Crisil composite performance ranking (CRISIL-CPR) December 03 quarter ranking recognises top performers in various investment options available to investors. The ranking serves as a guidepost to investors in asset allocation and in picking better-performing schemes.

Financial markets seem to be running a relay race. For more than two years income schemes were in the forefront as they gave good returns. As the dream run for debt schemes draws to a close, the baton has passed on to equity schemes.

• MFs give handsome returns
• Primary mart set to sizzle
• Crisil study methodology

Equity fund investors are a happy lot as markets continue to give good returns. No matter where an investor has put his funds - either in equity or debt, returns over the past two years would have brought smiles.

The current quarter has a new investment category - the monthly income plan (MIP). MIPs are hybrid funds, which combine security of bonds, but to pep up returns, make a small investment in equity.

This option has been around for quite sometime but has gained in popularity recently. Also, there are now enough schemes to create a new category. The brief methodology for MIP appears in the accompanying write-up.

For the quarter, 134 schemes in seven categories from 22 fund houses were ranked on various CRISIL-CPR parameters. The equity, income, balanced and gilt-long funds and MIP funds were analysed for their performance over two years, while those in liquid and income-short categories were ranked based on their one-year performance.

The market interest in various sectors has been shifting rather fast in the past few months. To understand the momentum during the quarter ending December 03, we looked at incremental returns given by indices against the return over the period.

We compared returns for December 03 quarter with returns for the quarter ending September 03. The CNX MNC Index and BSE FMCG Index with incremental return of 13.70 per cent and 13.30 per cent respectively have been market favorites during the quarter.

What surprised, however, was the low incremental returns given by software indices The only free float index in the market, the BSE Teck's incremental returns were in negative for the quarter ending Dec 03 over the quarter ending Sept 03.

Bond fund investors have seen debt schemes return decline. The market yields have been trading in a narrow band owing to a liquidity overhang.

The CRISIL CompBex, the benchmark for the performance of debt schemes returns for the quarter ending December 03 declined to 1.03 per cent from 2.96 per cent in the quarter ending September 03.

As at December 03 month end, the spreads between 10-year and 5-year benchmark securities were 40 basis points. The 10-year 7.27 per cent GOI 2013 was trading at 5.12 per cent, while the 11.40 GOI 2008 was trading at 4.72 per cent.

The market yields will, however, remain range bound, and are not expected to harden significantly in the medium term given by the liquidity overhang.

Equity diversified funds

For the quarter ending December 03, 35 funds were eligible for ranking. The DSP Merrill Lynch Opportunities Fund and the Reliance Vision Fund have retained their CRISIL CPR~1 ranking for the current quarter.

Owing to increase in the number of schemes in the current quarter, there are four schemes at CPR~1 instead of three. The Alliance Basic Industries Fund and the IL&FS Growth Value Fund enter the top of the table.

Both these schemes were at CPR~2 in the previous quarter ranking. CPR~1 which includes the top 10 per cent of schemes in the ranking universe indicates "very good performance" among peers.

Reliance Vision Fund has been at the top for six consecutive quarters. A look at the average investment pattern indicates that the scheme has lowered its exposure to the CNX MID CAP 200 index and has nearly doubled its exposure to NIFTY from 18.80 per cent in Oct 03 to 35.17 per cent in Dec 03 month-end portfolio.

The scheme has good diversification across the industries with top holdings of 11.55 per cent in automobiles - 4 wheelers, 9.80 per cent in steel and allied products, 7.90 per cent in pharmaceuticals and 7.71 per cent in computer software.

The call investment was at 11.15 per cent as at December 03-month end portfolio. The DSP Merrill Lynch Opportunities Fund on the contrary, has decreased its investment in S&P NIFTY from 59.10 per cent to 50 per cent and its month end exposure to the CNX MIDCAP 200 was on an average 25.30 per cent during the quarter ending Dec 03.

