Equity funds peak, income plans insipid

CRISIL MF STUDY/ Composite Performance Ranking for December 2004 quarter

For the equity markets, the calendar year 2004 saw India emerge as one of the premier developing economies with healthy fundamentals, attracting large foreign investments.

Says Krishnan Sitaraman, head, Financial Sector Ratings, Crisil, "The tremendous investor interest in the mid-cap segment, good economic growth rates, strengthening of the rupee vis-à-vis the dollar, and increasing foreign exchange reserves were some of the highlights of the year which boosted the equity markets."

During the quarter-ended December 2004, the equity markets continued to show strong momentum on the back of strong inflows from the foreign institutional investors (FIIs). Sectors such as banks and telecom were some of the biggest outperformers. During the quarter, the Nifty generated a return of 19.19 per cent, while the CNX Midcap 200 generated a return of 30.22 per cent, signifying the continued momentum in the mid-cap segment.

Volatile debt markets
The debt market was quite volatile during the quarter ended December 2004. The repo rate hike, high inflation, volatile oil prices, and hardening global interest rates pushed the 10-year benchmark yield up to 7.32 per cent in November. The benchmark 10-year gilt yield ended the quarter at 6.62 per cent as compared with 6.29 per cent per cent at the end of the previous quarter.

CRISIL~CPR for the quarter
Crisil FundServices' Composite Performance Rankings recognise the top performers in various investment categories available to mutual fund investors. This mutual fund performance ranking serves as a guidepost to fund investors in terms of asset allocations and in picking the better-performing schemes.

Crisil FundServices ranked 150 schemes across eight categories on various Crisil~CPR (Composite Performance Ranking) parameters in the quarter ended December 2004. These schemes accounted for 68 per cent of the Indian mutual fund industry's assets under management. Crisil FundServices analysed the performance of the Equity, Income, Balanced, Gilt-Long Funds, and Monthly Income Plan (MIP) scheme over two years and of the Liquid, Floating-Rate and Income-Short schemes over a year.

Equity Diversified Funds
For the quarter ended December 2004, 40 schemes were eligible for the ranking. Crisil~CPR 1 indicates Very Good Performance among the peer group and constitutes the top 10 per cent of the category.

DSP Merrill Lynch Equity Fund and DSP Merrill Lynch Opportunities Fund retained their Crisil~CPR 1 rank, having performed consistently over the last two quarters.

HSBC Equity Fund and SBI Magnum Sector Umbrella - Contra Fund, which entered the ranking universe this quarter, jointly hold the Crisil~CPR 1 rank.

On the whole, equity diversified schemes delivered healthy returns during the quarter. The Crisil Fund~eX, the benchmark for equity diversified funds, generated point-to-point returns of 22.04 per cent for the quarter. The most popular stocks among fund managers of general equity schemes in December 2004 were State Bank of India, Associated Cement Companies Ltd, Jindal Steel & Power Ltd, Balrampur Chini Mills Ltd, and Tata Iron & Steel Co Ltd. The most popular sectors were the banking sector followed by cement and pharmaceuticals. (See Table)

The next 20 per cent of the schemes in the ranking universe are clustered as CPR~2, which indicates Good Performance among the peers. Alliance Basic Industries Fund, Alliance Equity Fund, Franklin India Prima Fund, and HDFC Top 200 Fund retained their Crisil~CPR 2 rank.

Birla Advantage Fund moved up two notches over its previous rank to Crisil~CPR 2 on the basis of a relatively higher superior return score.

HDFC Capital Builder Fund and Reliance Growth Fund have moved down from their earlier ranking to Crisil~CPR 2. Sundaram Select Midcap Fund entered the ranking universe this quarter at Crisil~CPR 2 on completion of two years of net asset value (NAV) history.

In the Crisil~CPR 3 cluster (which indicates average performance), not much change was seen in the rankings relative to the last quarter.

Canexpo and LICMF Growth Fund have entered the ranking universe this quarter at Crisil~CPR 3, both schemes having qualified for ranking on the basis of an increase in corpus levels.

