Mutual Funds
BNP Paribas Russia Fund: Volatile returns, short history

The fund has done better than the Sensex over 1-3 years but it is too short a period to extrapolate

BNP Paribas Mutual fund, recently filed an offer document with the Securities and Exchange Board of India (SEBI) to launch an open-ended overseas fund-of-funds scheme—BNP Paribas Russia Fund. The fund will invest 90%-100% of its assets in the units of its overseas fund—BNP Paribas L1 Equity Russia. The remaining units will be invested in debt instruments. The scheme will be benchmarked against the MSCI Russia 10-40 index, which is also the index for the overseas fund.

There have been many such funds launched in the past, inviting Indian investors to park money in their overseas fund. Apparently, most of these overseas funds do not have a long and proven track record of good performance. Moneylife has constantly been writing about such funds in the past years. These funds are pure fads. (Read: Avoid HSBC Brazil Fund new fund offer)

Same is the case for the Russia fund. Though the fund may seem to have performed better than the Sensex, the performance has just been mapped over a four-year period. The returns have shown greater volatility and just about managed to outperform its benchmark in just two periods out of four. In the last one-year period ending 30 November 2011 the overseas fund has returned -10.56% whereas the Sensex has returned -17.29% and its benchmark returned -5.59%. The fund itself has been launched in March 2007, so its long-term performance cannot be judged. Its performance though much better than the Sensex in the one-year, two-year and three-year period, it has just about managed to match the benchmark on the other two occasions. Apart from this, the variance in returns is a clear indicator of how volatile the returns have been for the fund. And it has been clearly much more volatile than the Sensex in the past four years.

Chasing returns is not for the average retail investor especially when it comes with high risk. The return of the fund is highly correlated with the Sensex. Thus investors do not get any added benefit if they try to diversify their risk.

 

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Dynamic bond fund: How dynamic are their returns?

Is there a reason to invest in dynamic bond funds?

You are a conservative investor with a fair exposure in bond funds. Now that the yields have gone up, your financial advisor suggests that you should buy dynamic bond funds, as this category will provide better returns than plain-vanilla debt funds. A couple of new dynamic bond funds have just been launched (See box: Two More). Is...

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LIC Nomura MF Mid-cap fund: High risk

LIC Nomura MF plans to launch a mid-cap fund. Though the timing may be right, as we may be close to a market bottom now, the fund management of LIC Nomura MF has been rather substandard in the past

Recently Union KBC filed an offer document with the Securities and Exchange Board of India (SEBI) to launch a small and mid-cap fund. And now, LIC Nomura MF, too, has filed its offer document with SEBI to launch a mid-cap fund. The scheme would invest 65%-100% in equities of companies having a minimum market capitalization of Rs750 crore and maximum market capitalization not exceeding the highest market capitalization of the BSE Mid-cap index constituents. The remaining would be invested in debt and money market instruments.

A couple of days back we wrote about the pros and cons of investing in small and mid-cap funds and the risks associated with such funds (Read: Union KBC Small and mid-cap fund: Is it worth the risk?).  To reap the benefits of such funds your timing needs to be perfect. And the best time to buy is when the market is at its bottom. But is it safe to invest in such a fund from LIC Nomura MF?

On analysing the returns of equity funds of LIC Nomura over one year, three year and five year periods it turns out that out of the five funds of LIC only one has been able to beat the benchmark. That, too, only in a single period. Take a look at the table below.

The fund management of LIC Nomura has simply failed to perform. Managing a portfolio of highly risky stocks will be a tough challenge for them. Clearly, LIC Nomura MF Mid-cap Fund may not be a safe and smart investment to put your money into.

 

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