Equity schemes ride on stock market boom

CRISIL RANKINGS FOR MUTUAL FUNDS IN THE THIRD QUARTER

CRISIL FundServices' Composite Performance Rankings serves as a guide to investors in terms of asset allocations and picking the best performing schemes.

CRISIL FundServices ranked 191 schemes across nine categories on various CRISIL~CPR (Composite Performance Ranking) parameters in the quarter ended December 2005. These schemes accounted for 58 percent of the Indian mutual fund industry's assets under management.

During the quarter ended December 2005, the Assets Under Management (AUM) of the mutual fund industry decreased slightly by 0.76 percent from Rs.200769 crore in September 2005 to Rs.199248 crore in December 2005. Illiquidity in the system during the quarter led to this decline.

Among new schemes, Fixed Maturity Plans (FMPs) attracted special attention. The equity schemes were the best performers among all asset classes and continued to ride piggyback on the stock market boom.

Equity Diversified Schemes
For the quarter ended December 2005, fifty-three schemes were eligible for ranking. CRISIL~CPR 1 indicates "Very Good Performance" and constitutes the top 10 percent of the category. DSP Merrill Lynch Equity Fund, Reliance Growth Fund, SBI Magnum Global Fund - Dividend, SBI Magnum Sector Umbrella - Contra Fund - Dividend and Sundaram Select Midcap held the CRISIL~CPR 1 rank. . All except Sundaram Select Midcap fund figured at the top during the previous quarter as well. Sundaram Select Midcap moved up from CRISIL~CPR 2 to CRISIL~CPR 1.

The CRISIL Fund~eX, an index to track the performance of equity diversified schemes, generated point-to-point returns of 7 percent for the quarter ended December 2005 compared to 25% in the previous quarter. To find the most popular stocks with the equity fund managers, CRISIL analysed the December 2005 portfolios. Accordingly, the most popular stocks among fund managers of general equity schemes at the quarter end were Reliance Industries Ltd., State Bank Of India, Infosys Technologies Ltd., Bharat Heavy Electricals Ltd., ITC Ltd., Jaiprakash Associates Ltd., Oil & Natural Gas Corporation Ltd., Punjab National Bank, Hindustan Lever Ltd., Mahindra & Mahindra Ltd., among others. CRISIL's Popularity Index captures the propensity of the fund manager to invest in a company / industry. The propensity is measured on the basis of the percentage holding of the schemes in a particular company/ industry, which is then indexed across these schemes.

The next 20 percent of the schemes in the ranking universe are ranked CRISIL~CPR 2, indicating "Good Performance". Birla Sun Life Equity Fund, DSP Merrill Lynch Opportunities Fund, HDFC Capital Builder Fund, HSBC Equity Fund, SBI Magnum Multiplier Plus Scheme 1993, Tata Equity Opportunities Fund have retained their CRISIL~CPR 2 rank. HDFC Equity Fund, HDFC Top 200 Fund, JM Equity Fund, Kotak 30, have moved up the ranks to CRISIL~CPR 2 on account of better Superior Return Scores.

In the CRISIL~CPR 3 cluster indicating "Average Performance", a majority of schemes retained their ranks. Birla Sun Life Frontline Equity Fund, Franklin India Opportunities Fund, Taurus Starshare, UTI Dynamic Equity Fund entered the ranking universe this quarter at CRISIL~CPR 3.

Equity Linked Savings Schemes (ELSS)
Ten schemes were eligible for ranking in this category. The ELSS category witnessed stability with a 29% increase in AUM for the CPR ranked schemes, as tax benefits were the primary reason for investment in this category.

SBI Magnum Tax Gain Scheme 1993 retained its top slot at CRISIL~CPR 1 for the quarter ended December 2005.

Income Schemes
The point-to-point returns of debt funds were lower in the quarter ended December 2005 vis-à-vis the previous quarter though annual returns were steady. With equity being the flavour of the markets, there were few takers for debt funds leading to a decline in AUM by 9% for the ranked schemes. The CRISIL Fund~dX, the benchmark for income schemes, generated point-to-point returns of 0.73 percent for the quarter ended December 2005 compared to 1.06 percent in the previous quarter.