The top five sectors for the scheme based on the Dec 03 month end portfolio were banks (12.70 per cent), computers - software (11.88 per cent), pharmaceuticals (7.50 per cent), steel and steel products (6.56 per cent) and refineries (6.48 per cent). (See table I)

The next 20 per cent of schemes in the ranking universe are clustered as CPR~2. CPR~2 indicates "good performance" among the peers. Franklin India Bluechip Fund, Franklin India Prima Fund, HDFC Equity Fund, HDFC Top 200 Fund, Prudential ICICI Power, Reliance Growth Fund and Templeton India Growth Fund are at the CRISIL CPR~2 rank.

Templeton India Growth Fund enters the ranking, as the dividend schemes have been included in the CPR methodology. The HDFC Top 200 Fund has moved up by a notch on better risk-adjusted return.

CPR~3 which indicates average performance in the class has also witnessed a few changes. The HDFC Capital Builder Fund, and SBI Magnum Multiplier Plus Scheme 1993 have moved up one notch to CPR~3. The UTI Grand Master 1993 had moved up two notches to be in CPR~3 on improved risk return performance.

The most popular stocks among fund managers in the general equity funds were State Bank of India, Reliance Industries, Tata Steel, Maruti Udyog, and Grasim Industries, while the most popular industry is computers - software followed by banks. The popularity measures the propensity of a fund manager to commit a given percent of his portfolio to a particular stock.

Debt funds

The decline in returns in income schemes and closeness in portfolio attributes and performance has created a churn at the top of the table. Kotak Bond Wholesale, which was at the CPR~2 in September 03, has moved to CPR~1 in the current quarter. The scheme moved up on the better risk-adjusted return.

The Templeton India Income Builder Account Plan - A moved up two notches on better portfolio attributes to CPR~1.The portfolio attributes (viz., asset quality, concentration, liquidity and average maturity) have 50 per cent weight in the methodology.

Birla Income Plus Plan B moved down to CPR~2. The scheme was at CPR~1 for the two previous quarters ending June and Sept 03. The HDFC Income Fund has also moved down to CPR~2 for the current quarter.

The IL & FS Bond Fund at CPR~2 in the previous quarter has retained its rank in the current quarter too. Reliance Income Fund has moved up a notch to CPR~2 on better superior return performance.

The residual portfolio maturity over the last six month end portfolios for nearly all the scheme in the CPR~1 and CPR~2 is above peer average for schemes being ranked except in case of Reliance Income fund which has kept the average residual maturity below the peer average.

The DSP Merrill Lynch Bond Fund, HDFC High Interest Fund, LICMF Bond Fund, Principal Income Fund and Sundaram Bond Saver have all retained their CPR~3 rank.

The Chola Triple Ace - Regular and the Templeton India Income Fund have both moved up a notch to CPR~3. While the former moved up on better portfolio attributes, the latter has moved up on improved superior return score.

The funds on an average have maintained residual portfolio maturity over the last three months in a narrow range of 6.25 years at the low to a high of 6.92 year in September 03 month end.

As at the December month end, the average maturity was 6.39 years. Any marked shift in the average maturity indicates that the mutual fund industry players do not expect any significant movement in the market yields in the medium term.

Click to download detailed table

Monthly income plans

Starting with this quarter, Crisil has introduced a new ranking category for the MIP. This investment class has been in the available and has been gaining in popularity. This category is created since we have more than the required minimum of five schemes.

The detailed methodology is given separately and can also be assessed on our website (www.crisil.com). In a nutshell, MIP schemes are treated more like balanced schemes and require two-year net asset value (NAV) history for inclusion in the ranking universe.

The growing popularity of this investment class can be gauged from the fact that from the asset base of Rs.20.77 bn in Sept 03 assets have nearly doubled to Rs.40.63 bn as at Dec 03 month end for the schemes in the ranking universe.

For the current quarter, seven schemes were ranked on CPR parameters. The Alliance Monthly Income is the CPR~1 followed by the FT Monthly Income Plan at CPR~2. The Birla MIP Plan C, Prudential ICICI MIP Plan and Templeton MIP are at CPR~3.

Income - Short Term

The ranking methodology for short term schemes tries to capture the inherent risk in the portfolio owing to the concentration, liquidity and asset quality in addition of the variability of returns as measured by the daily net asset value of the scheme.

