Mutual Funds
HSBC China Consumer Opportunities Fund: More of the same

HSBC plans to launch another Fund of Funds scheme investing in foreign equities— another global fund with no track record

HSBC Mutual Fund plans to launch an open-ended Fund of Funds (FOF) scheme—HSBC China Consumer Opportunities Fund. The scheme would invest 95%-100% in its overseas fund—HSBC Global Investment Funds (HGIF) China Consumer Opportunities Fund. The rest would be invested in money market instruments and units of domestic mutual funds. The investment objective of the underlying fund is to invest for long-term total return in a diversified portfolio of investments in equity and equity equivalent securities of mid to large cap companies around the world, positioned to benefit from the growing middle class and changing consumer behaviour in China. The rationale behind the fund is that the growing population of middle class, gifting culture and liberalisation of tourism are upholding demand for international and local consumer goods. The fund does not have any track record as it has just been launched in September 2011. As on December 2011, the fund had invested in companies of 10 different countries. Around 51.2% of the investments are in stocks of United States, France and Switzerland; just 17% is invested in companies located in Hong Kong and China. Some of the companies in the top ten holdings include: Adidas, Louis Vuitton, Swatch, L’Oreal and Henkel.

This is the third FOF launched by HSBC which invests in its overseas fund. The other two funds are—HSBC Brazil Fund and HSBC Emerging Market Fund. (Read about what we said here: Avoid HSBC Brazil Fund new fund offer , Faith Investing ) There have been many such funds launched in the past by fund companies, 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.

We have had similar funds like the recent Mirae Asset India-China Consumption fund, which invests as much as 35% in companies from China and the rest in Indian equities and debt instruments. There are also FOF schemes like JPMorgan JF Greater China Equity Offshore Fund and Mirae Asset China Advantage Fund which invest in funds that primarily invest in companies domiciled in China. Here again, there is no long-term performance available for these funds. In the last two years these funds have returned around 2% whereas the Sensex was down by 2%, but in the last one year the returns have more or less tracked the Sensex.

Even if investing in such a fund tends to diversify one’s portfolio, how much should one plan to allocate to these funds? One needs to study the investment strategy and analyse the portfolio of the foreign fund. It’s clear these funds are not meant for individuals who do not even have a significant portion of his investments in Indian equity funds.



NFOs: Multiple choice

Several new equity funds are being launched. Would it be a safe and smart choice to invest in them?

Union KBC Mutual Fund is launching an open-ended equity scheme—Union KBC Small and Mid Cap Fund. As the name suggests, the Fund would invest 75% to 100% of its assets in small- and mid-sized companies. LIC Nomura Mutual Fund plans to launch a Midcap Fund, which would invest in equities of...

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Equity Mutual Funds to avoid at all costs

Out of the 134 equity diversified schemes that are aged five or more years, around 16 of them have grossly underperformed the benchmark over all the periods mentioned

has conducted a study to analyse which equity diversified mutual funds have constantly underperformed their benchmark over one year, two years, five years and since inception. Five years is a reasonable time for funds to prove their performance. However, out of the 134 equity diversified schemes that are aged five or more years, around 16 of them have grossly underperformed the benchmark over all the periods mentioned.

In various articles in the past and in our financial literacy seminars held by Moneylife Foundation, we have consistently pointed out that one should not go by the names or rather brand name of fund houses but by the performance of that particular scheme. The list of 16 contains a few big names, as well.

Life Insurance Corporation of India (LIC) would be your first choice while looking for an insurance product but do not make the same judgement when choosing a mutual fund. LIC Nomura MF has been infamous for its poor equity fund management. Moneylife has commented in the past on its meagre performance. In fact all of its equity funds have failed to perform. Three out of their five equity schemes—LIC Nomura Equity, LIC Nomura MF Opportunities and LIC Nomura MF Growth—are on the list of underperformers where the funds were launched five years back. The other two funds—LIC Nomura MF India Vision and LIC Nomura MF Top 100 were launched a few years back and have also underperformed their benchmark in the last one and two years.

HSBC Mutual Fund, part of the HSBC Group which has been managing assets for 25 years globally, has two of its funds on the list. HSBC Midcap Equity and HSBC Progressive Themes have given a return of around 10 percentage points lower than that of its benchmark in the last one year. The HSBC Progressive Themes Fund has given returns of -7% and -2% in the last five years and since inception, respectively, compared to its benchmark which has given a return of 3% and 7% in the respective period.

Tata Mutual Fund has two of its schemes on the list. Tata Capital Builder, launched in September 2006, has underperformed the benchmark by just a percentage point or so in all the periods. The Tata Service Industries Fund has done a bit worse though. It has given a return of -12% in the last ten years compared to its benchmark which has given a return of -5%. There has been a difference of 3-4 percentage points in the other periods as well.

Two schemes from Principal Mutual Fund, part of the Principal Financial Group which manages assets worldwide, have failed to perform, as well. In the last five years it has given a return of -4% whereas the benchmark returned 3%. Principal Services Industries Fund, launched in March 2006 has given a return of 2% since inception compared to its benchmark which returned 7% in the same period. Its mid-cap fund launched in November 2008, has underperformed the benchmark in the last one year and two years, as well.

One fund of SBI Mutual Fund—SBI Magnum Multi Cap—has underperformed its benchmark in all the periods. Whereas two other funds of SBI Magnum—SBI Magnum Sector Funds Umbrella and SBI Magnum COMMA Fund—have underperformed the benchmark in the recent one year and two year period but have outperformed in the five year period.

