The Hindu Business Line : 6K story: Equity funds manage to add value

So, would you have made money if you had bet your shirt on stocks on February 16? If you had chosen the mutual fund route, you would have, with your returns averaging 11 per cent.

Surprised? The hundred open-end equity funds managed to add about 11 per cent to their investor's wealth between February 16 and November 17 - two dates when the Sensex values were almost identical at 6,000 points.

Experience shows that inflows into equity funds tend to peak when the markets are on a high, as they did this February.

If you had chosen your fund well, your returns between these two dates could have been as high as 35 per cent. In as many as 18 of the 100 funds, gains have been in excess of 20 per cent.

Only 10 of the 100 funds actually mimicked the Sensex and closed with no gains or small losses on their net asset value between these two points. Fund managers achieved this by actively packing their portfolios with mid-cap stocks and stocking up on sectors such as IT, which have had a dream run on the bourses.

It was almost unfashionable to invest in the Nifty or the Sensex stocks over this period, as fund managers shunned the highly visible companies that make up the index, in favour of low-key ones with better return potential.

PruICICI Tax Plan, SBI Magnum Global Fund and HDFC Tax Plan 2000, which expanded their net asset values by 28-36 per cent between mid-February and now, invest the lion's share of their portfolio in mid-cap stocks. While Magnum Global Fund had just one index stock in its portfolio of 30, PruICICI Tax Plan allocated just 7 per cent of its portfolio by value, to index stocks.

Even diversified equity funds with large-cap stocks in their portfolio reduced exposures to index stocks. HDFC Capital Builder and HDFC Taxsaver, two strong performers in this period, allocated less than 20 per cent of their portfolios to the Nifty and the Sensex stocks.

Predictably, funds dedicated exclusively to mid-cap stocks such as Sundaram Mid-cap, Franklin Prima and Birla Mid-cap turned up big gains over this period. So did technology funds such as Franklin Infotech, which capitalised on the re-rating of the sector.

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6K story: Equity funds manage to add value