5 year performance of Nifty, Nifty Junior and Bank Nifty

During the last 5 years (Nov 05 – Nov 10), Indian stock markets have witnessed a huge bull and a bear market. From an equity investors perspective, risk adjusted returns of the Nifty, Nifty Junior and Bank Nifty over this market cycle will be a good indicator for investments in stocks or funds based on these indices going forward.

Over the last 5 years (Nov 05 – Nov 10) Bank Nifty has given the highest annualised return (CAGR) of 23% followed by Nifty Junior 19% and Nifty 17%.

Over the last 3 years (Nov 07 – Nov 10) Bank Nifty has given the highest annualised return (CAGR) of 8% followed by Nifty Junior 3% and Nifty 1%.

Over the last one year (Nov 09 – Nov 10) Bank Nifty has given the highest return of 32% followed by Nifty Junior 24% and Nifty 16%.

During this period (Nov 05 – Nov 10) the Annual returns range for the indices have been Nifty +83% to –52%, Bank Nifty +111% to –54% and Nifty Junior +158% to -66%

On a comparison of the risk adjusted returns, Bank Nifty has given better risk adjusted returns followed by Nifty and than by Nifty Junior.

However, during this period the returns by Nifty Junior have been more volatile than Bank Nifty and Nifty. Also, Bank Nifty includes stocks from the banking sector and Nifty Junior consists of madcap stocks and are thus more riskier than Nifty which includes stocks from diversified sectors. Thus, from an asset allocation perspective, investors can consider investing in the ratio of 60/30/10 to Nifty, Nifty Junior and Bank Nifty respectively. Investing can be done through stocks/Mutual Funds and Index funds/ETFs but investing through stocks is more riskier. Also, actively managed funds have been generating better returns than Index funds/ETFs, so while investing through Mutual Funds, investors can consider them.

Also read:

http://economictimes.indiatimes.com/markets/stocks/market-news/Mid-cap-stocks-set-to-play-catch-up-soon/articleshow/6751059.cms

http://www.google.com/url?sa=X&q=http://timesofindia.indiatimes.com/business/india-business/Index-funds-best-for-first-time-investors/articleshow/6885599.cms&ct=ga&cad=:s7:f2:v1:d1:i0:lt:e0:p0:t1289207799:&cd=SoG88eLkMuE&usg=AFQjCNFUYpxJDnRikH3Ml-EYTbhj5XpCzw

http://economictimes.indiatimes.com/markets/commodities/All-you-wanted-to-know-about-ETFs/articleshow/6933080.cms

http://www1.lite.epaper.timesofindia.com/getpage.aspx?article=yes&pageid=20&edlabel=ETBG&mydateHid=8-11-2010&pubname=Economic+Times+-+Bangalore+-+Front+Page&edname=&articleid=Ar02002&format=&publabel=ET&max=true 

Banking Funds out perform

Banking and Financial Services Funds have outperformed by providing returns ranging from 33% - 50% for the year ended Nov 2010. Nifty and Sensex based Index funds have returned 15-17% during the same period. Bank Nifty Index has given a CAGR of 23% over a 5 year period as compared with 17% by Nifty Index, but with a higher volatility.

Banking and Financial Services Funds universe includes Reliance Banking Fund, Kotak PSU Bank ETF, UTI Banking Sector Fund, Sundaram Financial Services Opportunities Fund, PSU Bank Benchmark Exchange Traded Scheme (PSU Bank BeES), Banking Index Benchmark Exchange Traded Scheme (Bank BeES)

However, Banking and Financial Services Funds are sector funds and thus more riskier than diversified equity funds. Investors can consider taking a 10% portfolio exposure to sector funds through SIP/STP route with a 3-5 year horizon.

Also read:

http://economictimes.indiatimes.com/opinion/interviews/Auto-PSU-banks-to-stay-ahead-Rajat-Rajgarhia--Motilal-Oswal-Securities/articleshow/6751130.cms

New Pension System provides impressive returns

The subscribers of New Pension System (NPS) have earned impressive returns.

Four of the six fund managers have delivered more than 40% returns since inception in Tier I Equity option and more than 15% since inception in Tier II Equity option, as on 31 Oct 2010.

The NPS, governed by PFRDA, offers two type of accounts :TIER I & II within which there are three options each of Equity, Cash and Debt. Subscribers also can choose their own asset allocation or select the auto plan. The NPS allows up to 50% exposure to equity. It provides a choice of six fund managers, has low fund management fees, provides connectivity through the website and option to switch the fund managers once in a year. NPS has been included in the list of investments that are eligible for tax deduction under Section 80C.

Links:
www.pfrda.org.in/
www.npscra.nsdl.co.in

Also read:
http://economictimes.indiatimes.com/news/economy/finance/NPS-returns-make-case-for-investing-PF-funds-in-equity/articleshow/6550427.cms