Mutual funds: Why hold is better than sold now

It’s a pity that investors are withdrawing money from mutual funds. Most new funds launched in the past year have outperformed their benchmarks

The stock markets have see-sawed intermittently in the past year, even as the mutual fund industry has faced its toughest battle for survival against the blizzards unleashed by market regulator Securities and Exchange Board of India (SEBI). These trying times witnessed the launch of several new mutual fund schemes.

Remarkably, a majority of these schemes have outperformed their respective benchmarks over the short duration of their existence. This feat has been achieved by 10 of the 13 new equity diversified schemes launched in this period. The Canara Robeco FORCE Fund stood out with an exceptional performance. Launched in September 2009, this Fund has delivered stellar returns (36%), as against its benchmark, the S&P Nifty, which gained only 13% over this period. The Fund invests primarily in companies in the finance, retail and entertainment sectors. Its top holdings as on 31st August were HDFC Bank, State Bank of India, Punjab National Bank, Sun TV Network and Pantaloon Retail.

Another strong performer was the Sahara Star Value Fund, which clocked 23% returns since its launch in September 2009. Its benchmark, the BSE 200, gained only 13% over the period. The Fund seeks to generate capital appreciation through select companies based on specific value parameters. Mid-cap stocks like Mirc Electronics, Suprajit Engineering, United Phosphorus, Artson Engineering and Accentia Technologies are among its top picks.

Similarly, Religare Business Leaders Fund and Kotak Select Focus Fund have done well since their launch. Religare's Fund has managed to deliver 19% returns since its launch in late August last year, as compared with its benchmark, the S&P Nifty, which registered 14% growth over the period. As the name suggests, this Fund invests mainly in companies that are leaders in their respective industries. Infosys Technologies, Reliance Industries, Larsen & Toubro, ICICI Bank and HDFC form the largest chunk of its portfolio, although RIL would have dragged its performance down.

 

Kotak Select Focus Fund has managed to post a gain of 18% as against its benchmark, the S&P Nifty, which gained 12% since the Fund's launch in September 2009. This Fund, which invests in companies in sectors like finance, energy, healthcare and FMCG, has among its top holdings ONGC, SBI, Glaxo Consumer Healthcare, Axis Bank and Infosys Technologies.

The Religare PSU Equity Fund and Fidelity India Value Fund are also among the outperformers. Launched in November 2009, Religare PSU Equity Fund has clocked a 13% return, with its benchmark (the BSE PSU index) managing 7% gains over the same period. The Fund invests only in public sector enterprises and has sizeable holdings in ONGC, Oil India, NTPC, Indian Oil Corporation and BHEL. Fidelity India Value Fund recorded 12% appreciation since its launch in January 2010, while its benchmark (the BSE 200) moved up by 4%. Its corpus has already touched Rs193 crore. The Fund focuses on undervalued stocks and can also invest in foreign securities in international markets. Among its top picks are Reliance Industries, HDFC Bank, Tata Consultancy Services, Corporation Bank and Ahluwalia Contracts.

Among other outperformers are Axis Equity Fund (up 9%), Mirae Asset Emerging Bluechip Fund, Birla Sun Life India Reforms Fund (each up 6%) and SBI PSU Fund (up 3%).

However, a couple of new funds have disappointed. The Shinsei Industry Leaders Fund has yielded 12% returns since its launch in September last year, while its benchmark (the BSE 100) gained 14% over the same period. Surprisingly, DSP BlackRock Focus 25 Fund also underperformed its benchmark, though only marginally. Launched in June this year, the Fund has struggled to deliver returns amidst a relatively flat market over the past three months. Still, the Fund has generated considerable interest and its corpus has touched nearly Rs736 crore in just three months! Its portfolio has exposure to companies that are among the top 200 by market capitalisation. Among its top holdings are Kotak Mahindra Bank, Tata Motors, BPCL, LIC Housing Finance and Mphasis.