The Hindu Business Line : Sharp dips pinch some funds more

Is the latest decline in NAVs of equity funds bothering you? Well, your consternation may increase somewhat if we tell you about some funds that have lost close to 30 per cent in less than two weeks. While most have recovered, albeit marginally, in the past few sessions, names such as Taurus Discovery Stock, Canemerging Equities and Magnum COMMA stick out by a mile. These funds, along with a few others, have dipped considerably in recent days.

The pessimists among us may insist on looking at the entire list of sufferers, but a review of the circumstances may be more than sufficient for our purposes. Valuations, as every one knew, were pretty high for most stocks - a situation that had prompted even the very bullish investor to ask questions about their immediate sustainability.

The result is now for every one to see. In the melee that the stock market witnessed, equity funds generally got bruised and their unitholders lost some of the wealth that was created in recent times. There were screaming headlines everywhere, each telling the world that money has gone down the tube.

Now that some recovery has indeed happened, how should we see the whole episode? Before we attempt an answer, let us tune in to someone who is regarded widely as an astute investor. We are referring to Benjamin Graham, whose quote goes like this: "The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase".

With that homily serving as the foundation, allow us to suggest strongly that it still makes sense to remain committed to the equity funds we have chosen for ourselves.

But let us turn our attention again to the NAVs that declined considerably; the roster of victims does have a few notable names. Take, for instance, Magnum COMMA, the scheme from the SBI MF stable that was launched not too long ago. As a compilation worked out by Plexus Management, a fund distributor, shows, this scheme lost 28 per cent or so between May 10 and May 22.

A look at the last-available portfolio of Magnum COMMA will tell you that the fund (which invests in companies involved in commodity businesses) has taken exposure to stocks such as Hindustan Zinc, Shree Cement, Kesoram Industries, Gujarat Ambuja Cements and United Phosphorus. These in fact are its top holdings (as on April 30).

It may be quite pertinent to add here that a clutch of new-generation equity funds has made it to the headlines in the context of the current downturn. A number of schemes launched in the past six months or so have actually gone below the Rs 10-mark. These include Templeton India Equity Income, Sundaram Rural India and Reliance Equity, all of which are diversified in nature.

In fact, Fidelity MF's latest offer, Special Situations Fund, has just opened for on-going subscription with a NAV below Rs 10.

How should new investors, those who had bought the NFOs with a lot of hope, react to the situation? You will agree that they need to be patient and careful with their allocations.

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