For those who do not like putting money in the stock market directly, but prefer investing in it through mutual funds, February has been cruel. Not a single fund has been spared and some of them have had a sharper fall than the benchmark indices Sensex and S&P CNX Nifty in February. Sensex is a basket of 30 stocks while S&P CNX Nifty is a broad-based index of 50 stocks.
Sensex, which reached its historic high of 14,652 on 8 February, lost 11.70% by 28 February when it dropped to 12,938 with a 4.01% fall on that day. During this period, the net asset value (NAV) of 173 diversifed equity funds on an average fell 10.78%, but 30 of them saw their NAV being eroded by over 12%.
Among the 29 tax-saving funds, only three funds lost more than the Sensex, and 10 of them have outperformed the Sensex. Their NAV did not drop more than 10% in three weeks between 8 and 28 February.
JM HI FI Fund and JM Equity lost the most in February. A look at their portfolios (as on 31 January) shows that both the funds had high exposure to infrastructure and cement stocks—about 19% of their total assets. Both stocks took a severe beating. For instance, IVRCL Infrastructure fell 30%, Hindustan Construction stock fell 26% and Grasim fell 22%.
Top gainers during this period such as UTI MNC, Birla Sun Life Buy India Fund could protect their NAV by virtue of their high exposure to FMCG and health care stocks.
HDFC Capital Builder, a scheme managed by HDFC AMC, restricted its losses because of its relatively high exposure to metal, engineering and technology stocks.
Earlier in May 2006, Sensex had lost 29% in a little over four weeks between 10 May and 14 June after the benchmark index crossed the 12,000 mark.
If one compares the performance of mutual funds in February 2007 with that of May 2006, the diversified equity funds have put up a better show than the tax-saving funds in February 2007.
In May 2006, only 12% of diversified funds—20 out 165— outperformed Sensex by losing less than the index. At that time, 25 out of 26 tax-saving funds lost more than the benchmark index.
Prudential ICICI Tax Plan had lost the most—39%—during that time. However, it’s not among the worst losers in February 2007.
Magnum Tax Gain and Fidelity Tax Advantage are the only two tax-saving funds that have lost the least in both May 2006 and February 2007.
None of the diversified equity funds could withstand the stock market fall during both periods. Birla Asset Allocation Aggressive Fund is the only fund that features in the list of least losers on both the occasions.