Mutual fund investors in the last one year have preferred performing sector funds.

While FMCG and pharmaceutical funds have always been good bets in highly volatile market conditions, the industry only has three FMCG and four pharma funds. All FMCG funds saw an increase in their AUMs over the six-month period from December to June.

Growth in AUMs

SBI Magnum FMCG fund saw its AUM increase by 43.2 per cent from Rs. 35.47 crore to Rs 50.79 crore between December 2010 and June 2011. Franklin FMCG fund saw a 15 per cent increase from Rs 50.6 crore to Rs 58.6 crore during the same period. ICICI FMCG fund grew by 3.3 per cent over the same period.

The pharma funds also saw their AUMs grow. The average growth seen by these funds between December 2010 and June 2011 was about 4.69 per cent each.

The average returns for the FMCG funds for the period was 20.75 per cent while the pharma funds on an average returned about 4.6 per cent.

Three of the FMCG and pharma funds were launched in 1999. Reliance Pharma fund was launched in 2004.

Not a bad show

“Post 2003, sector funds started becoming unpopular. These funds slowly started getting replaced by the thematic funds like the infrastructure funds and financial themes,” said a fund house official who did not wish to be named.

While the majority of the sector funds have given negative returns, they have not declined as much as the benchmark indices. Between August 2010 and 2011, the BSE Bankex declined by 15.4 per cent but five of the 11 banking funds have given returns in the range of -13.1 per cent to -15.4 per cent .

However, banking funds, which saw value erosion, did not see much pull out from investors. Reliance Banking Fund and Religare Banking Fund saw their AUM grow by nine per cent and four per cent respectively during January-June period.

These funds see inflows for a limited period during the year depending on the performance of the sector, say fund managers. Investors mostly come in after the rally and then redeem funds once the fund starts underperforming.

The reason for the aversion to these funds is the higher risk involved in investing in these funds, say fund managers. The volatile market conditions have made investors cautious and interested in diversifying their equity portfolios, especially in the large-cap segment.

“HNIs are taking a more tactical approach and showing more interest in both the diversified and sectoral funds as compared to the retail investors. Valuations are looking attractive at this point,” said Mr Jaideep Bhattacharya, Chief Marketing Officer, UTI Asset Management.

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