Investors missing on some top equity funds

[Anand S]

When the decision to rate mutual fund (MF) schemes was taken nine
years ago, it raised hackles in the industry. Some even warned of a
blood bath. After all, the performance of fund managers was to be
placed under thorough scrutiny.

However, almost a decade later, it seems things aren't all that bad.
Investors continue to trust well-known brands or a friend's tip over a
fund's performance, while investing in MFs.

But to what extent can investors continue to do this? Take a look at
largesized equity funds and their ratings to figure this out. Many of
these funds are new with no track record. Others have obtained lower
ratings and have failed to make it to the list of top-rated funds.
Yet, ironically, investors continue to plough their savings into
them.

BIG DEAL!

Sticking to well-known names in the financial industry may not be a
bad idea. After all, MF ratings analyse only past performance. And
what matters is future performance.

So, the logical thing to do is stick to big names in the financial
world, which offer a level of comfort, and expect them to deliver. But
are things that simple ? Not really. The performance of funds keeps
vacillating, making constant tracking of ratings a must.

For instance, the schemes of one-time best performers in the equity
domain -- Franklin Templeton and HDFC -- are slipping on the ratings
chart. While for some funds, it may be time to exit, for others, you
have to be alert to recent developments.

INVESTMENT STRATEGY

During the quarter, MF ratings have witnessed several changes. HDFC
Tax Saver has moved down one notch from gold to silver. Sundaram
Leadership has moved up from gold to platinum, thanks to its one-year
return of 70%. ICICI Pru Power has moved down from platinum to gold,
yet it remains an above-average performer.

Franklin India Bluechip and Templeton India Growth have moved from
silver to bronze -- the dud category.

Investors are advised to track ratings of the funds in their portfolio
and prune the underperformers.

THE STAR SYSTEM

Ratings are perhaps the best thing that could have happened for MF
investors. After all, the system of rating MF schemes ensures that an
investor gets an unbiased opinion on different funds based purely on
past track record. The latter has its limitations, yet, it helps an
investor to take an informed decision. In contrast, have you ever
imagined how much tougher it is to choose an insurer or a bank?

THE MEN BEHIND THE METHOD

The problem with MF ratings is that they blindly look at movement in
net asset value (NAV). The fund manager responsible for the MF's
performance is seldom taken into consideration. Often, schemes with
highest ratings have multiple fund managers during the given tenure.

But this isn't the case for DSP ML and Sundaram. In an era of job-
hopping fund managers, the equity head honchos of DSP ML -- Anup
Maheshwari and S Nagnath -- have remained associated to their fund
houses for a long time. Also, Sundaram's CIO, N Prasad, has been with
the fund for a long time.

Some of his fund managers have quit, but the man on top has remained
put -- a good enough reason to be bullish on the fund.

SMALL WONDERS

However, what is striking is that some of the top funds have been
ignored by the market. Two fund houses worth mentioning here are DSP
Merrill Lynch (ML) and Sundaram BNP Paribas.

Many of their equity funds have consistently been top performers, yet,
their assets have hardly seen substantial absolute growth. In fact, to
a large extent, their own returns have been propping their asset
figures.

DSP Equity, Sundaram Leadership, Sundaram Growth, Principal Tax
Savings, Birla Equity, ICICI Power and Birla Advantage are the
underdogs. Yet, they have consistently been rated among the toppers.
So, investors should consider these funds.



Source: The Economic Times