Solid performance by liquid funds

The liquid fund category registered the best performance among all mutual fund investment categories for the quarter ended June 2004. The Crisil~LX, the benchmark for liquid schemes, generated annualised point-to-point returns of 4.28 per cent for the quarter.

During the quarter, domestic markets had to deal with change in the political dispensation after the elections and there was a phase of ensuing equity market turbulence with concerns over the continuation of economic reforms.

This led to a sharp correction in May, as a result of which, the equity market ended the quarter in negative territory. The debt market also witnessed a volatile quarter on account of rising inflation and hardening global interest rates.

However the hardening of rates was largely restricted to debt instruments of longer tenure with the shorter end not being materially impacted, which has led to a steepening of the yield curve.

Liquid funds which invest largely in money market instruments and very short-term debt were thus able to outperform other debt categories.

Despite the recent lull, the fundamentals of the Indian market remain sound, both on the economic and corporate fronts.

This was reflected in the performance of the economy, which registered an 8.2 per cent growth in GDP for the year ended March 2004 and the projection of a 6.0-6.5 per cent growth in 2004-05.

In the recently announced Union Budget, the proposed enhancement in foreign direct investment in telecom, insurance and civil aviation sectors could increase growth prospects for these sectors, while the increased thrust on the agriculture sector is also expected to increase credit flow to this sector.

On the capital markets front, while the abolition of the long-term capital gains tax is a positive prescription, the higher dividend distribution tax on debt mutual funds is expected to result in a shift of investor interest to equity funds.

While the initially announced turnover tax on all mutual fund schemes was a dampener, the subsequent roll back provided much cheer to the markets.

Crisil FundServices ranked 142 schemes across seven categories on various Crisil~CPR (Composite Performance Ranking) parameters in the quarter ended June 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, and income-short schemes over a year.

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.

EQUITY DIVERSIFIED FUNDS
For the quarter ended June 2004, 36 schemes were eligible for the ranking. The schemes that top the charts at Crisil~CPR 1 are Alliance Basic Industries Fund, DSP Merrill Lynch Opportunities Fund, HDFC Top 200 Fund, and UTI Growth Value Fund.

HDFC Top 200 Fund has moved up a notch from Crisil~CPR 2 in the last quarter to Crisil~CPR 1. CPR 1, which includes the top 10 per cent of the schemes in the ranking universe, indicates Very Good Performance among the peers. The Crisil Fund~eX, the benchmark for equity diversified funds, generated an annualised point-to-point return of -36.54 per cent for the quarter ended June 2004.

There was an increase in exposure to Nifty stocks during the quarter ended June 2004 for Alliance Basic Industries Fund (39.27 per cent to 46.07 per cent) and DSP Merrill Lynch Opportunities Fund (58.91 per cent to 61.70 per cent) while their exposure in the CNX MIDCAP 200 index reduced during the same period.

A reverse trend was seen in the case of the two other schemes with HDFC Top 200 Fund increasing its exposure in the CNX MIDCAP 200 index from 19.91 per cent to 20.63 per cent, and UTI Growth Value Fund increasing its exposure in the index from 21.29 per cent to 23.40 per cent.

DSP Merrill Lynch Opportunities Fund has been the most consistent performer over the last four quarters on Crisil~CPR parameters.

The scheme is well diversified across industries with top holdings of 11.34 per cent in the software sector, 9.73 per cent in banks, 7.27 per cent in refineries, and 7.17 per cent in pharmaceuticals.

The next 20 per cent of the schemes in the ranking universe are clustered as CPR~2, which indicates good performance among peers.

Alliance Equity Fund and Principal Growth Fund have moved up a notch on relatively better performance on risk-adjusted returns to end the June 2004 quarter on Crisil~CPR 2.

The other schemes on Crisil~CPR 2 are DSP Merrill Lynch Equity Fund, Franklin India Bluechip Fund, Franklin India Prima Fund, HDFC Equity Fund, and Tata Pure Equity Fund.

Most schemes on CPR~3 (which indicates Average Performance) during the last quarter have retained their ranks for the quarter ended June 2004. UTI Grand Master 1993 is the new entrant in the Crisil~CPR 3 cluster, having moved up one notch over its previous ranking.

