Equity funds continue to struggle

Auto followed by petroleum were the worst hit during the week.

Equity funds slipped deeper in to the mire last week. The correction at the bourses, which saw the Sensex shedding nearly 290 points impacted fund returns too, with all equity fund categories ending the week with negative returns.

In comparison, debt funds did much better, with only monthly income plan (MIP) returns being in the red, thanks to the equity component in those funds.

Auto sector funds were the worst hit during the week, with their weekly returns plunging to -3.94 per cent. The category was the best performer in the previous week with a return of 1.75 per cent.

Petroleum funds, which managed 0.26 per cent returns in the previous week slumped to the bottom of the table last week, with their weekly returns dropping to -4.30 per cent.

Technology and pharma sector funds suffered the least damage during the week, even though they could only manage identical returns of -3.12 per cent. Both these fund categories had managed positive returns in the previous week.

Diversified funds, the largest equity category, averaged -3.71 per cent, which was marginally lower than the benchmark index returns. The S&P Nifty returned -3.48 per cent last week, while the Sensex returns amounted to -3.41 per cent.

However, on a longer term, equities continue to perform well. FMCG funds were again the toppers on a one-year basis, posting a return of 83.66 per cent. They were followed by banking sector funds which returned 75.7 per cent.

According to fund manager, Gautami Joshi of UTI Mutual Fund, banking sector is a direct play on the India growth story.

"Indian banks are likely to move up the valuation ladder, driven by higher proportion of core income and improving asset quality. Both corporate and retail credit is likely to witness strong growth in the next two years," says Joshi.

"The earnings of the banking sector had underperformed Sensex earnings last year. This year it is expected to outperform," she adds.

Diversified fund category average for the past 12-month period amounted to 55.92 per cent, which is much better than the yearly returns of both Sensex (44.37 per cent) and Nifty (38.53 per cent).
 

AVERAGE CATEGORY RETURNS Returns in % as on October 14, 2005
Equity funds			Debt funds
	1 week	1 year		1 week	1 year
Technology	-3.12	39.45	Gilt - long term	0.16	4.75
Pharma	-3.12	33.22	Income funds	0.15	4.43
Banking	-3.32	75.87	Medium term funds	0.12	5.76
Index	-3.39	42.09	Short term funds	0.10	5.82
FMCG	-3.53	83.66	Floating rate funds	0.10	5.61
Diversified	-3.71	55.92	Liquid funds	0.10	5.32
Tax Planning	-3.89	64.54	Gilt - short term	0.09	4.29
Auto	-3.94	54.70	MIPs	-0.53	10.70
Petroleum	-4.30	17.77
Source: www.mutualfundsindia.com

Compared to the somber mood in equities, debt funds managed to do quite well. The best performing debt fund category during the week was long-term gilt funds with a return of 0.16 per cent.

This was followed by income funds at 0.15 per cent and medium-term debt funds (0.12 per cent). However, monthly income plans were undone by the meltdown in their equity component, which led to the category average slipping into the negative zone at -0.53 per cent.

But in contrast to the fortunes of equity funds, debt fund returns for the past year continued to be in single digits. Except for MIPs, which topped the yearly table with a average return of 10.70 per cent, all other debt fund category returns were with in the range of 4.25 per cent to 5.85 per cent.

Short-term funds did the best in pure debt category with a return of 5.82 per cent, followed by medium term funds at 5.76 per cent.

Short-term gilt funds were at the bottom of the table and could only manage 4.29 per cent for the year.