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

India-dedicated offshore equity funds outperform and attract inflows

Several India-dedicated offshore equity funds have outperformed the benchmark indices by a respectable margin over the past one-year. Some of the out performers have delivered better returns than the average category returns of domestic equity funds.  The top performing fund over one year period delivered a return of 48.20% while the MSCI India USD index returned 25.85% over the same period.  This out performance could be attributed to the rally in Indian stocks and a strengthening rupee. 

An India-dedicated offshore fund would be one that is not domiciled in India, but invests primarily into the Indian markets.  Generally, offshore funds are launched from tax havens like Mauritius or Luxembourg.  Offshore funds have been active in India, investing across sectors and market cap.  Better returns and an upbeat outlook on the domestic economy are drawing foreign investors to India-dedicated offshore equity funds.

http://www.thehindubusinessline.com/2010/10/27/stories/2010102753101200.htm 

http://economictimes.indiatimes.com/markets/analysis/India-focused-funds-outperform-benchmark-indices-in-returns-race/articleshow/6477377.cms 

http://economictimes.indiatimes.com/markets/stocks/market-news/India-specific-funds-attract-bumper-inflows/articleshow/6818005.cms 

http://www.morningstar.co.in/in/news/article.aspx?lang=en-IN&articleid=92806&categoryid=519 

Midcap/SmallCap funds versus diversified funds

Midcap/SmallCap funds are riskier than diversified funds. Midcap/SmallCap tend to out perform diversified funds during momentum phases, however, they can be very volatile in the short term. Thus the investment horizon for Midcap/SmallCap funds should be more than three years and allocation not more than large cap funds in the investment portfolio.  Investors should also preferably opt for the systematic investment plan or the systematic transfer plan routes where the risks are reduced by cost averaging.

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

Gold ETF have doubled since Jan 08

Returns from Investments in Gold have almost doubled since Jan 08 when equity markets crashed globally.  Investors would have reaped good returns on rebalancing the asset allocation in equity in 2007 and including Gold in the investment portfolio.  While Indian equities will provide good returns going forward, inclusion of Gold in the investment portfolio upto 5-10% can improve returns substantially.  Also, investments in Gold, work as a hedge.   However, as we are at a high for Gold, investing through the ETF route via a 3-5 year SIP/STP would be the right way to include the same in the investment portfolio.  Other investment options are through overseas funds and commodity exchanges.

http://economictimes.indiatimes.com/markets/commodities/Commodities-surge-on-Feds-stimulus-hopes/articleshow/6732590.cms 

Sector/Theme funds versus diversified funds

Sector/Theme funds like Banking, FMCG, Pharma, Infrastructure funds are riskier than diversified funds, as the investments are concentrated in a sector or few sectors. Sector/Theme funds tend to out perform diversified funds during momentum phases, however, they also tend to suffer huge downsides when markets fall.  As Sector/Theme funds can be more volatile; they are only apt for informed investors who have large risk appetites. The investment horizon for Sector/Theme funds should be more than three years and allocation 10-15% of the investment portfolio.  Investors should also preferably opt for the systematic investment plan or the systematic transfer plan routes where the risks are reduced by spreading out the investments over a longer time horizon.

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

Asset allocation is the KEY

As we near the market highs, it is time to rebalance and review the asset allocation of the investment portfolio.  Rebalance for profits in Equity, Gold.  Review the portfolio for non performing investments. Consider booking profits in Equity Investments more than 1 year old as they are tax free.  Invest through SIP/STP with a 3-5 year horizon in funds with a superior risk adjusted performance.

http://economictimes.indiatimes.com/quickiearticleshow/6726960.cms

Alternative Investments in India

As we near the market highs, it is time to rebalance and review the asset allocation of the investment portfolio.  Investors can consider investing upto 10% of their investment portfolios in alternative investments with a horizon of 3 - 5 years atleast.  One can participate through Gold ETF’s, Private Equity Funds, Real Estate Funds, Structured Products, Overseas Funds, Commodity Exchanges. 

http://economictimes.indiatimes.com/quickiearticleshow/6733521.cms