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Back the right horse

Mutual fund investors have never had it so good. Riding the crest of a rally in stock and bond prices, nearly all schemes — be it pure equity, diversified or income — have posted stellar returns this year.

But if you haven’t joined the party yet and are looking to invest in a mutual fund, here’s a caveat: don’t get carried away by recent performance. Looking at returns over the last six months, it’s impossible to separate the wheat from the chaff.

Dhirendra Kumar, a mutual fund analyst says: “For the last six months even the not-so-good ones have performed just as well as the good ones.

“Easy money has been made, and going forward, fund management skills will again come into play. In the next three to six months, the good ones will be separated from the bad.”

Although the markets have run up quite a bit, it’s not late yet; most fund managers still see a lot of opportunities. There’s certainly been some profit booking in the equity market of late, but fund managers maintain people are still looking for buying opportunities.

Though the outlook is bullish, it isn’t going to be as easy to make money as it was in the past six months. So, if you are a late entrant, you should be backing the right horse to make best use of the unreleased steam in the market.

Crisil Fund Services ranks the top mutual fund schemes every quarter. It measures the composite performance of 100-odd schemes across categories. The rankings are comparative and expressed in percentile.

The mutual fund industry widely acknowledges it as a credible indicator of performance. For the retail investor, it’s a good guidepost.

(Crisil analysed the performance of 121 open-ended schemes across six categories from 21 fund houses in its Composite Performance Ranking (CPR) for the quarter that ended in September. This edition deals with diversified equity schemes; over the next two, we’ll cover five other categories — income, balanced, liquid, short-term debt and gilt.)

The 32 diversified equity schemes that were shortlisted for ranking, are more than two years old, bare their entire portfolio and have a corpus of Rs 50 crore at a minimum. The rankings are based on performance over the last two years — from October 1, 2001 to September 30, 2003.

Crisil weighed return as well as fund attributes for its rankings. For diversified equity schemes, it took into account issues like risks arising out of over-exposure to a particular industry or a specific stock, besides appreciation in net asset value (NAV). Return, however, had the highest weightage — 75 per cent.

For diversified equity schemes, Crisil applied four parameters: return, industry concentration, company concentration and liquidity. Being a “forward-looking ranking”, Crisil gave higher weightage to recent performance than in the more distant past.

The growth options of DSP Merrill Lynch Opportunities Fund, HDFC Equity Fund and Reliance Vision Fund have topped the chart. Reliance Vision has stayed in the ‘very good’ category for the last nine quarters (since September 2001).

HDFC Equity has retained its position since September 2002, while DSP Merrill Lynch moved up one notch. It was among funds rated ‘good’ in the last quarter ranking.

The schemes that have fallen from the crest in the September-end ranking are Franklin India Prima Fund and HDFC Top 200 Fund. While the former now sits in the ‘good’ category, the latter has slipped two notches to the ‘average’ category.

Five schemes from big daddy UTI qualified for the rankings: UTI Master Growth 1993, UTI Master Plus 1991, UTI Mastergain 1992, UTI Grand Master 1993 and UTI Growth Sectors Fund-Brand Value.

There isn’t much to scream about the performance of any of them. Two are in the ‘average’ category, one in the ‘below average’ and the other two are at the bottom of the chart.

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