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Equity Fund Investors just can't afford to miss this! Congratulations on choosing Equity Mutual Funds for creating wealth; rather than investing directly in the stock market. It’s surely a wise decision. But, are you riding on the horses or on the laggards? Have you ever tired to check that? When the markets are on a roll, all Equity Funds give positive returns. Don’t be happy with just that. In last one year, ended 30.11.06, out of the 120 fully diversified funds & 20 midcap funds, the best returns generated are up to 71% and the least being a measly 4%. The average performer being the 70th positioned Equity Fund at 40%, when the 140 Equity Funds are arranged in descending order based on their returns over the last one year. And now, the acid test... A year back, did your financial advisor advise you to invest in mutual funds that have outperformed the rest of the funds or underperformed? • The best 35 funds (1st Quartile i.e. 1st 25% funds) have generated 50-70% returns. • The next 35 funds (2nd Quartile i.e. 2nd 25% funds) have generated 40-50% returns. • The next 35 funds (3rd Quartile i.e. 3rd 25% funds) have generated 30-40% returns. • And the last 35 funds (4th Quartile i.e. last 25% funds) have generated 4-30% returns. Check where your funds feature in the above 4 categories! Now let’s analyze some funds in each category: • Best Performers – 1st Quartile: 50 - 70% returns If your advisor had recommended these funds to you, be sure that you’ve got the best advice available in India. The advisor is a genuine expert and truly gives ethical advice keeping your best interest in the forefront. Check if your advisor had advised you to invest in the following funds during Oct - Dec '05 (Last 1 year returns mentioned): Sundaram Select Midcap: 71%, SBI Global: 66%, Franklin India Opportunities: 63%, Pru ICICI Dynamic: 61%, Tata Select Equity: 59%, HSBC India Opportunities: 56%, SBI Contra: 55%, DSP ML Opportunities: 51%, SBI Multicap: 50% • Above Average Performers – 2nd Quartile: 40 - 50% returns You should still be happy if you’ve invested a year back in the following funds; as to predict the 'Future Winners' who would perform in top quartile is an extremely difficult task. Check if your advisor had advised you to invest in the following funds during Oct - Dec ‘05 (Last 1 year returns mentioned): SBI Multiplier Plus: 50%, Franklin Flexicap: 49%, Reliance Vision: 48%, Reliance Growth: 47%, HDFC Equity: 46%, Pru ICICI Emerging Star: 45%, ABN Opportunities: 45%, ABN Equity: 44%, Birla Midcap: 42% Now starts the problem... • Below Average Performers – 3rd Quartile: 30 - 40% returns Even if you have got a 30 - 40% return over last one year in your Equity Funds, there’s no reason to feel happy. The market itself has gone up by 40%. So, for the amount of risk taken in equities, and the opportunity lost by not investing in the right fund, its you who has lost at the end of the day, not your advisor. Right? Check if your advisor had advised you to invest in the below mentioned funds during Oct - Dec '05. Principal Growth: 40%, Templeton Growth: 37%, Stanchart Classic Equity: 35%, Chola Multicap: 35%, UTI Master Share: 33%, Birla Gennext: 33%, Kotak Global: 32%, Principal Junior Cap: 33%, Chola Midcap: 33% Ask your advisor, on what basis had he recommended you to invest in the above funds. He won’t have a justified answer. You’ve got to change your financial advisor if most of your Equity Funds have given a 30 - 40% return on investments done one year back. • Worst Performers – 4th Quartile: 4 - 30% returns Believe me, your advisor has taken you for a ride by advising you the funds which most probably have earned him maximum commission or has helped him fulfill his distribution targets. If not, at least one thing is sure; he doesn’t have any knowledge of mutual funds. Check if your advisor had advised you to invest in the below mentioned funds during Oct - Dec '05. Tata Midcap: 29%, UTI Divided Yield: 28%, HDFC Capital Builder: 27%, Franklin Prima Fund: 25%, UTI Dynamic Equity: 23%, Tata Dividend Yield: 20%, Birla Dividend Yield: 14%, JM Emerging Leaders: 9%, ABN Dividend Yield: 4% Now what do you do? Get Angry? No, GET SMART! First, you should change your financial advisor. Second, ask yourself that on what basis you had chosen to invest in those funds. • If the answer is Past Performance, believe me, you will rarely find a winner year after year. WINNERS ROTATE (read Oct '06 AURUM for various articles and statistics on the same). • If it was for Convenience (the advisor being conveniently located) then you have paid a heavy price for choosing convenience over quality advice. • If Rebate was the reason, please calculate your total gain (Return + Rebate), is it equivalent to a return of 40-50% (2nd Quartile Performance) or 50-70% (Best Quartile Performance)? Rebate kills the quality of advice. (Read: 'Penny Wise - Pound Foolish' in the Oct '06 AURUM) How have BRAINPOINT’s recommendations fared? Most of the names mentioned in the 1st Quartile which gave the most superior returns of 50-70% were highly recommended by us. Few of our recommendations feature in 2nd Quartile performers. But those who regularly seek our advice would agree that none of our recommended funds have featured in the 3rd or 4th Quartile. Hence we confidently say – We at BRAINPOINT predict 'FUTURE WINNERS' with maximum accuracy. Our other recommendations in the past: • Franklin Prima: Since over