Date:27/07/2006 URL: http://www.thehindubusinessline.com/2006/07/27/stories/2006072703481700.htm

Back NAVs turn negative for sector funds

Nilanjan Dey

Technology funds - the least affected

Kolkata , July 26

Investors in sector funds are currently facing tough times. With the net asset values (NAVs) of these funds slipping significantly from their recent highs, their three- and six-month performance figures have turned negative.

Considering both time periods, sector funds of all hues - FMCG, auto, banking, pharma and technology - have delivered negative performance, some of them occupying the lowest ranks.

Banking sector

Banking sector funds, for instance, are at the very bottom of the six-months' list, delivering a negative 16 per cent during the period (as on July 25). Auto sector funds, with a negative 23 per cent, hold the last slot when it comes to the three-months' tally.

Fund circles point towards what they feel is an inherent risk - sector funds can invest only in a narrow universe of stocks, and not in the broad market like their diversified counterparts. They largely attribute the trend to the current state of the market, especially to the decline that has started since mid-May.

Overall performance

The overall performance of the sectoral plays stands in contrast to what is delivered by index funds. The latter, thanks to their strategy of exactly mirroring the indices of their choice, have actually come up as the top performers on the equity side.

Value Research puts returns from index funds at 3.99 per cent and minus 11.08 per cent for six- and three-month periods respectively.

Tech funds

Technology funds, it may be mentioned, have not been as greatly affected by some of the other sector-oriented categories. Considering the six-month period ending June 25, the techs have given a negative 1.89 per cent. This narrows down to a negative 12.75 per cent if the three-month period is taken into account.

MF sources also draw attention to the fact that sector funds, which are not too many in number in the Indian context, generally suffer in a free-falling market. Their dependence on a particular segment of the economy makes them far more vulnerable than normal, broadbased funds.

Various categories of debt funds have, not surprisingly, outperformed equity funds in recent times, sources point out, while referring again to the volatile and downward-sloping equity market as well as to the relative firmness seen on the debt front.

A number of short-term debt products have recorded positive scores, roughly 2-3 per cent, over a six-month period. However, this has whittled down to about 1.5 per cent over three months.