Mutual Fund Industry Update June 2009

SEBI now allows Mutual Funds to invest in Indian Depository Receipts (IDRs)

• As per the new circular issued by the Securities Exchange Board of India (SEBI) , the mutual funds will now be allowed to invest in Indian Depository Receipts (IDRs). SEBI clarified that mutual funds can invest in IDRs offered by companies under Indian Depository Receipts Rules 2004
• IDRs enable the foreign companies to be listed in India and raise, money from the Indian market

Funds Focusing on Mid Cap Stocks became the Market Leaders in last 3 Months

• The fund managers of mid cap funds played defensive by moving into higher cash positions during the market meltdown and investing in mid cap stocks in staggered manner on the beginning of current rally
• But the average returns of mid cap category in last 3 months, which stands at 91 % are approx 15% less than the benchmark index (BSE Mid Cap). BSE Mid Cap has returned 107% for the same duration
• Of the 30 mid-cap schemes, there is a wide difference between the performance best mid cap fund and the worst. When Magnum Mid-cap Fund has returned 132% in last 3 months, Kotak Mid Cap has returned 70.05% for the same time horizon

Should Investors stay in Long Term Debt Funds?

• Gilt Fund and Income Funds were the most sold flavors in Jan 09 based on their past double digit returns. But many of these funds have delivered single digit or even negative returns since then.
• It is recommended that investors with the time horizon of less than 1 yr should invest in liquid funds or short term debt funds but investors with more than 1 yr horizon can look at investing in gilt funds or income funds.
• Average maturity is the key element while buying a debt fund based on your time horizon. Though the bond prices are reflective in the NAV of the schemes, the coupon also gets accrued on daily basis. Therefore, even if you get capital loss in a debt fund, the interest accruals will pay for it if the fund is held till maturity

Increase in Mutual Fund Asset Under Management (AUM) in May 2009

• The AUM of the Indian mutual fund industry has increased by 15% in May 09 to reach Rs 6 lac crore mainly due to improved liquidity and the surging stock market
• Rising AUM is seen in the month of April and May 09. The AUM increase in the month of April 09 was mainly contributed by heavy institutional inflows but the increase in May 2009 is the result of major retail participation
• All 35 existing Asset Management Companies have seen increase in their AUM. Reliance continues to be the market leader with AUM of Rs 1,02,730 cr (approx) followed by HDFC and ICICI Prudential AMC

Sectoral Picks of Fund Managers – May 2009