Franklin India Prima Plus and SBI Magnum Equity Fund have moved up the rankings by one notch each to Crisil~CPR 3. UTI Index Select Equity Fund remained steady at Crisil~CPR 3.

Income Funds
The performance of the Income Funds category was lacklustre for most of the quarter in the wake of rising interest rates and high inflation.

There was a marginal improvement in returns from the category towards the end of the quarter.

The Crisil Fund~dX generated an annualised return of 2.31 per cent for the quarter-ended December 2004.

Sixteen schemes were eligible for ranking in the Income Funds category for the quarter ended December 2004. The category has witnessed a drop of nearly 35 per cent in overall assets under management (AUM) relative to the last quarter, a large proportion of the category AUM moving into the Income-short term, liquid and floating-rate categories.

This has led to a reduction in the number of schemes covered in the Crisil~CPR for the quarter-ended December 2004 on account of some schemes not being covered for not fulfilling the minimum corpus criteria. The ranking, however, continues to covers around 86 per cent of the total assets under management of the income fund category.

Principal Income Fund retained its Crisil~CPR 1 rank and was joined by Kotak Bond Wholesale, which entered the ranking universe this quarter on account of a rise in corpus levels.

CanIncome moved up one notch over its previous ranking to Crisil~CPR 2 on account of a relatively higher superior return score. Birla Income Plus Plan B remained steady at Crisil~CPR 2 and was joined by HSBC Income Fund - Investment Plan which entered the ranking universe this quarter on the basis of meeting the two-year NAV history eligibility criterion.

HDFC High Interest Fund and Prudential ICICI Income Plan moved up one notch each over their earlier ranking to Crisil~CPR 3. Both schemes obtained a relatively higher superior return score and performed well on portfolio parameters such as asset quality and average maturity. DSP Merrill Lynch Bond Fund and UTI Bond Fund remained steady at Crisil~CPR 3.

Alliance Income Fund, ING Vysya Income Fund, JM Income Fund, Reliance Income Fund, Tata Income Fund, and UTI Bond Advantage Fund were excluded from the ranking this quarter on account of a decrease in corpus levels. (See Table)

Income - Short-Term
Income-short schemes fared better than their long-term counterparts in the rising interest rate scenario. The Crisil STBEX, which is a benchmark for short-term funds, generated point-to-point annualised returns of 3.44 per cent for the quarter.

In the Income Short-Term category, 15 schemes were eligible for ranking. Principal Income Fund - Short Term Plan and UTI Liquid Short Term Plan have performed consistently well and topped the charts at Crisil~CPR 1.

Prudential ICICI Short Term Plan, Chola Freedom Income - Short Term Fund, and Kotak Bond Short Term Plan have each moved up one notch over their previous ranking to Crisil~CPR 2. Prudential ICICI Short Term Plan obtained good scores on the mean return and volatility parameters. Chola Freedom Income - Short Term Fund scored well on mean return and concentration parameters, while Kotak Bond Short Term Plan obtained good scores on the volatility and average maturity parameters.

In the Crisil~CPR 3 cluster, DSP Merrill Lynch Short Term Fund and JM Short Term Fund retained their ranks. Grindlays Super Saver Income Fund - Short Term and HSBC Income Fund - Short Term Plan moved up one notch each to Crisil~CPR 3. Grindlays Super Saver Income Fund - Short Term has done well on parameters such as asset size and average maturity, while HSBC Income Fund - Short Term Plan scored well on the mean return and volatility parameters.

Floating-Rate funds
In the Floating-Rate Fund category, 15 schemes were eligible for the ranking. HDFC Floating Rate Income Fund - Short Term Plan retained its Crisil~CPR 1 rank and was joined by Grindlays Floating Rate Fund, which moved up one notch over its previous ranking. Grindlays Floating Rate Fund performed well on the asset quality and concentration parameters.

Prudential ICICI Floating Rate Plan - Option B remained steady at Crisil~CPR 2. DSP Merrill Lynch Floating Rate Fund and Templeton Floating Rate Income Fund - Short Term Plan moved up one notch each over their previous ranking to Crisil~CPR 2. Both schemes have obtained relatively higher scores on the concentration and asset quality parameters.

