* Equity diversified funds return more than 11 pct on
* Exposure to mid- and small-caps helps funds
* Banking funds top performers in January
By Aditya Kalra
NEW DELHI, Feb 2 India's diversified stock
funds posted their best monthly return in nearly three years in
January as a sharp rise in key stock prices and exposure to
sectors such as financial services pushed up net asset values.
Diversified funds returned an average 11.68 percent to
record their best monthly performance since May 2009, data from
fund tracker Lipper, a Thomson Reuters company, showed.
(For a table of mutual fund returns, click )
The gains were about in line with the performance of the
benchmark BSE index, which clocked its strongest month
since September 2010, gaining 11.3 percent on hopes of a revival
in foreign fund inflows and an easing of monetary policy.
"Interest-rate sensitives rallied very strongly during the
month and funds having higher exposure to them outperformed,"
said Dhruva Raj Chatterji, senior research analyst at
Mid- and small-cap stocks also aided fund performance in
January. The BSE mid-cap index rose 14.35 percent and
the small-cap index 16.45 percent, outperforming their
Small and mid-cap stocks accounted for more than a third of
diversified fund assets as of Dec. 31, Morningstar data showed.
Bets on the financial services sector, which accounted for
20 percent of assets at end-December, also paid off as the BSE
banking index surged by nearly a quarter in January.
However, Morningstar data showed an overall cash allocation
of 7.2 percent in December, the highest since February 2011,
possibly dampening the performance of some funds.
"Mid-cap funds had higher cash in their portfolios compared
to large-cap funds," Chatterji said. "Even though equity funds
did well in January, a number of them underperformed their
benchmark indices during the month."
BANKING FUNDS OUTPERFORM
Funds focusing on the banking and financial services sector
topped the charts in January, registering average returns of
23.74 percent, about in line with banking index's performance.
The Reserve Bank of India's decision to cut the cash reserve
ratio (CRR) for banks by 50 bps on Jan. 24 boosted the banking
sector and raised hopes that the central bank might soon start
to cut its key policy rate. The CRR is the proportion of
deposits that banks must keep at the central bank.
Stronger-than-expected results from private sector lenders
including HDFC Bank and Axis Bank also
The UTI Banking Sector Fund was India's best performing fund
in January, with a return of 26.2 percent, followed by the
Goldman Sachs PSU Bank Exchange Traded Scheme, which returned
"Such funds are likely to do well in the near future," said
RK Gupta, managing director at Taurus Mutual Fund. "The banking
sector will remain good in coming months".
(Reporting by Aditya Kalra; Editing by Ted Kerr)