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Equity mutual funds witness inflows amid declining markets

Industry news  L&T Mutual Fund announces merger of three schemes: L&T Mutual Fund has declared the merger of three equity funds. L&T Global Advantage Fund will be merged with L&T Growth Fund; while L&T Multi-Cap Fund and L&T Small Cap Fund will be merged with L&T Opportunities Fund. The merger is effective from September 10, 2011.

 SBI Mutual Fund launches SBI Gold Fund: SBI Mutual Fund has launched an open-ended scheme, SBI Gold Fund. The fund will be investing funds in SBI Gold Exchange Traded Fund (SBI GETS) and hence intends to provide returns that closely correspond to the returns provided by SBI GETS. The performance of the scheme will be benchmarked against the price of physical gold.

 Peerless Mutual Fund floats its first equity fund: Peerless Mutual Fund has launched its first open-ended equity fund, Peerless Equity Fund. The portfolio would be actively managed and diversified across various sectors. The investments would not have any industry, sector or market capitalisation bias. The fund manager would follow a strategy which will be a combination of top-down and bottom-up approaches. The performance of the scheme will be benchmarked with the S&P CNX Nifty Index.

 ICICI Prudential Mutual Fund launches a capital protection oriented fund: ICICI Prudential Mutual Fund has launched a close-ended capital protection oriented fund namely, ICICI Prudential Capital Protection Oriented Fund – Series V – 60 Months Plan. The investment objective of the scheme is to protect capital by investing a portion of the portfolio in good quality debt securities and money market instruments and provide capital appreciation by invest- ing the balance in equity and equity-related securities. The scheme will be benchmarked against Crisil MIP Blended Index.

Highlights  Amid nose-diving markets, equity-oriented mutual funds witnessed satisfactory net inflows of Rs2,049 crore in August 2011 after net outflows for two straight months.

 Poor performance of the markets led to a drop in the total (AUMs) of the equity funds to Rs196,534 crore from that of Rs211,474 crore in the previous month. That is a fall of 7.06% compared to the previous month’s figure.

 Amid a slew of negative global as well as domestic factors, the foreign institutional investors (FIIs) withdrew to an extent of Rs10,833.6 crore during the month, taking the market downwards. Taking advantage of attractive valuations and promising long-term yield, mutual funds, however, poured Rs2,523.5 crore into equities this month vs Rs652 crore during July 2011.

 In August, all equity fund categories posted a decline. Fast moving consumer goods (FMCG) funds remained on the top of the scoreboard with relatively less average loss of 4.45% over the month. Global fund, Birla Sun Life Commodity Equities Fund–Global Precious Metals, which invests in stocks of companies engaged in or focusing on precious metal business across countries, remained the top performer among all equity funds with a 5.36% growth during the month.

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MF flow

The market continued its second straight monthly drop in August, as global economic uncertainties and rising domestic interest rates and political uncertainties weighed on sentiments. On the global front, risk perception of the USA and fear of a recession gripped the euro zone as economic growth rate looked slowly grinding to a halt and the unemployment rate accelerated. This caused investors to stay away from the markets. On the domestic front, the Wholesale Price Index (WPI) remained at 9.22% in July 2011, above the comfort zone of the Reserve Bank of (RBI), and hence inflation remained the major concern. Though the industrial growth rate (as indicated by the Index of Industrial Production [IIP]) surged to 8.8% in June (data released in August 2011) from that of 5.6% in May 2011, it could not cheer the investors. However, towards the end of the month the market showed some recovery in line with a bounce in the equity markets globally. The bellwether BSE Sensex and S&P Nifty both dropped by 8.36% and 8.77% respectively during the month.

Amid the fall in the market, the equity-oriented mutual funds witnessed satisfactory net inflows of Rs2,049 crore in August after witnessing net outflows for two straight months. However, the poor performance of the market led to a drop in the total AUM of the equity funds to Rs196,534 crore from Rs211,474 crore in the previous month. That is a fall of 7.06% compared to the previous month’s figure.

Net inflow/outflow for August 2011 (Rs cr) Existing schemes New schemes Redemptions Net inflow/ Growth** Balanced ELSS Growth Balanced ELSS Growth Balanced ELSS outflow 5955 593 195 6 0 0 4166 383 151 2049 ** Growth schemes’ data is summation of equity and exchange traded funds (ETFs) other than Gold ETFs.

Investment trend Amid a slew of negative global and domestic factors, the FIIs withdrew about Rs10,833.6 crore during the month, taking the market down. The FIIs had bought Indian equities to the tune of Rs8,030 crore in the previous month. Taking the advantage of attractive valuations and promising long term yield, mutual funds, on the other hand, poured Rs2,523.5 crore into equities in this month against Rs652 crore during July 2011. On the debt market front, the domestic mutual funds, however, halted their aggressive buying this month and withdrew to the tune of Rs3,957.5 crore during the month vs a net investment of Rs15,214 in the previous month. The FIIs, on the other hand, invested to the tune of Rs2,931 crore in debt over the month.

FII & MF transaction trends over the month FII & MF transaction trends over one year 1000 35000 FII MF FII MF 30000 500 25000

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15000 -500 8/2/2011 8/3/2011 8/4/2011 8/5/2011 8/8/2011 8/9/2011 8/1/2011 8/10/2011 8/11/2011 8/12/2011 8/16/2011 8/17/2011 8/18/2011 8/19/2011 8/22/2011 8/23/2011 8/24/2011 8/25/2011 8/26/2011 8/29/2011 8/30/2011 10000 -1000 5000

-1500 0 Net purchases (Rs cr) Net purchases (Rs cr) -5000 Jul-11 Oct-10 Jan-11 Jun-11 Feb-11 Mar-11 Apr-11 Sep-10 Nov-10 Dec-10 Aug-11 -2000 May-11 -10000

-2500 -15000

Sharekhan 2 September 09, 2011 Mutual Funds Industry Update

Performance of equity fund categories Category Average Minimum Maximum In August, all equity fund categories posted a decline. FMCG return (%) return (%) return (%) funds remained on the top of the scoreboard with relatively FMCG sector funds -4.45 -7.24 -2.38 less average loss of 4.45%; their performance remained in Global funds -5.23 -9.36 5.36 line with that of the benchmark index, BSE FMCG Index, Balanced funds -5.77 -10.54 -3.72 which lost 3.51%. Global funds performed better and Auto sector funds -5.83 -5.83 -5.83 remained the second top performer, with a loss of 5.23% MNC sector funds -6.16 -6.92 -5.40 over the month. From global fund category, Birla Sun Life Pharma sector funds -6.86 -8.52 -5.98 Commodity Equities Fund–Global Precious Metals, which Power sector funds -7.67 -10.86 -3.63 invests in stocks of companies engaged in or focusing on Tax planning funds -7.74 -14.89 -4.76 precious metal business across countries, remained the Equity diversified funds -7.77 -14.28 2.33 top performer among all equity funds with a 5.36% growth Infrastructure sector funds -8.18 -13.56 -3.74 during the month. Banking funds, on the other hand, were Index funds -8.45 -8.81 -7.38 the worst performers as inflation and rate hike fears Basic industries sector funds -10.12 -12.41 -7.83 lingered. Information technology funds also lost Infotech sector funds -12.11 -14.43 -9.20 substantially, down 12.11% over the month, as technology Banking/Financial sector funds -12.46 -13.49 -10.95 stocks got battered on concerns of a global economic slowdown.

Disclaimer: Mutual fund investments are subject to market risk. Please read the offer document carefully before investing. Past performance may or may not be sustained in the future.

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Sharekhan 3 September 09, 2011