Equity fund managers haven?t resorted to major churn of their portfolio amidst volatile equity markets. During the six month period of October to March 2011, the overall portfolio turnover of fund managers fell to 38% as compared to 56% in the previous six months.
The country?s top equity schemes comprising HDFC Top 200, Reliance Growth, Franklin India Bluechip and Birla Sun Life Front Line Equity saw lower portfolio turnover ratio in the last six months of FY 2010-11 as compared to last six months of FY 2009-10.
However a few schemes like ICICI Prudential Dynamic and Kotak 50 saw a portfolio turnover ratio in excess of 100%. ICICI Pru Dynamic Plan had a portfolio turnover ratio of 131% while it was 27% for HDFC Top 200. Fidelity Equity with its buy and hold strategy showed a lower portfolio turnover ratio of 11% as of March 2011.
Mahesh Patil, head of equity-domestic assets at Birla Sun Life Mutual Fund says, ?Equity markets were range-bound in the last six months and with no major sectoral trends, therefore we stayed put on the portfolio?.
A senior fund manager on condition of anonymity said, ?Sometimes we sell stock at a higher price to buy it back at lower prices when it falls, which in turn could increase portfolio churn?.
He added that they largely stay invested over the long term when it comes to investments into blue-chip companies and resorted to portfolio churns only in mid-cap and small-cap companies.
Patil said that, churn in portfolio is usually witnessed when markets are heading up as fund managers would not like to miss on the opportunity to earn higher returns.
The portfolio turnover ratio is calculated by taking the lesser of the annual purchases or sales (excluding cash) and dividing it by the average net assets of the fund.
For instance, if a fund purchases stocks worth R50 crore and sells at R100 crore during a given year. The turnover ratio is arrived at by dividing the lesser of the two (in this case, purchases) by the average fund assets (say R200 crore), which comes to 25%.