MF POINTERFor Private Circulation only

Decoding debt funds for the investor

Issue - 88 April, 2013

Global Indices

Benchmark Closing 13-Mar-13

to 12-Apr-13

Bovespa 54963 -4.2

CAC 40 3729 -2.8

DAX 7745 -2.8

Dow Jones 14865 2.8

FTSE 100 6384 -1.5

Hang Seng 22089 -2.1

Nikkei 225 13485 10.2

Shanghai Composite 2207 -2.5

(continued on page 2)

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Equity Market

Global Equities

• For the month ended 12th April 2013, global equity indices ended on a mixed note amidst uncertainty looming around the global economy (especially the Euro zone).

• In US, the benchmark equity index S&P 500 touched record high levels even as the FOMC (Federal Open Market Committee) meeting minutes for March 2013 indicated that a few of the Fed's board members saw an end to quantitative easing by the end of 2013. The US economy added 88,000 jobs in March 2013 against market expectations of 190,000 job additions. The U.S. government announced that U.S. retail sales during March fell by a seasonally adjusted 0.4% to mark the biggest decline since June 2012.

• The European Central Bank (ECB) raised expectations of rate cuts in May and possibly will infuse more liquidity into the system due to the weakness seen in the Euro zone economy. Manufacturing showed a fall in March while unemployment rate climbed to record highs in the first two months of calendar year 2013 which lead to worries of contraction in the economy. The FTSE 100 index fell by 1.50% to 6384.40.

• On the commodities front, Brent crude oil prices eased to $103.11 a barrel for the month ended 12th April 2013 thereby following a sharp descending move seen in the month of February 2013. Increased supplies from the North Sea and concerns on Euro zone economy helped to keep a check on Brent crude oil prices.

• Gold declined by $83 per ounce and closed at $1506.25 during the month as investors' feared that the government of Cyprus may dump its gold reserve to deal with its debt crisis.

Domestic Indices:

• The Indian Benchmark indices for the month ended 12th April 2013 closed downwards with Sensex and Nifty down by -5.51% and -5.78% respectively.

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• The markets evaluating the domestic macroeconomic data appeared rather worrisome, which led the markets to erode some gains seen earlier. The Q3FY13 GDP growth rate of India came in at 4.5%, depicting a slowdown and the Index of Industrial Production (IIP) data too continued its 'see-saw' movement with series of contraction and expansion evident. The markets expected the RBI to cut rates at least by 25 basis points and indeed when the RBI did cut rates matching expectations, it didn't have a positive impact on the markets because the expectations were already discounted when the data for WPI inflation (6.84% for February) was released.

• India has seen FIIs invest USD 22 billion in equities in fiscal 2012-13 even as the economy's growth has slumped from levels of 6.2% to 5% from 2011-12 to 2012-13. FIIs are unlikely to exit India despite the country's issues with growth, inflation and twin deficits. Markets will bet on a US economic recovery pulling up other global markets. FIIs will more likely buy Indian equities on the back of improved global market sentiments.

• The rupee ended at 54.52 against the dollar on 12th April 2013, a marginal depreciation of 0.40% than earlier month. Continuous inflation made exports uncompetitive, which lead to depreciation in the currency.

Bond Market

• For the bond markets, the RBI in its 4th quarter mid-review of Monetary Policy 2012-13 cut policy rates in line with expectations. To manage the liquidity situation, while the RBI refrained from reducing the Cash Reserve Ratio (CRR) keeping it unchanged at 4%, it mentioned that it intends to manage liquidity situation actively through various instruments, including OMOs.

The 8.15% 2022 (10-Yr) G-Sec yield fell by 3 bps placing it at 7.87% on concerns over slowdown in economic growth rate, RBI hinted that headroom for further monetary easing remained quite limited and put the onus on Government to revive the GDP growth rate.