a year, we’ve been strongly advocating to exit this fund due to its unmanageable corpus size. Value Research has given a 5 star rating to this fund – but that’s based on its past performance. • UTI schemes: Never on our radar till date. Most of the UTI Equity schemes are underperforming consistently. • Dividend Yield Funds: Not recommended by us since over a year. In Sept '06 AURUM we have again recommended to exit from them. • Pru ICICI Dynamic: Since 2005, we have been strongly recommending this fund (Value Research had given a single star rating to it. In our previous issues of AURUM we have mentioned regularly that this fund deserves a much higher rating. It was upgraded to 2 star rating some time back & in Nov '06 it has been given a 3 star rating. We still feel it's a low rating for such a consistent fund. Our investors have consistently got very good returns in this fund as it was among our top recommendations. Our recent recommendations – How have they fared? • Reliance RSF - Equity: It’s a Super Hit! Since March '06, we've strongly recommended this (one of the least known) Equity Fund in AURUM. It was rated Nil by Value Research as the past performance was not encouraging. We were the first in India to recommend this WINNER. In last 9 months it has proved to be the best performing fund giving 45% appreciation (Sensex up 29%). The closest diversified fund to it is Franklin Opportunities at 38% and the closet midcap fund is SBI Global at 35%. Both these funds along with Reliance RSF were among our top recommendations in March '06. Yes, only we predict the 'FUTURE WINNERS' with such accuracy, and we're proud to reiterate that point. • Sundaram Select Midcap: QUIT (See Oct '06 AURUM): Till May '06, it was one of our most recommended funds. And it proved to be No. 1 performing midcap fund. We were recommending it since 2 years – when actually no one else was recommending it in 2004. June 2006: We were shocked to see the corpus crossing 950 crore for May '06 whereas in April '06 it was around 750 crore. July 2006: We slowed down on recommending this fund expecting it to underperform due to the swelling corpus which would be unmanageable considering the midcap philosophy. Current Corpus (30.11.06): Rs. 1644 crore. Performance in last 6 months since we stopped recommending: Just 9.89% returns, whereas over 10 midcap funds have given returns between 12-20% in last 6 months. • Reliance Equity Fund: QUIT (See Sept '06 AURUM): Last 4 months, this fund is consistently featuring among the 3rd & 4th Quartile performers. Also, the corpus of this fund is coming down. It collected Rs. 5759 crore during its NFO & now the corpus is at Rs. 5105 crore. If the corpus falls down continuously due to heavy redemptions as a result of underperformance, this fund will face a problem of Amortisation (explanation follows). • Some Midcap Funds which were once on our strong recommendations list and are currently on the QUIT list due to their swollen corpuses are:
• Some Midcap Fund NFOs which recently hit the market, which we did not promote aggressively like others, and which have disappointed / may disappoint investors are:
Amortisation: There are over 50 Equity Funds, including funds of Sundaram, Tata, SBI, Birla, Reliance, ABN AMRO, ING, Principal, JM, Kotak, Birla, StanChart, UTI, Pru ICICI, HDFC & HSBC which have a fixed amortisation cost to be deducted from some schemes every year. And the corpuses of these 50 Equity Funds have already gone down and the funds are taking a bad hit due to fixed amortisation cost which is deducted every year. Does your advisor know about these 50 Equity Funds? Eg: JM Emerging Leaders (ignored by us) NFO collected 208 crore. Amortisation cost was around 1% pa i.e. 2 crore pa. The corpus has came down to just Rs. 56 crore now. So this year 2 crore will be deducted from 56 crore corpus i.e. almost 4% (over and above your entry load & fund management charges). SBI Multicap, (recommended by us a year back) has performed in the top quartile in the last year, but is unlikely to be among the top performers going ahead as it is also a prey to amortisation now. Its initial corpus of Rs. 2102 crore has fallen to Rs. 1286 crore and hence is on our QUIT list, whereas other distributors / advisors throughout India are recommending it as a special campaign - higher commissions are being given for mopping up the corpus of this fund. Do not invest in this fund even if your advisor recommends you to do so. Change your advisor if he recommends SBI Multicap to you in these times. January '07 AURUM will have a detailed article on Amortisation and the 50 Equity Funds that you should avoid. One more advice: Do not get carried away by ‘PMS’ – Portfolio Management Services started by Stock Brokers, institutions and fund houses. Conclusion: • By investing in right funds – 'FUTURE WINNERS', and exiting at the right time, you generate the most superior returns. • To find a genuine advisor is very difficult in India. You must have read a lot in various media reports, about how financial advisors and banks acting as wealth managers and investment advisors have been fooling the retail investors and HNIs too!
We at BrainPoint are confident that most of our Equity Fund recommendations will feature in the Top Quartile (1st 25% funds) on a 1 year performance basis and may be 1 or 2 in the 2nd Quartile, but surely not below that. At BrainPoint - You profit the most, always. |
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