CAPITAL LETTER

CAPITAL
LETTER
Volume 5

April 09, 2012

Issue 03

Marching on into a new financial year

Greetings from FundsIndia!

Two events happened during the course of the last month of the past financial year that merit mention. Let me briefly touch
upon each.
Budget I thought this years budget was an insipid exercise. Much was expected, but little was delivered. From a retail investors point of view, it was a mixed bag. The tax exemption for upto Rs. 10,000 in savings bank interest was possibly the best
news of the lot. The income tax slab changes were too minor to be material, and the DTC was postponed allowing ELSS funds a
reprieve for another year. It was distressing to note that tax-exempt infra bonds will probably become a thing of past now. The raise in indirect
taxation (a relic of 80s style of budgets) will mean inflationary pressure on the economy and that will likely make RBI wary in terms of bringing
down rates.
However, all said, we are talking about the Indian economy and well find a way to march on, hopefully.
Fidelitys exit The financial year ended with the news about the decision by Fidelity mutual fund to sell their AMC business to L&T finance. Fidelity have been good stewards of funds under their management, and it would be sad to see them go. There have been quite a few queries from investors regarding what to do with their Fidelity investments. At this time we are counselling patience, but we are well aware that such a move where
fund management as well as institutions change hands is cause for reviewing your investments in the schemes. I think Uma Shashikant summed
it up best in her Economic Times column, where she wrote,
The communication from L&T Mutual Fund to investors will specifically indicate which fund will be merged into which one, what the new names
will be, and which funds may be closed. Investors in the Fidelity's schemes should ideally await for that communication before deciding on the exit
option. Most errors in fund selection are made when investors exit and enter funds in haste and with limited information. Sale of an AMC is a major
event, but it should trigger caution, not panic.
In other news, in this issue of the news letter, we are debuting two new features:
A regular equity advisory column by B. Krishnakumar Krishna is an equity analysis pro who has had long and proficient stints in Business Line,
Dow Jones, and Bloomberg prior to joining Team FundsIndia. Every month, his column will review a particular market sector and recommend
stocks that are worth looking at for investing. Investors will do well, hopefully, by reading and following-up on his advisory.
A regular section on list of recommended mutual funds across categories We have taken a fresh approach to identifying consistent performance
funds across different fund categories and laid out our picks in this regard. We intend to publish this every month, but given our methodology, we
do not expect much changes in this list on a monthly basis. This list should give a handy guide in terms of selecting funds that have stood the test of
time.
Happy investing!
Srikanth Meenakshi

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

The week ahead - Equity recommendations

BY B. KRISHNAKUMAR

The stock market has been largely range-bound amidst mounting concerns on the economic fundamentals. The corporate earnings season gets
underway with the dawn of April. The Reserve Bank of Indias credit policy is scheduled later this month.
Given this backdrop, there is a lot of reason to expect increased volatility in the weeks ahead. Hence, it would be advisable to trade light and avoid
big bets. From a technical perspective, we maintain our stance that the Nifty is in a downward correction and could test the support at 5,050 or
even 4,900 in a worst case scenario.
Nifty has to move past the resistance at 5,500 to make us believe that the downward correction is over. Else, the path of least resistance would be
on the way down.
This week, we take a look at the automotive tyre sector which has attracted market interest in the recent months. While the market leader MRF
has been a top gainer since January, others such as Apollo Tyres , Ceat and JK Tyres are also evincing buying interest recently.
Lets take a look at the technical outlook for these stocks. Apollo Tyres gets interesting from a technical perspective once it moves above the resistance at Rs.87. The stock could target Rs.105 on a breakout past Rs.87. We will update the trading strategy on Apollo once it moves past Rs.87.
We turn our focus on Ceat and JK Tyres this week. A look at the daily chart of Ceat featured below indicates that the stock has registered a breakout past the down-sloping red trendline, which is a sign of strength.

The next resistance-cum-target is

at Rs.120. The stock may be purchased with a stop loss at Rs.82, for
a target of Rs.120. The uptrend
would gather momentum on a
move past Rs.120 and the stock
could then target the major resistance at Rs.130.

As far as JK Tyres is concerned, the stock appears to

have the potential to hit the
target of Rs.96. A cursory
glance at the daily chart indicates that the price is at a
support level, which acted as
a resistance earlier.

The stock may be bought on weakness, with a stop loss at Rs.72, for a target of Rs.96. Once the resistance at Rs.96 is overhauled, the stock could
then rally to the significant resistance at Rs.110.

