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Income funds turn the tables

Jun 1, 2000

Investors who have invested in growth funds expecting it to outperform income funds are in for a surprise. Contrary to investor perception, income funds haven’t been the laggards they are made out to be, as they offered higher returns as compared to growth funds over the last 6 months. Most growth funds (especially the tech-heavy ones) have faced the wrath of stock markets, which have been very volatile lately. This has made a big dent in their net asset values (NAVs), giving growth fund investors second thoughts about their investments. Nervous investors have even exited from these funds to stem the downturn in their investments. These were investors who took exposure to growth funds believing them to be outperformers vis-à-vis their income counterparts. Given the explosive returns that equity funds have given investors last year, these investors can’t really be faulted for their perception. The table below highlights the dismal performance of growth funds over the last 6 months.

Open-ended, Growth Schemes NAV (Rs) 6-month return(%)
UTI Growth Sector Fund - Brand Value 8.7 -2.0%
IL&FS Growth & Value Fund (Gr) 13.7 -3.3%
Birla MNC Fund (Gr) 30.1 -4.3%
Reliance Vision Fund 19.0 -4.8%
Tata Pure Equity Fund 12.0 -5.0%
Sundaram Growth Fund 13.5 -5.3%
Zurich India Equity Fund (Gr) 19.4 -7.9%
Sun F&C Value Fund (Gr) 21.3 -8.1%
K 30 18.2 -8.3%
Canexpo 18.1 -8.4%
DSP Merrill Lynch Equity Fund 18.3 -9.4%
Birla Advantage Fund 38.3 -9.6%
Taurus Starshare 8.8 -9.7%
Kothari Pioneer Prima Plus (Gr) 22.2 -10.3%
Primary Equity Fund 15.9 -11.2%
Tata Life Sciences & Technology Fund (I) 11.5 -11.9%
Mastershare Plus 1991 21.8 -12.0%
Prudential ICICI Growth Plan (Gr) 21.1 -12.3%
Mastergrowth Unit Scheme 1993 17.7 -12.5%
UGS 10000 11.3 -13.0%
Mastergain 1992 11.3 -14.4%
Zurich India Top 200 Fund 15.6 -15.9%
Magnum Equity Fund 13.8 -18.0%
GIC D'MAT 8.3 -19.1%
JM Equity Fund (Gr) 10.0 -20.5%
Magnum Global Fund 10.8 -21.2%
Magnum Multiplier Plus 1993 18.2 -21.8%
GIC Fortune 1994 6.4 -23.7%
Kothari Pioneer Prima Fund (Gr) 21.0 -26.5%
Canbonus 10.1 -28.5%
Magnum Sector Funds Umbrella - Contra Fund 8.4 -31.4%
Grandmaster 1993 8.8 -38.5%

However, the last 6 months have seen income funds outperform growth funds by a big margin, blowing a big hole in the myth that growth funds offer superior returns as compared to income funds. As the table below indicates, investors in income funds have got positive returns over the last 6 months, which is more than what one can say about growth funds. Not only have these funds given superior returns to growth funds, they have also given higher returns than the bank deposit rates for 6 months.

Open-ended, Income Schemes NAV (Rs) 6-month return(%)
Deposit I-NIT 1997 (Plan A) 11.0 63.1%
PNB Debt Fund (Gr) 11.5 13.9%
Alliance Monthly Income (Gr) 12.5 11.3%
Dundee P S B Fund (App) 11.0 9.4%
LIC MF Bond Fund (Gr) 11.6 8.4%
Cancigo 1096.8 7.5%
Sundaram Bond Saver (Appreciation Option) 13.8 7.3%
K Bond Wholesale Plan (Gr) 10.8 7.3%
Chola Triple Ace (Gr) 15.0 7.1%
Templeton India Income Fund (Gr) 15.3 7.1%
Prudential ICICI Income Plan (Gr) 12.7 6.9%
Sun F&C Money Value Fund (Bond Gr) 12.1 6.9%
K Bond - Deposit Plan (Gr) 10.8 6.8%
Zurich India High Interest Fund (Gr) 14.7 6.8%
Escorts Income Plan (Gr) 13.1 6.8%
DSP Merrill Lynch Bond Fund (Gr Plan) 14.6 6.7%
Magnum Liquibond Income Fund (Gr) 12.1 6.7%
Dundee Corp. Bond Fund (App) 10.7 6.7%
JF India Bond Fund (Gr) 13.8 6.7%
Tata Income Fund (Regular Income Option) 10.6 6.7%
Reliance Income Fund (Gr) 13.4 6.5%
Kothari Pioneer Income Builder Account (Gr) 14.7 6.4%
Birla Income Plus A 10.0 6.4%
Chola Freedom Income Scheme (Cumulative) 12.9 6.3%
JM Liquid Fund (Gr) 16.5 6.2%
UTI Bond Fund 12.8 6.2%
IL&FS Bond Fund (Gr) 111.3 6.0%

Investors who have shirked income funds due to the 22% dividend tax must review their decision in the light of the latest market developments. They can look at investing in the growth option of income funds, as opposed to the dividend options.

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