Debt funds better returns of equity peers in May

Barring long-term gilt funds, all other debt fund categories gave positive average return in the one-month to Wednesday.

Debt funds outperformed equity funds, which were hit by the sharp stock market correction due to weak global markets, fall in metal prices, and selling by foreign funds. Automobile funds were worst hit.

Bond yields hardened in May owing to combination of domestic as well as global factors. On May 10, the US Federal Reserve raised interest rates by quarter basis point to 5 per cent, which led to interest rate hike fears in the domestic debt market.

An impending hike in domestic fuel prices, which may lead to spike in inflation and in turn interest rates, also weighed on the sentiment.

Also, there are fears that the Reserve Bank of India may hike rates in its July policy review.

On Wednesday, the yield on the benchmark 10-year gilt 7.459 per cent 2016 ended at 7.6472 per cent or Rs 99.59 compared with 7.3835 per cent or Rs 101.43 on April 28.

Irrespective of the fall in bond prices, debt fund categories still managed to end in positive territory.

Short-term income and short-term floating rate funds gave similar average return of 0.54 per cent while long-term floaters and liquid schemes recorded 0.53 per cent average return.

The top performing short-term income scheme was ING Vysya income short-term with 0.77 per cent return while the best performing short-term floater was Templeton India Money Market Account with 0.67 per cent return.

Medium-term income scheme registered 0.37 per cent average return. Birla Bond Index with 0.71 per cent return stood first followed by Pru-ICICI Long Term Plan with 0.68 per cent.

While short-term gilt funds posted 0.31 per cent average return, long-term gilt funds gave 0.04 per cent negative average return.

DSPML Government Securities Fund gave the maximum return of 0.44 per cent in short-term gilt funds. In long-term gilt funds, highest return of 0.38 per cent was registered by Pru-ICICI Gilt Investment-Provident Fund Plan. DSPML Government Securities Fund-Longer Duration gave negative return of 0.54 per cent, least among gilt schemes.

Although banking funds gave 4.36 per cent negative average return, they were not that adversely affected compared to other equity fund categories. Banking funds outperformed the CNX Bank Index that fell 9.37 per cent.

Technology funds recorded 9.17 per cent average return. In comparison, the BSE IT Index and CNX IT Index declined 8.76 per cent and 10.88 per cent respectively.

Pharmaceutical funds with 12.43 per cent negative average return could not outperform the BSE Healthcare Index that fell 11.86 per cent. Even fast-moving consumer good funds with 12.74 per cent average return underpeformed the BSE FMCG Index that declined 17.85 per cent.

Although auto funds gave lowest return (negative 13.15 per cent), they fared better that the BSE Auto Index that fell 11.66 per cent.

Index funds recorded 11.38 per cent average negative return. In comparison, the Sensex and Nifty declined 13.65 per cent and 13.68 per cent respectively.

Banking BeES gave negative return of 6.91 per cent followed by Reliance Index-Nifty and LICMF Index-Nifty with 8.63 per cent and 10 per cent negative returns respectively.

Diversified equity and equity-linked savings schemes registered 12.39 per cent and 12.95 per cent average returns respectively. Not a single diversified equity or tax-planning scheme gave positive return.

Sundaram Select Midcap, Quantum Long Term Equity, and DBS Chola Opportunities gave negative returns of 3.74 per cent, 3.77 per cent, and 6.94 per cent respectively.

The worst performers were DWS Alpha Equity (18.08 per cent negative return), Taurus Discovery Stock (17.38 per cent negative return), and LICMF Equity (negative 17.25 per cent return).

Among tax funds, the least affected were HDFC Long Term Advantage Fund, DBS Chola Tax Saver, and Birla Sun Life Tax Relief '96 which gave negative returns of 10.28 per cent, 10.42 per cent, and 10.67 per cent respectively. LICMF Tax Plan (16.32 per cent negative return) was the poorest performer.