Rare has been the year over the past decade-and-half when markets have stepped into October in such a bullish state. Usually stock prices tend to be tepid in the July-September quarter and make an upward move from October and more particularly, November. This has tended to last till February of next year.

As a result, for more than 80 per cent of the past 15 years the October-February period has been bullish for stocks. This is such a set pattern that it has become an integral part of sell-side research also over the past two years.

October 2007 is different and has started with all key indices tracking different parts of the market moving and trading close to new peaks.

Open ended equity index plans of mutual funds gave a better return than share indices such as the sensex and the BSE-100 over the one-month period ended October 12.

During this period, the sensex witnessed the steepest rise from below 15500 to over 18800.

It yielded a return of 18.79 per cent, while the BSE-100 moved up 18.86 per cent.

However, equity index funds, which track the benchmark indices, recorded a return of 19.05 per cent.

Index funds outperformed all categories in one-month and one-week returns. For the week ended October 12, the return from index funds was 4.01 per cent compared with 3.63 per cent for both the sensex and the BSE-100.

Diversified equity funds, however, yielded an average return of 13.56 per cent for the one-month period and 2.83 per cent for the one-week period ended October 12.

Half of the 22 index fund schemes gave a return of more than 20 per cent, while another eight yielded a return in excess of 18.50 per cent during the one-month period.

Diversified funds Among the 188 diversified equity schemes, only 18 could manage to give a return of more than 20 per cent during the same period.

Index funds also outperformed diversified equity funds in the three-month period ended October 12. Index funds yielded an average return of 20.77 per cent, while it was 15.50 per cent for diversified funds.

However, the sensex and the BSE-100 scored over index funds for the three-month period ended October 12.

The sensex gave a return of 22.04 per cent and the BSE-100, 21.35 per cent.

Over six months, index funds again proved to be a better investment option than diversified equity funds as they gave an average return of 41.22 per cent compared with 38.46 per cent by the latter. The sensex yielded a return of 40.46 per cent, while the BSE-100 gave a 43.77 per cent return during the period. This shows that the surge in share prices in recent times was not broad based. It was determined only by large cap companies.

Diversified equity funds have a significant exposure beyond the sensex and have higher management expenses than index funds. These factors were a drag on their returns compared with index funds.

TRACK Returns for month ended October 12 Sensex: 18.79% BSE-100: 18.86 Equity index funds: 19.05% Returns for week ended October 12 Sensex & BSE-100: 3.63% Equity index funds: 4.01