Reliance Vision Fund has moved down the rankings from Crisil~CPR 1 in the last quarter to Crisil~CPR 3 in the current quarter primarily because of a lower superior return score (Crisil's unique measure of comparing the differential return earned by a fund vis-...-vis its volatility relative to its peers).

The most popular stocks among fund managers of general equity schemes in March 2004 were Reliance Industries Ltd., State Bank of India, Infosys Technologies Ltd, Tata Motors, and Grasim Industries Ltd, while the most popular industry was the software services sector followed by pharmaceuticals.

Crisil FundServices' Popularity Index measures the propensity of a fund manager to commit a given per centage of his portfolio to a particular stock.

INCOME FUNDS
Twenty-one schemes were eligible for ranking in the income category for the quarter ended June 2004. Principal Income Fund retained its Crisil~CPR 1 rank while Reliance Income Fund moved up one notch over its previous ranking to Crisil~CPR 1. The scheme has performed well on portfolio attributes like average maturity, debt liquidity, and asset quality.

The Crisil Fund~dX, the index that portrays the performance of long-term debt-oriented funds, generated an annualised point-to-point return of -5.50 per cent for the quarter ended June 2004.

Birla Income Plus Plan B and HDFC Income Fund retained their Crisil~CPR 2 rank. Templeton India Income Builder Account - Plan A moved up one notch to Crisil~CPR 2 on the back of a higher superior return score and relatively better scores on company and industry concentration parameters. Kotak Bond Wholesale moved down from Crisil~CPR 1 to Crisil~CPR 2 largely due to a lower superior return score.

Most schemes on Crisil~CPR 3 retained their ranks vis-vis the previous quarter. DSP Merrill Lynch Bond Fund and LICMF Bond Fund moved up a notch each over their previous ranking to Crisil~CPR 3.

The schemes performed well on the liquidity and average maturity parameters respectively, while simultaneously procuring a higher superior return score.

INCOME - SHORT TERM
In this category, Crisil FundServices evaluated 16 eligible schemes on Crisil~CPR parameters for the quarter ended June 2004. Principal Income Fund - Short Term Plan continues to top the charts at Crisil~CPR 1, and is joined by UTI Liquid Short Term Plan, which enters the ranking universe on meeting the NAV history requirement.

Birla Bond Plus - Retail and Reliance Short Term Fund are on Crisil~CPR 2. JM Short Term Fund has slipped one notch to Crisil~CPR 2, primarily on account of lower scores on volatility and asset quality.

Chola Freedom Income - Short Term Fund, Kotak Bond Short Term Plan, and Prudential ICICI Short Term Plan have retained their Crisil~CPR 3 rank. HDFC High Interest Fund - Short Term Plan and Templeton India Short Term Income Plan have moved up one notch and two notches respectively over their previous ranking to Crisil~CPR 3.

HDFC High Interest Fund - Short Term Plan has improved its parametrical score on average maturity and downside risk probability while Templeton India Short Term Income Plan has scored well on asset quality.

MONTHLY INCOME PLANS
In this category, eight schemes were eligible for ranking. FT India Monthly Income Plan has moved up one notch to Crisil~CPR 1 rank on the back of a relatively higher superior return score.

Achieving a relatively higher superior return score has helped Templeton Monthly Income Plan move up a notch to Crisil~CPR 2, jointly held by Alliance Monthly Income, which slipped down one notch from its position in the quarter ended March 2004 on account of a lower superior return score.

The Crisil~CPR 3 rank is currently held by Birla Monthly Income Plan C and a new entrant on the ranking charts, Tata Monthly Income Fund.

The Crisil MIPEX, the benchmark for monthly income plans, portrayed an annualised point-to-point return of -12.70 per cent for the quarter ended June 2004.

LIQUID FUNDS
Crisil FundServices' methodology for ranking liquid funds lays greater emphasis on preservation of capital than the generation of returns.

Twenty-seven schemes were ranked on Crisil~CPR parameters in the liquid fund category for the quarter ended June 2004. Prudential ICICI Liquid Plan, Templeton India Treasury Management Account, and Alliance Cash Manager are at Crisil~CPR 1 with no change in their ranking vis-vis the previous quarter.

