MF continued to be net sellers driven by volatility

Domestic mutual funds continued to be net sellers in the Indian equity markets in the month gone by, to the tune of Rs 677 crore thereby following their March month's activity where they stood net sellers to the tune of Rs 1,412 crore. It seems that fund managers preferred to be on a cautious footing given an uncertain global economic environment, and the vulnerability of FII flows until clarification issued over GAAR. It is noteworthy that in order to attract foreign flows, India has to make the tax policies more predictable, or else it would impede foreign investors from investing in India.

As far as the performance of various categories of mutual funds is concerned, in the diversified equity fund category, mid and small cap funds continued to deliver luring returns as compared to the large cap ones (which provided dismal returns).

Amongst the sector funds, as the Indian equity markets got into a nervous mood (which set in a consolidation phase), schemes focusing on defensive sectors such as FMCG and pharma, helped in creating wealth for investors. However, media & entertainment, banking & financial services, infrastructure and technology depicted a descending move.

In the Fund of Fund (FoF) schemes, the equity oriented international feeder funds did well; especially the ones focusing on investing in China and ASEAN (Association of South East Asian Nations).

Speaking about the hybrid funds, balanced funds felt the impact of gradual descending move of the Indian equity markets, but their debt portfolios - especially the composition holding shorter maturity papers, have benefited due to fall in in short-term yields. Likewise Monthly Income Plans (MIPs) holding greater composition of lower maturity papers (of less than 5 years) also benefited as RBI initiated reduction in policy rates.

Debt mutual funds, across categories and tenure showed a decent performance in the month gone by. Those holding shorter maturity papers - especially short-term income funds and liquid plus funds (also known as ultra-short term funds) impressed on the performance front, with the drop in short-term yields, while the Long-term debt funds across category also delivered decent returns, as RBI initiated policy rate cuts in its annual monetary policy review meeting on April 17, 2012.

It is noteworthy that while the FIIs turned net sellers in the Indian debt market to the tune of Rs 3,788 crore (as against being net seller to the tune of Rs 6,589 crore in March 2012); domestic mutual funds net bought aggressively to the tune of Rs 41,130 crore. But having said that, they treaded cautiously compared to their March month's activity where they net bought to the tune of Rs 1,10,866

(1-Mth average returns of funds in various categories as on April 30, 2012)

The graph above depicts how various categories of mutual funds performed in the previous month. Amongst the sector and thematic funds, barring FMCG and pharma funds (which have a trait of being defensive), all others took a beating. In the diversified equity funds category too, only mid cap funds managed to deliver positive returns (of average +0.4%), despite a descending move of -3.1% in the CNX Midcap index. From a fund management style perspective, only some funds following a value style of investing, and some of those having a mandate to invest in dividend yield stocks managed to deliver positive returns, but they were marginal. Tax saving funds (which are diversified equity scheme and generally follow a fluid investment style) category too reported negative returns in the month gone by.

However, tracing with upward move in the price of the precious yellow metal - gold, Gold ETFs exhibited positive returns for investors (gaining by an average of +2.8%).

Source: http://www.moneycontrol.com/news/mf-news/mf-continued-to-be-net-sellers-driven-by-volatility_701782.html