Reliance Equity Fund has failed to perform in all the periods. Well, this was not the lone underperformer of Reliance Mutual Fund. Older funds like Reliance Growth, Reliance Vision and Reliance RSF Equity have underperformed the benchmark in the last one year and two years as well. Holding a large stake of Reliance Industries in September 2011 may have well hampered their performance.

A fund house well known for their gross performance of equity funds is JM Financial Mutual Fund. This is one name you should certainly beware of. All of its equity funds have seen poor performance. The fund which has underperformed on all occasions is JM Equity. For the five-year period it has returned -6%, the lowest on the list, whereas its benchmark has returned 3%. The funds which have been launched within the five year period—JM Core 11 Fund and JM Multi Strategy Fund has given a return of 18 percentage points and 9 percentage points below their benchmark Return in the last one year. They have under performed the benchmark in the two-year period, as well. JM Basic Fund, too, underperformed the benchmark in the one-year, two-year and five-year period and somehow managed to beat the benchmark performance since inception.

Other funds which are a part of the list are IDFC Classic Equity Fund Plan A, UTI Contra Fund, Taurus Discovery Fund and ICICI Prudential Midcap Fund.




R Balakrishnan

6 years ago

Maybe we should institute an award for the worst performing funds over different time frames, each year. Let us do it for each type / category of fund.


anil agashe

In Reply to R Balakrishnan 6 years ago

Bala worth doing!


6 years ago

RTI Reply- IRDA has not done audit of AUM under ICICI Pru life till date. Company also not providing auditors details in website ,coz no one can contact them. The auditors are so rich that the audit only top companies but they dont create own website. Also they dont put their contact details in any website. Try to search in google also. ICICI Pru shows in balance sheet that AUM in equity fund is 8500 Cr Approx ie dividend is 95 cr. But in website it shows equity asset is near 35,000 cr. so where is rest of 400 cr dividend. Company also not paying advance tax to IT in form of agent commission..... Lots of chori .... It should all be reaudited by 3rd party. 9869345148


6 years ago

Investing in equity market through Mutual Funds is the easiest route for majority of the investors who are not savvy but believe in returns through long term (5 years and more) investing. For Investors who want their money to grow at more than debt rate, to meet their future financial goals and that too without any tax outgo (invested for more than 1 year) on capital gains, this is the only route except direct investing. Though I agree with the article that some schemes have given dismal performance either recently or from beginning, it cannot be said that investing in mutual funds itself is bad. Yes, it is risky. Whoever chooses equity market for investment has to know and accept this fact. But the beauty of a MF is that without the knowledge of the market, one can hope to earn reasonably high returns by choosing scheme/s based on his/her risk profile. Just like an individual scrip, which will never always keep giving you returns more than the market, a MF scheme can be a star performer today but may lag behind in future. And the lag could be a phase even or a permanent disease. It is upto the investor to be on alert and keep a track of the performance of the invested schemes and take a call if the performance is on a continuous decline year after year. This maybe due to change in Fund Manager, investing philosophy, etc. I think MF is more reasonable route to increase retail participation in the market which is so badly needed. If this increases, we can have less volatile markets which are prone to FII moods. As per your own article in the past, actual retail participation is very minimal in the markets, which needs to improve.

As a solution, we should have more ETFs where particpation in the markets is ensured without relying too much on the Fund Manager's skills and also at a lower costs than regular equity schemes. This may not provide a great fillip to the returns in comparison to market but will be mostly in line with it and if you see market returns over 10 years periods, it has almost always given double digit returns.

The solution is: Choose right schemes, less schemes, and monitor them. Do not run away from investing in market.

govind shanbhag

6 years ago

Boss - Your article has started giving me jitters. I hv been investing in mutual funds in elss to a greater extent and also in other funds- my and my wifes combined investment is over Rs.15.00 lacs over a decade. Even last week we invested Rs.1.30 lacs in fidelity tax saver. I am waiting market to reach now elisive 20K so that I can come out of few portfolio. In the basket two of worst performing units are JM equity and UTI mutual funds, which has been giving negative returns. But visit their offices who well being maintained at what cost????

Anil Agashe

6 years ago

Great article. It is necessary that people know this. I hope those who are invested in these funds and are hoping for a turn around perpetually will at least now quit these schemes and take their money somewhere safer.
You should have also given the funds under management of each of these schemes.
It is time that SEBI increases the minimum fund size for to be eligible to exist.

Merchant M S

6 years ago

Readers please remember no one can make money for you. Please recollect Unit Scheme 1964. A scheme trusted, invested and recommended by almost all salaried citizen. What happen is history.
Almost 50% of the capital was washed away in thin air, for no mistake on part of investor.

Madhusudan Thakkar

6 years ago

The article is biased against Reliance Mutual Fund.Both schemes of Reliance mentioned in the article viz.Vision & Growth have given YOY return of more than 21% & 25% respectively since launch.These schemes have also outperformed their benchmark during last 5 years.On both the parameters these schemes have done well so where is the question of non-performance?No scheme of mutual fund should be judged for 1-2 years. Furthermore what does writers mean when they say that "LIC would be your first choice in life insurance" Can they please enlighten readers of its fund performance in ULIPs Vis-a-vis others funds of different companies.
This type of articles will seriously erode the credibility of this site.



In Reply to Madhusudan Thakkar 6 years ago

mutual funds are only showing to outperforming their benchmark but not trying to giving return to investor. mutual funds are maintaining hi fi office / executive but giving negative return. dear you can can beat the benchmark by selecting two three frontline companies shares.


6 years ago

The fund manager's performance must be linked to the performance of the fund. Most of the times the poor consumers fund his salary & are left high & dry with abysmal returns. Same must be the case for ULIPS

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