Birla Cash Plus - Retail, UTI Money Market Fund, and Reliance Liquid Fund - Treasury Plan retained their Crisil~CPR 2 rank. HDFC Cash Management Fund - Savings Plan and Principal CMF - Liquid moved up a notch each over their ranking in the previous quarter to Crisil~CPR 2.

HDFC Cash Management Fund - Savings Plan has moved up on account of relatively better scores on almost all portfolio-related attributes, while good scores on average maturity and asset quality have helped enhance the performance of Principal CMF - Liquid.

LICMF Liquid Fund, Templeton India Liquid Fund, and Tata Liquid Fund - RIP have moved up a notch each to Crisil~CPR 3, while Deutsche Insta Cash Plus Fund has moved up 2 notches to Crisil~CPR 3.

The former three schemes have moved up the rankings by delivering relatively higher returns, while Deutsche Insta Cash Plus Fund has scored well on average maturity and downside risk probability parameters.

GILT-LONG FUNDS
The returns from gilt funds category ended the quarter in negative territory. This was reflected in the performance of the Crisil MF-Gilt Index, which generated an annualised point-to-point return of -8.30 per cent for the quarter ended June 2004.

Sixteen gilt schemes were eligible for the CPR ranking for the quarter ended June 2004. Templeton India G-Sec Fund - Long Term Plan retained its Crisil~CPR 1 rank, while Templeton India G-Sec Fund - Composite Plan moved up a notch over its previous ranking to Crisil~CPR 1 on the back of a higher superior return score.

Birla Gilt Plus - Regular Plan retained its Crisil~CPR 2 rank, and was joined by HDFC Gilt Fund - Long Term Plan, which moved up one notch on the basis of achieving a higher superior return score.

Birla Gilt Plus - PF Plan, DSP Merrill Lynch Govt Sec Fund (Plan A), Kotak Gilt - Investment - Regular, and Tata Gilt Securities Fund retained their Crisil~CPR 3 ranks. A relatively better superior return score has helped LICMF G-Sec Fund move up a notch to Crisil~CPR 3.

BALANCED FUNDS
Eighteen schemes were eligible for ranking on Crisil~CPR parameters for the quarter ended June 2004.

DSP Merrill Lynch Balanced Fund and HDFC Prudence Fund (eleventh consecutive quarter) have retained their Crisil~CPR 1 rank.

The Crisil Fund~bX, the benchmark for balanced funds, generated annualised point-to-point returns of -24.22 per cent for the quarter ended June 2004.

FT India Balanced Fund and Birla Balance Fund have maintained their position at Crisil~CPR 2. Alliance 95 Fund and SBI Magnum Balanced Fund have moved up one notch each over their previous ranking to Crisil~CPR 2 on account of relatively higher superior return scores.

HDFC Balanced Fund, ING Vysya Balanced Fund, and Kotak Balance have moved up a notch each to Crisil~CPR 3 on the back of higher superior return scores. Principal Balanced Fund, Prudential ICICI Balance Fund, and Tata Balanced Fund have retained their Crisil~CPR 3 rank.

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.

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Methodology

Crisil Composite Performance Ranking (Crisil-CPR) is the relative performance ranking of mutual fund schemes within their respective peer groups in seven different categories. The basic eligibility criteria for inclusion in the ranking universe are two-year NAV (net asset value) history (one year for liquid and debt-short categories), minimum corpus depending on asset class and 100 per cent portfolio disclosure 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 with 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 weightage for the four, six-monthly periods starting from the latest are 32.5 per cent, 27.5 per cent, 22.5 per cent and 17.5 per cent, respectively.

Mean return and volatility

For the liquid and debt short-term categories, mean return and volatility are considered separately. Mean return is the average of daily returns on scheme's 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 per cent, 27.5 per cent, 22.5 per cent and 17.5 per cent, 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 and liquid portfolios, the concentration is analysed for over-exposure in gilt, manufacturing, NBFC, securitised debt and banking, financial institutions and housing finance sectors.

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 three 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 per cent 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 the 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 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.