Mr. B.Krishnakumar is the Head of Equity Research at FundsIndia. With extensive experience in tracking the stock market (over 15 years) he has worked with
companies such as The Hindu , Business Line and Dow Jones Newswires. He will be contributing to our monthly newsletter with his stock market outlook
which shall hold good for a month. Mr.B.Krishnakumar can be reached at b.krishnakumar@fundsindia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Consistent Performers
BY SRIKANTH MEENAKSHI
In this page, we feature mutual fund schemes in popular categories that have stood the test of time and delivered performance consistently. These
schemes have consistently featured in the top quartile of their category in terms of performance over multiple time periods in the past. For equity
funds and income funds, we have chosen three, five and seven year time periods for such ranking. For short term and ultra-short term funds, we
have chosen shorter time frames. Please note that in some cases, we have pruned the list for length - we have removed institutional schemes and
those that have very high initial investment amounts (in the debt side) from this list.
This list will be updated every month, although we do not anticipate significant changes on a month-on-month basis. Rankings data for this report
has been sourced from Value Research Online.

Fund Name

3-Y Return (%)

3-Y
Rank

5-Y Return (%)

5-Y
Rank

7-Y Return (%)

7-Y
Rank

VRO
Rating

Large Cap
DSPBR Top 100 Equity Reg

22.65

9/99

13.41

1/39

20.44

1/35

YYYYY

Franklin India Bluechip

26.14

3/99

12.65

2/39

18.81

2/35

YYYYY

HDFC Index Sensex Plus

23.33

5/99

10.69

5/39

17.38

4/35

YYYY

ICICI Prudential Top 100

21.41

13/99

10.06

8/39

17.33

5/35

YYYY

UTI Mastershare

20.77

10.6

YYYY

14.4

Large & Mid Cap

ICICI Prudential Dynamic

27.21

7/57

12.02

8/44

21.46

1/29

YYYY

HDFC Top 200

27.92

5/57

15.15

3/44

21.03

2/29

YYYYY

UTI Opportunities

29.21

3/57

18.07

1/44

--

--

YYYYY

UTI Dividend Yield

26.62

8/57

16.04

2/44

--

--

YYYYY

Canara Robeco Equity Diversified

30.58

2/57

15.09

4/44

17.35

11/29

YYYYY

UTI Equity

26.33

12/57

13.11

5/44

16.19

15/29

YYYY

Fidelity Equity

26.38

11/57

11.65

10/44

--

--

YYYY

Reliance Equity Opportunities

37.54

10/53

13.38

8/37

20.32

2/22

YYYY

ICICI Prudential Discovery

41.01

5/53

15.46

6/37

19.87

4/22

YYYYY

HDFC Equity

32.33

2/36

14

6/29

21.27

1/16

YYYYY

HDFC Growth

28.82

24/36

14.31

4/29

19.56

4/16

YYYYY

Quantum Long Term Equity

32.52

1/36

15.35

1/29

--

--

YYYYY

HDFC Prudence

31.71

2/25

15.09

2/25

20.05

1/22

YYYYY

HDFC Balanced

30.05

3/25

15.57

1/25

16.41

5/22

YYYYY

Reliance Regular Savings Balanced

25.08

6/25

14.65

3/25

--

--

YYYY

HDFC Children's Gift-Inv

31.87

1/25

14.29

4/25

15.01

7/22

YYYY

9.84

16/87

7.68

8/62

9.43

5/45

YYYY

Mid & Small Cap

Multi Cap

Hybrid Equity oriented

Debt Income
Birla Sun Life Dynamic Bond Ret

(Continued on page 4)
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Fund Name

3-M Return (%)

3-M
Rank

6-M Return (%)

6-M
Rank

1-Y Return (%)

