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Every second equity fund rules at new peak

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But many retail investors redeemed early, say analysts.

Sneha Padiyath

Mumbai, Nov. 10

Nearly half of the mutual fund equity schemes that existed in 2008, saw their net asset values (NAVs) at an all-time high on November 4 this year, when the Sensex closed at its all-time high that day. Their previous all-time highs were registered in the bull run of January 2008.

Last week, the Sensex closed at an all-time high and even breached the 21,000-mark during the Muhurat trading session. Mutual fund scheme NAVs obviously moved up along with the Sensex.

However, many investors may have missed their opportunity to reap the benefits of the peaking NAVs as they had redeemed their MF investments over the last five or six months.

“This peak in the NAV has been met with some apprehension as most investors have stayed away from the market. The last five-six months saw investors redeeming units and exiting the markets because of the high valuations,” said Mr Dhirendra Kumar, CEO, ValueResearch.

Compared with NAV of schemes as on January 9, 2008, NAVs of around 90 schemes have crossed their threshold all-time highs as on November 4.

HDFC Equity Fund saw the highest growth of around Rs 91/unit, while the lowest growth was seen in case of Franklin India High Growth Companies Fund, at Rs 0.28/unit. (It must be noted that HDFC Equity crossed its peak in February 26, 2010 when the NAV touched Rs 223.38, according to mutualfundsindia.com). In terms of negative growth, UTI Top-100 saw the highest drop of Rs 38/unit, while IDFC Equity fund saw the least drop in its NAV at Rs 0.096 a unit.

Although fund managers have cautioned that these NAV numbers cannot be indicative of the fund's future or past performance of the schemes, this is good news for investors who showed confidence in the market even when it was going downhill. “This is good news for investors who stayed invested in the markets through 2008, saw their NAVs dip mid-2008 and are now seeing their NAVs shoot up again. The peak in NAVs has happened in big spurts and is an encouraging sign. But not too much can be read into this trend,” explained Mr Kumar.

Further, fund managers and analysts feel that taking into account NAV growth from January of 2008 to November is too narrow a window to gauge a fund house's performance. “Ideally, we should be looking at a fund's performance across the risk and return parameters over at least three-to-five year periods. The NAV size in isolation should not be looked at as an indicator of performance. Neither should investment decisions be made based on the NAV size, nor should funds be evaluated based on it,” said Mr Vicky Mehta, Senior Research Analyst, Morningstar.

“Also, one should remember that there may be funds which have performed at their best in other time periods. So, reading too much into this trend or time frame could result in an imprecise evaluation,” he added.

Related Stories:
Equity funds — Time to take some profits
Equity funds — Some that check downside

(This article was published in the Business Line print edition dated November 11, 2010)
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