In the Crisil~CPR 3 cluster, Birla Floating Rate Fund - Short Term, Templeton Floating Rate Income Fund - Long Term Plan, and UTI Floating Rate Fund - STP retained their rank. JM Floater Fund - Short Term Plan moved up one notch to Crisil~CPR 3, having performed well on the volatility and downside risk probability parameters.

Monthly Income Plans
The performance of the Monthly Income Plan category was impressive during the quarter ended December 2004, the returns augmented by the upsurge in the equity segment. The Crisil MIPEX, the benchmark for MIPs, generated a point-to-point return of 2.95 per cent for the quarter.

In the MIP category, nine schemes were eligible for the ranking. There was no change in the ranking for the top 30 per cent of schemes in this category relative to the last quarter.

FT India Monthly Income Plan is at Crisil~CPR 1. Alliance Monthly Income and Templeton Monthly Income Plan retained their Crisil~CPR 2 rank. Birla Monthly Income Plan C, Prudential ICICI MIP Plan - Cumulative, and Tata Monthly Income Fund jointly held the Crisil~CPR 3 rank.

Liquid Funds
The Liquid funds category remained stable and delivered steady returns throughout the quarter. The Crisil~LX, the benchmark for liquid schemes, generated annualized point-to-point returns of 4.74 per cent for the quarter-ended December 2004.

Twenty-three schemes were ranked on Crisil~CPR parameters in the liquid fund category for the quarter ended December 2004. HDFC Cash Management Fund - Savings Plan retained its Crisil~CPR 1 rank and was joined by Grindlays Cash Fund, which moved up one notch over its previous ranking. Grindlays Cash Fund scored relatively better on the mean return and average maturity parameters.

In the Crisil~CPR 2 cluster, HDFC Liquid Fund and UTI Liquid Cash Plan retained their rank, and were joined by JM High Liquidity Fund which moved up one notch over its previous ranking on account of better performance across most parameters.

Alliance Cash Manager, Birla Cash Plus - Retail, and Principal CMF - Liquid retained their Crisil~CPR 3 rank. DSP Merrill Lynch Liquidity Fund and Kotak Liquid moved up one notch each over their previous ranking to Crisil~CPR 3. Both schemes achieved relatively better scores on the average maturity, downside risk probability, asset quality and company concentration parameters.

UTI Liquid Advantage Fund has been excluded from the ranking universe for this quarter on account of reduction in corpus levels, while Reliance Liquid Fund - Super Cash Plan was excluded on account of the closure of the scheme.

Gilt-Long Funds
The Gilt-long category witnessed a volatile quarter but recovered marginally towards the latter half of December. The Crisil MF-Gilt Index generated an annualised point-to-point return of 1.53 per cent for the quarter.

Fifteen gilt schemes were eligible for the CPR ranking for the quarter ended December 2004. Templeton India G-Sec Fund - Long Term Plan retained its Crisil~CPR 1 rank and was joined by UTI Gilt Advantage Fund - Long Term Plan, which entered the ranking universe this quarter on account of an increase in corpus levels.

Kotak Gilt - Investment - Regular and Prudential ICICI Gilt - Investment have moved up one notch each over their previous ranking to Crisil~CPR 2 on account of relatively higher superior return scores.

Templeton India G-Sec Fund - Composite Plan remained steady at Crisil~CPR 2.

In the Crisil~CPR 3 cluster, Birla Gilt Plus - Regular Plan, CanGilt (PGS), and Tata Gilt Securities Fund retained their ranking. HDFC Gilt Fund - Long Term Plan moved up one notch over its previous ranking to Crisil~CPR 3 on account of a relatively higher superior return score and a better score on the gilt liquidity parameter.

Chola Gilt Investment was excluded from the ranking this quarter on account of a decrease in corpus levels. (See Table)

Balanced Funds
The Balanced Fund category provided healthy returns during the quarter on the back of the upsurge in the equity market. The Crisil Fund~bX generated point-to-point returns of 14.67 per cent during the quarter.