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Top 5/Bottom 5

Equity Schemes

Top Performers Under Performers

Absolute Absolute Scheme Name Returns(1M) Scheme Name Returns(1M)

ING Global Real Estate Fund 6.14 SBI Infotech Fund -11.38

UTI Pharma & Healthcare Fund 3.17 Franklin Infotech Fund -11.02

Birla SL Intl. Equity Fund-A 2.39 Birla SL New Millennium Fund -10.69

FT India Feeder U.S.Oppor Fund 2.10 DSPBR World Gold Fund -10.68

MOSt Shares NASDAQ-100 ETF 1.86 DSPBR Technology.com Fund -9.64

Debt Schemes

Top Performers Under Performers

Annualised AnnualisedScheme Name Returns(1M) Scheme Name Returns(1M)

Sundaram Gilt Fund 14.78 JM G-Sec Fund -4.93

Escorts Income Bond 14.38 IDBI Gilt Fund -4.18

DWS Gilt Fund 12.29 Kotak Gilt-Invest -2.67

PineBridge India Total Ret Bond 11.78 Kotak Gilt-Invest-PF&Trust -2.64

ICICI Pru Banking & PSU Debt 10.29 ING Income Gth Multi FoF-30%-A -2.05

* Returns as on 12th April 2013

Category Returns: For the month ended 12th April 2013, a majority of the sector funds ended in the negative. Infrastructure and Banking Sector fell the most by 6.63% and 6.38% respectively. Gold Funds declined by 1.66% on the back of fall in gold prices. Also there was a heavy decline seen in funds with global exposure.

* Returns as on 12th April 2013

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The last financial year was an unusual year for the Indian economy as corporate earnings fell, investments plunged, current account deficit widened and the GDP growth rate fell to a near decade low. Coupled with that concerns regarding inflation, currency movements and dismal government finances and uncertainty on the global front meant a poor show by the Indian economy.

Given that interest rates have declined by 100 basis points over the past year and expected to go down, bond schemes may do well. Which bond schemes are worth buying now ? Bond schemes are for investors seeking returns slightly higher than from other safe avenues like fixed deposits.

When interest rates are on a rise bond prices go down and when interest rates are falling bond prices go up. But if there is no change in interest rates bonds will deliver the current rate of yield or interest rates. More or less we are in the second scenario and this is a good time to invest in bonds. For this first let us understand the basics of debt funds.

Debt mutual funds generate returns for their investors' by investing in bonds or deposits of various kinds. They basically lend money and earn interest on the money they have lent. This interest that they earn forms the basis for the returns that they generate for investors.

Even individual investors do something similar when they do something as simple as make a fixed deposit in a bank. When you make an FD with a bank, you are basically lending money to the bank. A simple way of understanding debt funds is to think of them simply as a way of passing through the interest income that they receive from the bonds they invest in.

Unlike the FDs that individuals invest in, mutual funds invest in bonds that are tradable, just like shares. The way there's a stock market where shares are traded, there's also a debt market where bonds of various types are traded. In this debt market, the prices of different bonds can rise or fall, just like they do on the stock markets. If a mutual fund buys a bond and its price subsequently rises, then it can make additional money over and above what it would have made out of the interest income alone. This would result in higher return for investors.

But why do bond prices go up and down ? The major reason is a change in interest rates, or even the expectation of such a change. Suppose there's a bond that pays out interest at a rate of 9 per cent a year. Then, the interest rates in the economy fall and newer bonds start getting issued at 8 per cent. Obviously, the old bond should now be worth more than earlier. After all, a given amount of money invested in it can earn more money. Its price would now rise. Mutual funds that hold it would find their holdings worth more and they could make additional profits by selling this bond. Again, obviously, the reverse could happen when interest rates rise. The fluctuating prices of bonds can be used to enhance your portfolio's returns by investing in debt funds.

Decoding debt funds for the investorDecoding debt funds for the investor

Features Debt Fund Fixed Deposit/Bank How debt fund Deposits score over FD

Flexibility Any amount of money cannot be invested into existing fixed deposit. For any new money to be invested, a new fixed deposit needs to be opened.

Debt fund provides better flexibility to manage, invest or withdraw, investment.

Any amount of money, can be invested any time in the same/existing debt fund. Similarly any amount of money or partial money can be withdrawn anytime.

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Debt fund provides return for each and every day of investment.

Earn interest for every day of investment

Fixed deposit for certain periods, like days after maturity, may or may not provide return.

