July brought good tidings for equity funds

Debt funds hit on rising yields

The boost in the equity market helped equity funds beat debt funds in July, posting returns in the range of 4-10 per cent.

On the other hand, debt funds continued their poor performance amid rising yields on global interest rate hikes and concerns over inflation. Liquid funds and floating rate funds continued to deliver positive returns.

The petroleum sector-dedicated funds on July 30 topped the returns chart by posting a one-month return of 10.02 per cent, followed by equity tax-saving plans, which stood at second position, indicating a one-month return of 8.88 per cent.

The Bombay Stock Exchange's 30-share Sensex Friday closed at 5,170.32, up 7.82 per cent or 374.86 points over its previous month's close of 4,795.46.

The National Stock Exchange's 50-share Nifty ended up by 126.70 points or 8.42 per cent at 1,632.30, from 1,505.60 points, it's previous month's close.

The index funds delivered a one-month return of 7.65 per cent as on July 30, while general diversified equity schemes on July 30 posted a one-month return of 6.89 per cent.

Among sector funds, technology funds, generated returns of 8.22 per cent for the month ended Friday. The fast-moving consumer goods-dedicated funds posted a one-month return of 5.55 per cent, while pharmaceutical funds gave a return of 4.19 per cent.

On the other hand, in a weak debt market, liquid funds, floating rate funds, and short-term gilt funds managed to post positive returns for the month ended Friday.

The yield on the 10-year benchmark government bond 7.37 per cent, 2014 hardened by 0.33 points to close at 6.1710 per cent from 5.8372 per cent on June 30.

The rise in the yield of a debt security results in depreciation of the price of the security. This impacts the net asset value of debt funds, in turn impacting the returns.

Liquid funds on Friday offered a one-month return of 0.37 per cent, while the floating rate funds gave a one-month return of 0.35 per cent on July 30. The short-term gilt funds posted one-month returns of 0.11 per cent.

The rising yields affected the medium- and long-term debt funds, which invest their funds in medium-to long-term debt securities.

The medium-term debt funds gave a negative one-month return of 0.25 per cent. The long-term gilt funds suffered the most, giving a negative one-month return of 0.52 per cent.

The rise in the equity market helped equity-oriented balanced funds in posting a one-month return of 4.79 per cent on July 30, while debt-oriented balanced funds gave a one-month return of 1.67 per cent.

The monthly income plans, which normally invest 15-20 per cent of its assets in equity, and rest in the debt securities, offered a one-month return of 0.83 per cent.

Dynamic funds or asset allocation funds, which have the flexibility to alter exposure to asset classes, gave a one-month return of 6.68 per cent as on July 30.