Seventeen schemes were eligible for ranking on Crisil~CPR parameters for the quarter ended December 2004. DSP Merrill Lynch Balanced Fund and HDFC Prudence Fund continued their reign at Crisil~CPR 1.

Alliance 95 Fund, Canganga, and SBI Magnum Balanced Fund have each moved up one notch to Crisil~CPR 2 on account of relatively better superior return scores. Kotak Balance, Principal Balanced Fund, and Tata Balanced Fund have retained their Crisil~CPR 3 rank, and were joined by JM Balanced Fund which moved up one notch over its previous ranking.

JM Balanced Fund moved up the ranking on account of a higher score on the debt liquidity parameter. (See Table)

Note: An entity wishing to use the Crisil~CPR in its prospectus/offer document/advertisement/promotion/sales literature, or wishing to re-disseminate these rankings, may do so only after obtaining the written permission of the ranking entity, Crisil Ltd. 
 

The Methodology

The CRISIL~CPR is the relative performance ranking of the mutual fund schemes within investment category for the peer group. The CRISIL~CPRs are now being released for 8 different categories of funds - equity diversified, debt, debt - short term, balance, liquid, gilt - long term, monthly income plan (MIP) and floaters.

The basic eligibility criteria for inclusion in the peer group are one/two year Net Asset Value (NAV) history under the growth option, minimum corpus size and 100% portfolio disclosure as for the quarter prior to the date of ranking. The performance of the schemes is measured on the following criteria, which may vary across investment categories.

Superior return score:
The Superior Return Score (SRS) gives the relative measure of the return and the risk for the schemes within the peer group. For computation of SRS, daily logarithmic return of the scheme within the peer group is calculated for all the days covered for analysis. The daily average of this return is the peer average return for the schemes. In the next step, the difference between daily peer average and the scheme daily return is calculated. This is the differential return series for the scheme. The average and the standard deviation of the differential return series give the measure of the return and the risk respectively.

Separate return and risk analysis
For the Liquid, Floaters and the Short Term Debt funds the return and the risk are considered separately. The return is the daily return over the period of analysis while the risk is the standard deviation of those returns. The analysis period is split into four periods - of three months each depending upon the category. The latest 1st period is given a weight of 32.5%, 2nd 27.50%, and 3rd the 22.5% with earliest getting a weight 17.5%.

Downside risk probability
DRP is a parameter which is applicable for Debt-Short, Floater and Liquid funds to capture the level of capital erosion. It measures the probability of the fund's return falling below the risk free return over the period of analysis. Risk free return is the 91-day T-Bill yield over the period.

Concentration analysis
Concentration is included as a separate criterion for the computation of the CPR. This is because the Indian mutual funds industry is yet to attain depth, maturity and have an empirical base of market cycles. In such circumstances, the volatility of a portfolio using historical NAV data may not reflect the concentration risk in the portfolio. The industry and company concentration scores of the scheme are measured separately.

Liquidity analysis
Liquidity of equity investments in a scheme's portfolio is measured by computing the internal risk of each security in the portfolio.

Asset quality
Funds with debt components: In the case of debt portfolios, the estimation of asset quality is achieved by applying a factor of default / migration statistics arising out of the credit risk history of rating categories as indicated by CRISIL's over 10 year rating history. For Non-CRISIL rated and unrated debt instruments, the credit view provided by CRISIL's ratings division is taken. The overall asset quality indicator for the fund is obtained from the weighted aggregation of the asset quality of the individual securities.

Average maturity
Average Maturity is considered across all debt categories except Floater funds to capture the impact of interest rate movement on the portfolio. Lower the value better it is.

Asset size
It refers to the net investible funds of the mutual fund schemes. A higher asset size indicates a better ability to meet redemption pressures. It also shows the investor confidence in the fund. Hence higher the asset size, better the rank. Asset size is considered only in Liquid, Floaters and Debt-Short Term funds.