In debt fund return is not lost even for a single day.

Historically certain debt funds have never lost / reduced the investment principal

Principal Guaranteed

Yes

Principal of a debt fund can see erosion if the interest rates go up.

No, but historically certain debt funds have never given negative return

Return Guaranteed

Yes

Return from debt fund is positive and comparable to fixed deposit

Traditionally fixed deposit is the safe and guaranteed return investment product. But except for the comfort of guaranteed return in fixed deposit, debt fund is a far superior investment for all age group of investors.

Debt funds have an advantage in terms of liquidity as well as superiority of returns. However, now an individual will have to look at the investment based on the matrix given below:

Investment Matrix

Taxable Income

REQUIRE Regular Income DO NOT REQUIRE Regular Income

Tenure of Holding

Long Term Short Term Long Term Short Term

(more than 1 year) 0–6 M 6–12 M (more than 1 year) 0–6 M 6–12 M

Less than ` 11 lacs

1Fixed Deposits

Between 11 – 25 lacs`

More than 25 lacs`

2Debt Funds or Fixed Deposits

3Debt Funds

4Debt Funds5Debt Funds

Debt Funds – 6Dividend Reinvest

For more details on the same please refer to our earlier article in MF Pointer titled ”Impact of Dividend Distribution Tax(DDT) on Debt Mutual Funds – A death knell to retail investors”.

A fall in rates going forward will be good for long-term gilt and income funds. Actively-managed income and gilt funds work well for those with an investment horizon of more than a year. Those with a horizon of up to six months should invest in ultra short-term funds whose average maturity period is three-six months. Due to their short duration, these funds carry a low interest-rate risk. Those looking at a slightly longer period of up to one year can put money in short-term funds which invest in corporate bonds. Most such funds have maturity of two-three years.

Long duration gilt and income funds have returned more than 10 per cent in the last one year. Short-term funds, too, are not behind.

Debt investors may be spoilt for choice for the remaining part of the year. With all likelihood of interest rates moving downwards, debt mutual funds are expected to give handsome returns if past instances are anything to go by.

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The Financial Year 2012-13 has been an extremely lacklustre year in terms of

performance of the equity markets. The bellwether Indices of the Indian markets Nifty &

Sensex have given a return of 7.31% & 8.23% respectively. On the global front the best

performer has been the Thai market which clocked returns of 29% and worst performer

was the Brazil which declined by 13%. The returns in the Indian Equity have not kept pace

with inflation as well as fixed income returns. As a consequence equity mutual funds have

witnessed continuous redemption during last financial year, whereas debt funds have seen

significant inflows.

We have compiled a fund performance report of various mutual fund plans, during the last

financial year. The Fund Performance Report is a handy guide which gives you vital

statistics on the performance of various mutual fund plans during the last financial year. It

gives a comparison of Indian indices, world indices and macroeconomic figures and easy

to read tables which help you track the progress of various mutual fund schemes.

The Mutual Fund Performance Report includes:

Ø A gist of best and worst performing funds for each category of equity and debt funds,

together with returns sorted from best to worst across categories.

Ø Performance of select World Indices which gives you an insight of the top performing

and worst performing indices across the world.

Ø Mutual Fund Performance Report is the concise, yet elaborate performance update on

the entire gamut of Mutual Funds.

Fund Performance Report

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Important analysis from the Fund Performance Report:

On NSE, FMCG sector has been an outperformer rising by 34%; the worst performer has

been CNX Metal which fell by 27%. Out of selected indices on NSE, 9 have outperformed

Nifty and 15 indices have underperformed the Nifty. As regards BSE indices 7 have

outperformed whereas 13 have underperformed BSE Sensex. The number of equity

schemes outperforming the bellwether Nifty and Sensex is 58% and 52% respectively.

The ELSS category has 69% & 63% of its schemes which have outperformed the Nifty and

Sensex respectively. Given below is a tabular representation of the no. of funds which

have outperformed/underperformed the Nifty and the Sensex.