Sixteen schemes were eligible for ranking in the Income category for the quarter ended December 2005. Principal Income Fund and UTI Bond Fund retained their CRISIL~CPR 1 rank.

Income Short-Term Schemes
The performance of Income Short Term schemes was highly volatile during the quarter under review. The CRISIL STBEX, which is a benchmark for short-term schemes, posted returns of 0.43 percent for the quarter compared to 1.40 percent for the previous quarter. In the Income short-term category, fifteen schemes were eligible for ranking. Reliance Short Term Fund maintained its top rank at CRISIL~CPR 1 while Kotak Bond Short Term Plan moved up by two notches to the top spot.

Floating rate schemes
In the Floating rate category, twenty-eight schemes were eligible for ranking after the addition of four new entrants. HSBC Floating Rate Fund - Long Term Plan, HSBC Floating Rate Fund - Short Term Plan, ING Vysya Floating Rate Fund and Sundaram Floating Rate Fund- Short Term Plan made their way into the category on account of completion of 1 year of NAV history.

JM Floater - STP and Reliance FRF improved their ranking to join HDFC FRIF in the CRISIL~CPR 1 cluster. JM floater made a headway to the CRISIL~CPR 1 cluster.Prudential ICICI FRP and Tata FRF have retained their CRISIL~CPR 2 ranks.

In the CRISIL~CPR 3 cluster Deutsche Floating Rate Fund, DSP Merrill Lynch Floating Rate Fund JM Floater Fund - Long Term Plan, Kotak Floater - Short Term, Principal Floating Rate Fund - Flexible Maturity Plan, Principal Floating Rate Fund - Short Maturity Plan and UTI Floating Rate Fund - STP retained their ranks. ABN AMRO Floating Rate Fund - Regular Plan entered the CRISIL~CPR 3 cluster.

Monthly Income Plans
Monthly Income Plans (MIPs) witnessed a decline in return with benchmark CRISIL MIPEX registering a decline in return from 3.8% to 1.8%. In the MIP category, fifteen schemes were eligible for ranking with 4 new entrants and JM MIP Fund making an exit. HDFC MIP-LTP and UTI MIS Advantage plan entered the ranking universe on completion of 2 years of their existence at CRISIL~CPR 1.

HDFC MIP-STP entered the ranking with CRISIL~CPR 2 rank.

Liquid Schemes
This category witnessed an overall improvement in return with benchmark CRISIL~LX registering a rise in return to 1.3% for the quarter under review from 1.2% in the previous quarter. Improved performance of the category was aided by firming overnight rates with call touching 8%.

Twenty-three schemes were ranked on CRISIL~CPR parameters in the liquid scheme category for the quarter ended December 2005. SBI Magnum Instacash entered the rankings in place of Birla Sun Life Cash Manager after registering an increase in its corpus size. UTI Liquid Cash Plan retained its CRISIL~CPR 1 rank.Tata Liquid Fund RIP moved up the ranking to join CRISIL~CPR 1 cluster.

In the CRISIL~CPR 2 cluster Birla Cash Plus - Retail, Chola Liquid Fund - Regular and DSP ML Liquidity Fund retained their ranks. LICMF Liquid Fund advanced to CRISIL~CPR 2 cluster with improved scores in Asset Size and DRP while maintaining high Mean Returns. The fund's AUM surged 50% helping it to score high on Asset Size parameter.

There was not much movement in the CRISIL~CPR 3 cluster.

Gilt-Long Schemes
The Gilt-Long schemes were consistent performers over the course of the quarter, with the CRISIL MF~Gilt Index generating point-to-point returns of 1.54 percent for the quarter ended December 2005 compared to 0.94 percent for the previous quarter. The average residual maturity for the ranked schemes increased from 4.8 to about 7 years.

Fifteen gilt schemes were eligible for CRISIL~CPR rankings for the quarter ended December 2005.

Balanced Schemes
The surge in the equity markets was not reflected in balanced schemes performance, with the CRISIL Fund~bX generating point-to-point returns of 7.14% for the quarter under review compared to 17.33% during the previous quarter. Seventeen balanced schemes were eligible for CRISIL~CPR rankings for the quarter ended December 2005. HDFC Prudence Fund and SBI Magnum Balanced Fund - Dividend maintained their CRISIL~CPR 1 rank.

