index | 34.38 | 6.50% | -5.25% | 9.19% | 21.60% | 7.24% | 0.36% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)
Sector funds and index funds dominated proceedings in the equity funds segment. UTI Thematic Banking (9.50 per cent) and Reliance Banking (9.11 per cent) occupied the top two slots. Birla Index (6.75 per cent) and PruICICI Index (6.50 per cent) also featured among the top performers.
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Templeton GSec LTP | 16.62 | 0.48% | 0.61% | 3.10% | 6.22% | 0.66% | -0.19% |
| JM GSec RP | 21.26 | 0.37% | 0.47% | 2.30% | 3.93% | 0.27% | -0.82% |
| DSP ML GSec | 23.08 | 0.36% | 0.72% | 1.06% | 3.17% | 0.67% | -0.30% |
| HDFC Gilt LT | 15.65 | 0.31% | 0.51% | 1.38% | 2.33% | 0.56% | -0.62% |
| Magnum Gilt LTP | 17.24 | 0.29% | 0.72% | 2.38% | 5.42% | 0.56% | -0.31% |
The 10-Yr 8.07 per cent GOI yield closed at 7.95 per cent (March 23, 2007), 7 basis points below the previous weekly close. Bond yields and prices are inversely related, with falling yields translating into higher bond prices and net asset value for debt fund investors.
Government securities (gilt) funds ruled the roost in the long-term debt funds segment. Templeton GSec LTP (0.48 per cent) surfaced as the top performer, followed by JM GSec RP (0.37 per cent).
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Escorts Balance | 44.32 | 5.11% | -6.11% | 3.29% | 6.76% | 5.29% | 0.32% |
| Tata Balanced | 48.80 | 4.76% | -3.71% | 11.48% | 11.13% | 5.65% | 0.30% |
| Birla Balance | 27.30 | 4.32% | -3.81% | 6.06% | 12.30% | 4.43% | 0.31% |
| Kotak Balance | 22.90 | 4.29% | -4.27% | 5.06% | 5.14% | 5.29% | 0.34% |
| PruICICI Balance | 33.84 | 4.19% | -3.86% | 8.57% | 13.22% | 5.20% | 0.34% |
Escorts Balance (5.11 per cent) topped the balanced funds segment. Tata Balanced (4.76 per cent) and Birla Balance (4.32 per cent) occupied the second and third positions respectively.
We are fast approaching the end of the tax-planning season and most investors are scurrying to ensure that their Section 80C investments are completed before the due date. In the context of tax-saving funds, often the 3-Yr lock-in is perceived as a factor that furthers long-term investing and thus aids the fund's performance. At Personalfn, we decided to test this hypothesis by comparing the performance of top-performing tax-saving funds with comparable diversified equity funds from the same fund house.
The intention was to find out if the 3-Yr lock-in aids tax-saving funds in clocking a better performance on the NAV appreciation front vis-a-vis diversified equity funds pursuing a similar investment style. The results were interesting to say the least. Once tax-benefits were factored in, every tax-saving fund outscored its diversified equity fund peer. For investors who can take on the risk associated with an equity-linked investment, clearly there is merit in investing in a well-managed tax-saving fund, with a proven track record.
By Personalfn.com, a financial planning initiative. It can be reached at info@personalfn.com. Personalfn.com also publishes a free-to-download financial planning guide, Money Simplified. To get a copy of the latest issue - How ULIPs fit in - please click here.
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