Category Outperformance Underperformance

Nifty Sensex Nifty Sensex

Diversified 137 122 96 111

ELSS 22 20 10 12

Sectoral Funds 18 18 25 25

Equity Fund of Funds 22 16 11 17

Total 199 176 142 165

As regards Debt Mutual Fund performance is concerned, the same is categorised based on

returns. The number of funds in the debt segment which have given a return in excess of

8% pa is nearly 93%. No funds have given a negative return in the last financial year. A

summary of the debt funds is provided in the table below.

Returns (% pa) Income Gilt Floating Short of Funds Total

Rate Term

More than 12% 4 15 0 0 0 19

More than 10% but less 52 9 4 0 3 68

than 12%

More than 8% but less 52 19 12 52 10 145

than 10%

More than 5% but less 3 10 1 1 0 15

than 8%

More than 0% but less 0 0 0 1 0 1

than 5%

Less than 0% 0 0 0 0 0 0

Total 111 53 17 54 13 248

Ultra Debt Fund

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Corporate Office Address : Website :

A1, Kailash Industrial Complex, Park Site, Off LBS Marg, Vikhroli West, Mumbai - 400 079. Tel: +91-22-6754 7000 • E mail : mutualfunds@ventura1.com • www.ventura1.com

This document is solely for private circulation only. Mutual funds like securities investments are subject to market risks and other risks. Investors are advised to read the offer document before investing.

Performing Mutual Fund Plans

Scheme Name Corpus NAV (`) Annualised %

( Crs)# Gr Div 1 mth 3 mths 6 mths 1 yr

Income Funds

Birla SL Dynamic Bond Fund 14,709.57 19.97 10.63

HDFC High Interest-STP 2,422.88 23.25 10.58

Ultra Short Term Plan

HDFC Cash Mgmt-TA Plan 8,076.73 25.22 10.10

Reliance Money Manager Fund 6,870.57 1,610.04 1,014.64

Tata Floater 2,663.45 1,763.49 1,118.85

`

13.30 8.94 9.42 10.52

13.01 8.25 8.53 9.93

10.36 8.27 7.99 8.46

10.49 9.13 8.92 9.49

10.42 8.90 8.83 9.42

*Returns for less than 1 year is absolute (in case of MIP, it is annualized) and more than 1 year are compounded annualized as on 12th April 2013#Corpus as on March 2013 as AMFI has mandated for quarterly AUM declaration.

Scheme Name* Corpus NAV (`) 6 mths 1 yr 3 yrs 5 yrs

(` Crs)# Gr Div (%) (%) (%) (%)

Hybrid - Monthly Income Plans(MIPs)

Birla SL MIP II-Savings 5 284.55 20.98 11.71

DSPBR MIP Fund 539.44 22.73 11.31

Balanced Fund

HDFC Prudence Fund 5,710.06 220.83 23.55

Equity - Large Cap

DSPBR Top 100 Equity Fund 3,292.81 100.97 19.85

Franklin India Bluechip Fund 4,929.22 220.25 32.51

HDFC Top 200 Fund 11,145.23 207.55 37.01

ICICI Pru Dynamic Plan 3,653.22 108.68 15.85

ICICI Pru Focused BlueChip Eq Fund 4,193.14 17.30 15.60

Equity - Multi cap

Birla SL Dividend Yield Plus 1,250.31 84.45 11.69

HDFC Equity Fund 10,668.47 267.30 37.06

IDFC Premier Equity Fund 3,245.28 36.23 21.39

Reliance Equity Opportunities Fund 4,894.67 40.69 22.17

UTI Dividend Yield Fund 3,302.10 31.46 12.64

Equity - Midcap

DSPBR Small & Mid Cap Fund 1,047.39 17.22 12.11

HDFC Mid-Cap Opportunities Fund 2,647.68 17.03 14.30

ICICI Pru Discovery Fund 2,570.68 53.24 18.38

SBI Emerging Businesses Fund 1,234.41 53.60 17.29

Sundaram Select Midcap 1,852.39 150.88 17.07

Equity - Thematic

Reliance Banking Fund 1,697.31 104.52 34.51

Reliance Pharma Fund 644.68 67.18 42.07

Tax Saving Scheme(ELSS)