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The Methodology

CRISIL Composite Performance Ranking (CRISIL"�CPR) is the relative performance ranking of mutual fund schemes within their respective peer groups in eight different categories. 

The basic eligibility criteria for inclusion in ranking universe are two-year NAV (net asset value) history (one-year for liquid, floaters and debt-short categories), minimum corpus depending on asset class and 100% portfolio disclosure for the three months on the ranking date. The ranking is done on following parameters depending on the asset class.

Superior Return Score: The Superior Return Score (SRS) is the relative measure of the return and risk for schemes compared to their peer group. 

It is computed for schemes in the Diversified Equity, Debt, Balance, Monthly Income Plan and Gilt categories for a two-year period. The weightages for the four six-monthly periods starting from the latest are 32.5%. 27.5%, 22.5% and 17.5% respectively.

Mean Return and Volatility: For the Liquid, Floaters and Debt-Short term categories mean return and volatility are considered separately. 

Mean return is the average of daily returns on scheme NAVs for a one-year period and Volatility is the deviation of these returns. The weightages for the four quarterly periods starting from the latest are 32.5%. 27.5%, 22.5% and 17.5% respectively.

Portfolio Concentration Analysis: Concentration measures the risk arising out of improper diversification. For equity portfolios NIFTY is used as the benchmark and deviations from the index are computed for both over and under exposures. 

For the Debt related portfolios, the concentration is analyzed for over exposure in Gilt, Manufacturing, NBFC, Securitized Debt and Banking, Financial Institutions and Housing Finance sectors. For Liquid and Floaters only fixed deposits are considered for concentration analysis.

Liquidity Analysis: It measures the ease with which the portfolios can be liquidated. In case of equity portfolios, the liquidity is computed by comparing the turnover of individual securities with the average six monthly turnover of the respective securities on the BSE and NSE. 

Gilt liquidity is measured by comparing the security level turnover with the market turnover, days traded and size of trades for a six month period for that security. Corporate debt liquidity is computed by classifying securities in the portfolios into 3 components - liquid, semi liquid and illiquid. 

Asset Quality: Asset Quality measures the quality of credit and is indicated by debt servicing ability. Regrouping the debt portfolio in the various rating categories and weighting the percent exposure in each rating category by relevant default/migration statistics gives a measure of asset quality.

Average Maturity: Average Maturity is considered across all debt categories to capture the interest rate sensitivity of the portfolio. Lower the value better would be the impact. 

Downside Risk Probability (DRP): DRP gives the probability of capital erosion. It is measured by summing of number of times a scheme's return falls below the risk free return over the period of analysis. Risk free return is taken as the 91-day T-Bill yield over the period of analysis.

Asset Size: It is considered only for Debt-short, Floaters and Liquid categories to take into account the effect of large fund flows on fund performance. Higher the asset size better is the cushioning impact against large fund flows.

The definition of various CRISIL"�CPR categories is as follows:
CPR Category Interpretation
CRISIL"� CPR 1: Very Good performance in the category (Top 10% of the universe)
CRISIL"� CPR 2: Good performance in the category (Next 20%)
CRISIL"� CPR 3: Average performance in the category (Next 40%)
CRISIL"� CPR 4: Below average performance in the category (Next 20% )
CRISIL"� CPR 5: Poorest performance in the category (Last 10% )

  

Winners All
Diversified Equity Schemes	Reliance Short Term Fund
DSP Merrill Lynch Equity Fund	Liquid Schemes
Reliance Growth Fund	Tata Liquid Fund - RIP
SBI Magnum Global Fund	UTI Liquid Cash Plan
SBI Magnum Sector Umbrella - CF	Balanced Schemes
Sundaram Select Midcap	HDFC Prudence Fund
ELSS Schemes	SBI Magnum Balanced Fund
SBI Magnum Tax Gain Scheme 1993	Floating Rate Funds
Income Schemes	HDFC Floating Rate Income Fund
Principal Income Fund	JM Floater Fund
UTI Bond Fund	Reliance Floating Rate Fund
Gilt Long Schemes	MIP Schemes
Reliance Gilt Securities Fund - LTP	HDFC Monthly Income Plan - LTP
Debt Short Schemes	UTI MIS Advantage Plan
Kotak Bond Short Term Plan