1-Y
Rank

VRO
Rating

Debt Short Term/ultra short term

YYY

UTI Short-term Income Regular

2.13

7/26

4.76

4/24

10.76

2/24

Religare Short-term Plan A

2.98

2/184

5.66

1/184

10.88

5/177

HDFC Floating Rate Income LT

2.77

6/184

5.1

12/184

10.2

18/177

Magnum Floating Rate LT Retail

2.63

8/184

5.23

6/184

10.37

9/177

YYYY

2.6

10/184

5.11

11/184

10.42

7/177

YYYYY

JM Money Manager Reg

2.56

11/184

5.08

15/184

10.3

12/177

YYYYY

Magnum Floating Rate Savings Plus Bond

2.54

16/184

4.91

27/184

9.97

28/177

YYYY

JM Money Manager Super Plus

2.52

23/184

4.96

20/184

9.81

38/177

YYYY

2.5

28/184

4.93

23/184

10.16

20/177

YYYYY

2.45

42/184

4.87

36/184

9.96

29/177

YYYYY

Peerless Short Term

Taurus Short Term Income

Canara Robeco Floating Rate ST

Y
YY

Now available at FundsIndia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

No Cause for Concern

BY DHIRENDRA KUMAR

Fidelity, one of the world largest mutual funds, is selling its business in India and moving out of the country. By
itself, this news is not a surprise. Looking at the list of mutual funds operating in India, I cant help notice that practically every one of them has had some sort of a major upheaval in its ownership structure, the exceptions being the
few that are too young. Mergers, acquisitions, major stake sales and other restructuring are the norm rather than
the exception. Exits out of India are also hardly uncommon. Offhand, I can recall Alliance, Threadneedle, Zurich,
Sun F&C, AIG, Shinsei, Aegon, Lotus, Merril Lynch, Newton, ABN Amro, Fortis, Wellington, and Cazenove; there
may be a few more too. All these global outfits were running mutual funds in India but decided to quit at some
point. Logically, one would expect that investors should be equanimous about such business events, but thats not
the case. Its hard to take a detached view when ones money is on the line. Fidelitys exit has produced cries of
worry and protest from investors who have been tracking the news. At Value Research, we have received a flurry of
emails from investors, worried about what this means for their investments in Fidelitys funds.

Fidelity is exiting India by selling off its operations to L&T Mutual Fund. L&T Mutual Fund itself is a very young name in the Indian fund industry,
having been setup through L&T Finances acquisition of DBS Cholamandalam Mutual Fund just two years back.
Mergers, acquisitions and other restructuring of asset management companies will continue. It would be good for a fund investor to understand
what exactly this means for their money. There are two types of concerns that investors have regarding an AMCs exit. One is the somewhat naive
worry that arises out of hearing that an AMC is quitting India because its making too many losses. Some investors assume that its possible that
their own money is somehow involved in these losses. Such worries crop up whenever any news of any AMCs business problems comes up. The
answer is straightforwardinvestors money has nothing to with the AMCs business. The countrys mutual fund regulations take complete care of
the fact the AMCs finances and business is completely isolated from investors funds. They are held in a separate account.
The AMC manages the money and gets a fee for doing so out of the funds. This fee is deducted out of investors funds but its quantum is strictly
regulated. Its usage too is strictly regulated. For example, not only is there complete isolation between the AMCs money and investors money in a
mutual fund, theres complete isolation between different mutual funds run by the same AMC. Whether it makes profits or losses out of that fee is
the AMCs own problem, not the investors. Its entirely possible for an AMC to invest a lot of money in its business, manage the funds well so that
investors make money and yet not be able to make a profit itself. In fact, this is exactly what went wrong with Fidelity. It has a number of funds
that investors have done well by but has never made a profit itself. In fact, in seven years of operations, Fidelity has accumulated over Rs 300 crore
of losses.
Having said that, these are just the legal basics of how the fund management business is organised. Theres a second source of investors concerns
that are much more real. These pertain to the possible change of the quality of fund management once the funds shift to a different company. People have invested in Fidelitys funds because of their investment track record. And that track record is the result of investments done by Fidelitys
investment managers, following processes that may be characteristic to the AMC. Will that change? Will L&T be as good? These are legitimate
concerns that L&T Mutual Fund has to address. One big positive for Fidelity investors is that Fidelitys fund management team will stay on for a
while. L&T has said that till its own equity fund management team builds up to manage the newly acquired funds, Fidelitys managers will keep
managing the funds. Theres no schedule stated for this although Im sure that there must be one internally. While this is true even when just the
fund manager changes within the same A MC, its all the more crucial when the AMC itself changes.
Which means that eventually, the funds investment management will change. In any kind of a management change, theres always room for caution. After the change happens, investors have to watch out for a decline in the funds performance.
However, this does not mean that theres any reason for panic. At this point in time, investors should continue with their investments. If they have
any SIPs going in Fidelity, theres no reason to discontinue those either. Disruptions can mean paying L&T Finance has paid about Rs 600 crore to
acquire Fidelitys business. This investment makes sense only if it can build upon the performance and existing investor base of these funds to
grow its business. The current revenue stream from the Rs 8,000 crore of assets that L&T gets as part of the deal is certainly not enough to justify
the price tag. For L&T, this is a high stakes investment. It leapfrogs the company from the also-ran status that it inherited from DBS Chola to a
potentially serious player in the industry. While L&T is a big business, its a brand only in business circles. It has no consumer product and is not
known to a large mass of people. The only way it can leverage the money its spending is to ensure that investors have a profitable experience from
keeping the faith and continuing with their Fidelity investments under the new L&T name.

-Syndicated from Value Research Online

Article is available online at: http://www.valueresearchonline.com/story/h2_storyview.asp?str=19601

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E-mail: contact@fundsindia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.