By Aditya Kalra, edited by Ramya Venugopal

All but one of diversified stock funds posted negative returns in October, tracking the benchmark's worst performance in a year, but their exposure to financials and consumer goods softened the blow.

Around 320 such funds, which form the largest category of stock funds by number and assets under management, saw their unit values fall an average 4.5% in the month, data from global fund tracker Lipper, a Thomson Reuters company, showed.

But nearly 90% of such funds fell less than the benchmark stock index which fell 7.2%, its worst monthly fall in a year, as weak quarterly earnings from some large corporates dented investor sentiment.

"Mutual funds shifted to defensive sectors like consumer, healthcare and financials anticipating correction in equities, given higher index levels," said Chintamani Dagade, senior research analyst at Morningstar India.

Morningstar data showed such funds had around 5.76% of their assets in cash at September-end but Dagade said it is likely that they increased cash holdings in their portfolios during the last month.

Banking stocks fell 5.2% in the month helping limit the fall as stock funds had investments of more than Rs 250 billion or 14.3% of their overall assets in such companies at September-end, ICRA Online data showed.

Funds which invest in consumer goods clocked an impressive average return of 6.4% during the period, making them top gainers among equity funds, as the BSE FMCG index rose 9%.

Banking, consumer goods and pharmaceutical sectors accounted for over 20% of stock funds' assets at September-end.

High exposure to oil & gas stocks hurt unit values as such stocks fell 10% with firms like Reliance Industries posting a fourth straight drop in quarterly profit.

JM Telecom Sector Fund fell 24.5% as stocks like Bharti Airtel fell more than a quarter and Reliance Communications dropped over a third, on concerns about telecoms future profitability after they slashed tariffs.

The only positive performer in October was Birla Sun Life MNC Fund, helped by nearly 38% assets in banking, pharma and consumer stocks, according to ICRA Online data.

BOND, GOLD FUNDS

Indian fixed income funds investing in government securities gained 0.12% in October, but fell on a month-on-month basis, as federal bond yields gained 11 basis points, on concerns about government borrowing and rising inflationary pressures, analysts said.

India's central bank held its key rates steady in its quarterly policy review on October 27 but laid the groundwork for a rise in interest rates by ending some liquidity support measures. It also raised the statutory liquidity ratio (SLR) by 100 basis points to 25%.

Gold exchange traded funds gained 1.48% during the month as the yellow metal touched record highs boosted by festival sales in India and overseas cues.

Gold futures on the continuation chart ended October at Rs 15,957 per 10 grams, up 1.6% during the month after touching a record high of Rs 16,066 on October 23.