HDFC TaxSaver 3,279.64 220.22 44.42

ICICI Pru Tax Plan 1,393.58 143.68 16.41

Sensex 18242.56

Nifty 5528.55

7.04 9.11 8.19 10.29

4.78 7.30 7.43 8.97

2.67 5.94 11.43

1.39 3.13 7.08

4.22 3.80 8.45

3.50 3.72 9.23

3.28 3.92 8.00

6.72 6.33

4.29 12.30

2.75 3.44 9.81

9.01 7.80 12.08

10.15 8.42 13.10

0.31 3.11 9.67

2.88 9.03

3.53 7.65 12.01

9.28 6.15 14.44

0.04 16.75 13.34 10.02

4.14 3.04 8.22

8.97 8.71 14.75

2.03 16.60 10.91 23.54

1.60 7.78

6.58 3.25 8.54

5.25 0.72 2.90

4.77 1.16 2.96

-4.02

-3.54

-0.97

-3.92

-1.67

-0.97

-6.37 -0.86

-4.46

-1.16

-1.88

-5.76

-7.13 -0.12

-4.37

-0.73

-8.01

-2.29

-5.27 -0.30

-2.98

-2.32

-2.60

Scheme Name* Corpus NAV (`) 6 mths 1 yr 3 yrs 5 yrs

(` Crs)# Gr Div (%) (%) (%) (%)

Hybrid - Monthly Income Plans(MIPs)

Birla SL MIP II-Savings 5 284.55 20.98 11.71

DSPBR MIP Fund 539.44 22.73 11.31

Balanced Fund

HDFC Prudence Fund 5,710.06 220.83 23.55

Equity - Large Cap

DSPBR Top 100 Equity Fund 3,292.81 100.97 19.85

Franklin India Bluechip Fund 4,929.22 220.25 32.51

HDFC Top 200 Fund 11,145.23 207.55 37.01

ICICI Pru Dynamic Plan 3,653.22 108.68 15.85

ICICI Pru Focused BlueChip Eq Fund 4,193.14 17.30 15.60

Equity - Multi cap

Birla SL Dividend Yield Plus 1,250.31 84.45 11.69

HDFC Equity Fund 10,668.47 267.30 37.06

IDFC Premier Equity Fund 3,245.28 36.23 21.39

Reliance Equity Opportunities Fund 4,894.67 40.69 22.17

UTI Dividend Yield Fund 3,302.10 31.46 12.64

Equity - Midcap

DSPBR Small & Mid Cap Fund 1,047.39 17.22 12.11

HDFC Mid-Cap Opportunities Fund 2,647.68 17.03 14.30

ICICI Pru Discovery Fund 2,570.68 53.24 18.38

SBI Emerging Businesses Fund 1,234.41 53.60 17.29

Sundaram Select Midcap 1,852.39 150.88 17.07

Equity - Thematic

Reliance Banking Fund 1,697.31 104.52 34.51

Reliance Pharma Fund 644.68 67.18 42.07

Tax Saving Scheme(ELSS)

HDFC TaxSaver 3,279.64 220.22 44.42

ICICI Pru Tax Plan 1,393.58 143.68 16.41

Sensex 18242.56

Nifty 5528.55

7.04 9.11 8.19 10.29

4.78 7.30 7.43 8.97

2.67 5.94 11.43

1.39 3.13 7.08

4.22 3.80 8.45

3.50 3.72 9.23

3.28 3.92 8.00

6.72 6.33

4.29 12.30

2.75 3.44 9.81

9.01 7.80 12.08

10.15 8.42 13.10

0.31 3.11 9.67

2.88 9.03

3.53 7.65 12.01

9.28 6.15 14.44

0.04 16.75 13.34 10.02

4.14 3.04 8.22

8.97 8.71 14.75

2.03 16.60 10.91 23.54

1.60 7.78

6.58 3.25 8.54

5.25 0.72 2.90

4.77 1.16 2.96

-4.02

-3.54

-0.97

-3.92

-1.67

-0.97

-6.37 -0.86

-4.46

-1.16

-1.88

-5.76

-7.13 -0.12

-4.37

-0.73

-8.01

-2.29

-5.27 -0.30

-2.98

-2.32

-2.60