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Wednesday, Jan 28, 2004

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Equity fund NAVs in negative territory

Veena Venugopal

Mumbai , Jan. 27

NET asset values (NAVs) of equity funds have slipped into the negative territoryfor the week ended January 24.

In the last seven days, only LIC MF growth fund and FT India AAF have shown positive NAVs. While the average monthly NAV for all equity funds, excluding sector funds, is 2.75, the corresponding number for the week is minus 2.92.

Despite this across-the-board loss in value, fund managers are not worried. Many see this as entry points. The volatility has made fund managers cautious about investing in mid-cap funds. The sentiment on large caps is still very bullish, they said.

While corrections in the Sensex were expected, the sharpness of the fall did take many fund managers by surprise.

Despite the market volatility, monthly income plans (MIP) that have variable equity components are continuing to maintain 13-15 per cent of the fund in equity. This is true for all MIPs that have been around for more than three months.

"The market fundamentals are still right and these are temporary blips. We are comfortable with our equity portfolio in the MIP and will continue this at the same rate," said Mr Ramnath, Fund Manager, Birla Sunlife Mutual Fund.

Newly-launched MIPs see the falls in the index as "buy" days. "The corpus has not been fully invested. We see these days of corrections as ideal opportunities to buy," said Mr Sandeep Bagla, Fund Manager, Reliance Capital Mutual Fund.

While short-term drops in NAVs are not unusual, investors in equity funds are getting jittery. Some of the drops have been really sharp over the last two weeks. Investors see funds that were performing in the 2-4 per cent range now at negative NAV values of 5-6 per cent, said Mr Chetan Bhide, Manager of a distribution company.

Distributors say the impact of this drop will create sales obstacles for them, as negative word-of-mouth publicity travels fast. Most funds have lost more value than the index, and unless this is corrected over the next fortnight, investors will be increasingly uncomfortable with funds that have any kind of equity component, the distributors said.

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