Gold, debt schemes hog limelight in a trying year

Written by Markets Bureau | Mumbai | Updated: Dec 27 2011, 06:26am hrs
In a year when most equity schemes ended up giving negative returns, gold funds turned in a sparkling performance, delivering returns of over 34%, largely due to safe haven demand in the wake of rising risk aversion globally.

A glance across categories of equity schemes shows that FMCG funds were star performers returning around 14%. Given that the Sensex lost some 22% during the year, most equity schemes, across categories fared poorly whether it was large cap schemes, multi cap schemes, tax planning schemes or other sectoral schemes. In general investors lost anywhere between 20 and 30%. The BSE Midcap index has lost 32% while the BSE small cap index has given up even more at 41%.

Dwijendra Srivastava, head fixed income at Sundaram MF says, Retail investors preferred to buy gold this year given the uncertainty in the global equity markets which is one reason why the price of gold soared. Gold exchange traded funds (ETFs) remained in demand for the better part of the year especially since many fund houses like Reliance MF, HDFC MF, Kotak Mahindra and IDBI MF launched systematic investment plans (SIP) giving investors an option to invest in small amounts. The price of gold surged from $1,370 per troy ounce to a high of $1,900 troy per ounce. Currently prices are ruling at $1,600 per troy ounce.

Apart from Gold funds, debt fund also remained in the limelight as the RBI continued to hike key policy rates in 2011. Fixed maturity plans (FMPs) turned out to be quite attractive for investors with interest rates continuing to rise. Liquid funds, on the other hand, gave modest returns in the range of 7-9%, as most fund managers did not invest in longer duration paper. The RBI continued to hike rates, so most fund managers invested in short duration paper which helped liquid funds generate better returns, said Srivastava. In the last one year liquid funds, on an average, have given returns of over 8.55%.

Sectoral schemes like banking and infrastructure were badly hit in 2011 as they gave negative return of 29.8% and 30.02% respectively. Banking stocks have been hit majorly on concerns that loan growth would slow down.

Debasish Mallick, MD and CEO of IDBI MF says, We still believe that equity markets are likely to remain uncertain given the global situation. Investors should continue to invest in debt funds and gold and diversify the portfolio.