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Funds ride Sensex bull run

WITH THE stock market going strong, it is the domestic mutual funds which have hit a jackpot on their equity-oriented schemes in the past one year. Reason: having burnt their fingers in the Ketan Parekh scam, retail investors this time have steered clear of directly entering the equity market and instead put faith in mutual funds.

india Updated: Feb 09, 2006 01:32 IST
ARUN Kumar

WITH THE stock market going strong, it is the domestic mutual funds which have hit a jackpot on their equity-oriented schemes in the past one year.

Reason: having burnt their fingers in the Ketan Parekh scam, retail investors this time have steered clear of directly entering the equity market and instead put faith in mutual funds.

India's top 10 equity funds have earned between 74 and 90 per cent since January 2005. During this period, the Sensex gained by 50 per cent, moving to 10,045 points from 6,679. This means that if an investor had put Rs 10,000 in one of these top 10 funds, and remained with it till date, his value of investment appreciated to anything between Rs 17,500 and Rs 19,000 -- if not double.

On the other hand, the 10 best debt funds, perceived to be more secure, have given a return of something between 5.6 and 10.3 per cent in the same period.

In a bank deposit, the investor would have earned around 6 per cent, which means Rs 10,000 would have become Rs 10,600 only. Reflecting the market trend, debt funds or income funds have generated single digit return barring one -- Tata Income Funds, which earned 10.28 per cent.

Interestingly, Indian investors have always believed in making fast money. Even in mutual funds, they churn their portfolio around three times in a year.

They invest in one mutual fund and redeem it within four to five months and then put the money in another mutual fund. Had they remained with the same mutual fund, they would have reaped a bonanza. As per Value Research's data, 52 equity funds have hit the market with public offerings since January 2005.

These mutual fund schemes mopped up Rs 33,288 crore and against this, the net investment by the mutual fund industry in the equity market is just Rs 13,190 crore.

Which means they have churned their portfolio while making gross purchases amounting to Rs 78,603 crore and gross sales of Rs 65,413 crore.

Despite the longest bull-run in Indian capital market history, the percentage of household savings in the equity market is 1.41 per cent -- one of the lowest in the world.

Vijayan Krishnamurty, head of JP Morgan Asset Management Company, said given the robustness in the stock market, household investment would eventually come into the market either directly or though mutual funds.

First Published: Feb 09, 2006 01:32 IST