In the debt - short term category, 16 eligible schemes were evaluated on the CPR parameter. JM Short Term Fund retained its CPR~1 rank for the current quarter too. The scheme has low volatility. Prudential ICICI Short Term Plan, which was at the CPR~2, has moved up to the top of the table.

The scheme has scored well on most of the portfolio attributes to move up the rank. The Principal Income Fund - Short Term Plan has moved up one notch to CPR~2 on low volatility while the Reliance Short Term Fund enters the ranking universe at CPR~2.

The DSP Merrill Lynch Short Term Fund, HDFC Short Term Plan and Tata Short Term Bond Fund have all retained their CPR~3 rank. Grindlays Super Saver Income Fund - Short Term has moved up two notches to CPR~3 while ING Vysya Income Fund - Short Term moved up one notch to CPR~3.

HSBC Income Fund Short Term Plan enters the ranking universe on completion of two years of NAV history at CPR~4.

Liquid funds

Returns from liquid funds have been moving in a very narrow range as the call market too has been giving yield in a narrow range between 4.25 and 4.50 per cent for the past few months.

The liquid funds performance, in general, has been somewhat better with Crisil~LX giving an annualised return of 4.71 per dent during the quarter ending Dec 03.

The methodology for ranking of liquid funds emphasis on the preservation of capital more than the generation of the return by the scheme.

Prudential ICICI Liquid Plan, which has been CPR~1 in the previous quarter, has retained its rank for the current quarter also. The scheme has been low on volatility. Templeton India Treasury Management Account, CPR~2 in the previous quarter, has moved one notch to the top of the table.

The scheme scores lower on the other scores but have been able to keep the probability of capital destruction, the downward risk probability (DRP) low. Alliance Cash Manger and JM High Liquidity have maintained their CPR~2 rank for the current quarter. Reliance Liquid Fund - Treasury Plan moved up a notch to CPR~2. The UTI Money Market Fund enters the ranking universe at CPR~2.

Birla Cash Plus - Retail, ING Vysya Liquid Fund, Kotak Liquid, Principal CMF - Liquid and Tata Liquid Fund - RIP have all retained their CPR~3 rank. Grindlays Cash Fund, HDFC Liquid Fund have moved up a notch to the CPR~3. HSBC Cash Fund enters the ranking universe on completion of one year NAV history at the CPR~3.

Gilt-long funds

Gilt funds have been witnessing a decline in returns. For the three months period ending December 03, the CRISIL MF~Gilt Index gave a return of 0.55 per cent. The three months return for ending September was 4.65 per cent.

In a shift at the top, FT India Gilt Fund - Investment Plan, a new entrant in the CPR, displaced the Birla Gilt Plus Regular Plan at the top of the table.

Tata Gilt Securities Fund- Appreciation and the Templeton India G-Sec Fund have retained their CPR~2 rank for the current quarter.

Last quarter CPR~3 schemes, Birla Gilt Plus- PF Plan, DSP Merrill Lynch Govt Sec (PlanA) and HDFC Gilt Fund - Long Term Plan have all retained their CPR~3 rank. LICMF G-Sec has moved up to CPR~3.

Balanced funds

Riding on the good performance of underlying markets, balanced funds gave good returns as indicated by CRISIL Fund~bX which returned about 23 per cent for the quarter. CRISIL Fund~bX, measures the peer performance of the balanced schemes.

The performance of the scheme is impressive considering that the CRISIL BalanceEx the benchmark for the performance of the scheme gave a return of 19 per cent for the same period.

On the ranking table, HDFC Prudence Fund continues to be at the CPR~1. The scheme has been at the top of the table for nine consecutive quarters now. The DSP Merrill Lynch Balanced Fund moves up a notch to CPR~1.

Alliance 95 and Prudential ICICI Balance Fund have maintained their CPR~2 rank. Both these schemes were CPR~2 in the previous quarter also. FT India Balanced Fund moved up one notch to CPR~2 on better return performance.

Note: An entity wishing to use the CRISIL CPR rankings in its prospectus / offer document / advertisement / promotion/ sales literature, or wishing to re-disseminate these rankings, may do so only after obtaining the written permission of the ranking entity, CRISIL Ltd.