Cash, mid-caps cushion fall in equity fund returns
Nine out of 10 diversified equity funds have lost less than the fall in the country's benchmark BSE index.business Updated: Aug 18, 2007 03:19 IST
Nine out of 10 diversified equity funds have lost less than the fall in the country's benchmark BSE index since it touched a life-time closing high on July 24, data from fund tracker ICRA Online showed.
As of August 16, while the BSE index fell 9 per cent from a record high of 15,794.92 points, these funds saw an average 6.98 per cent drop in net asset value, on higher cash allocation and as a majority of their assets were invested outside the index.
"This time around, the blue-chips have fallen more than mid and small-cap stocks," Dhruva Raj Chatterji, research analyst with global fund tracker Lipper, said.
Equity funds invested only about 35 per cent of the assets in stocks in the benchmark index and thus were able to minimise the downside as the fall in the broader market, especially the mid-cap and small-cap segments, has been relatively less.
The BSE Mid Cap and BSE Small Cap indices have fallen 6.75 per cent and 4.37 per cent respectively during July 24-August 16. Equity funds had invested 42 per cent of the assets in such stocks at the end of July, data showed.
Funds that lost more than the index had parked almost 46 per cent of their assets in benchmark constituents, while those that did better had only about 33 per cent of the assets invested in such stocks.
Mid and small-cap stocks had not been as hard hit as their large cap counterparts because mutual funds had deployed some of of their funds collected from recent new fund offers (NFOs) in such stocks, Chatterji said.
Mutual funds had bought stocks worth about Rs 600 crore so far in August, he added.
Equity funds, which generally keep 3-5 per cent of their resources in cash to honour redemptions, put aside 8.56 per cent of their assets for this purpose at the end of July.