Banking funds top September returns

Banking sector funds with 19.15 per cent average return topped the returns chart across all fund categories in September. Banking shares rallied in September as market participants expected the Reserve Bank of India to take cues from the 50 basis point rate cut by the US Federal Reserve.

On September 18, the US Federal Reserve lowered its target rate for federal funds for the first time since June 2003 to "forestall" the adverse effects of financial market disruptions on the broader economy. 

IT, PHARMA FUNDS' NAV HIT Category wise monthly average returns (in %)
Equity funds			Debt funds
	As on			As on
	Aug-31	Sep-28		Aug-31	Sep-28
Banking	-1.92	19.15	Short-term income	0.31	0.78
Index	-1.55	16.23	Long-term floaters	0.55	0.67
Diversified	-1.33	13.66	Medium-term income	0.02	0.67
Tax Planning	-1.38	13.58	Liquid plus	0.63	0.65
Auto	-2.75	9.48	Short-term floaters	0.61	0.65
FMCG	-0.2	7.15	Liquid	0.56	0.61
Pharma	-5.47	4.82	Short-term gilt	0.29	0.56
Technology	-4.92	2.56	Long-term gilt	0.22	0.32
Hybrid fund			Gold ETF	1.37	6.69
Equity-oriented bal.	-0.52	10.08	Debt-oriented bal.	-0.13	4.48
Asset Allocation	-0.56	9.37	Monthly Income Plans	-0.1	2.44
* Note: Over the month, BSE FMCG Index, BSE Healthcare Index, BSE Auto Index rose 9.49%, 9.31%, and 5.92% respectively

The Fed also cut its discount rate by 50 bps for the second time in about a month to 5.25 per cent. UTI Banking Sector Fund with 21.6 per cent return beat the CNX Bank Index that rose 20.47 per cent. However, Reliance Banking Fund fetched lower return of 16.71 per cent.

Tracking the broad trend in indices, index funds with 16.23 per cent average return secured the second rank in the return tally.

For the month to Friday, Sensex and Nifty surged by 12.88 per cent and 12.49 per cent respectively to close at all-time highs of 17291.10 and 15318.60 on Friday.

All index schemes were able to beat the Sensex and Nifty. Key indices rallied on expectations of further rate cuts by the US Fed, as it would enhance foreign fund flows in the country.

Banking BeES, an exchange traded fund from Benchmark Mutual that invests in bank shares, benefited due to rally in banking stocks. The scheme recorded 22.92 per cent return.

All categories of equity funds managed to end the month in a positive terrain in September after the massive meltdown in Indian equities in August, which pulled down returns of all fund categories.

However, pharmaceutical and technology funds posted lower returns as stocks fell due to the appreciating rupee as these companies derive a substantial chunk of their revenues from exports.

Along with the rupee rise, software companies were battered due to concerns over the business prospects following the US sub-prime crisis and talks of the world's largest economy heading towards a slowdown. IT companies derive nearly 60 per cent of their revenues from US market.

Although gilts rallied in the beginning of the month due to low inflation along with the rate cut by the US Fed and anticipation of similar steps by RBI, gilt prices ended more or less stable as concerns emerged later over the likely cash draining measures by RBI to control inter-bank liquidity.

Friday, the 7.99 per cent, 2017 gilt closed at Rs 100.64 or 7.8912 per cent yield compared with Rs 100.60 or 7.8992 per cent yield on August 31.

Returns of gilt funds improved in September, but they gave the least return among debt schemes.

Short-term income schemes registered best return in debt funds category as rates on short-term bonds inched up mid-September due to corporate advance tax payments, and in turn boosted returns.