The Hindu Business Line : Withdrawing in haste not the best solution

Many equity investors nevertheless are sure that stock prices are quite fairly valued today — more than what they were before the latest upside started happening.

THESE are frustrating times for investors in mutual funds, both debt and equity. Returns generated by income funds are slowing down, while equity funds are being constantly rocked by a volatile market.

The investment fraternity is at crossroads, seeking exit routes, or at best, staying put with the hope that good times will come back. Money is moving out of mutual funds even as investors prepare themselves for the equity issues that are coming in large numbers.

Fund circles are advising clients to remain invested in debt — perhaps temporarily altering their asset allocation in favour of liquid and short-term funds. MIP investors are being urged not to pull out in a hurry. The market, it is felt, should be given time to stabilise before such hasty decisions are taken.

The market will in fact closely follow the strategies followed by fund managers in such trying circumstances, especially so with elections looming large and the possibility of volatile movements persisting. Most professional investors, however, are of the view that it is still possible to perform decently with the right equities. Some even venture out to suggest that generating at least 15 per cent on a year-on-year basis will not be too difficult. Yet they also warn people not to expect major positives from the market in the very short term. And, yes, large-scale fluctuations will be plainly evident as we move towards the polls.

Those who are still rooting for equity funds can take heart from the fact that FII interest in India has not died out altogether. Also, the positive factors that the market was talking about earlier are ruling strong even now. Corporate earnings, for instance, are still considered strong. Competitiveness of Indian companies is on the rise. The economy is growing at a decent pace in spite of everything. Many equity investors nevertheless are sure that stock prices are quite fairly valued today — more than what they were before the latest upside started happening.

Investors in debt funds are aware that they do not have too many alternatives left. The market for them, awash as it is with liquidity, may well remain range-bound for some more time. No significant improvement in credit offtake is expected in the near term. Such investors will need to stay on course and simply wait for the situation to improve.

Exiting (and turning to cash) may not be the best solution. They will have to deploy it somewhere in order to get more than what bank deposits offer. Redeeming it only to enter later will add to their cost of investment.

The scenario is currently a bit dull for those who track new product launches. Not many initial offerings are expected this month, Principal's global fund being a notable exception. A few interesting proposals were sent to SEBI for approval in recent weeks, some of which should be translated into reality; Sundaram MF's small-cap idea is quite a novel one.

The market is waiting for fresh developments with regard to the UTI-IL&FS MF deal. Clearly, UTI will be the player to watch out for this season.

Fundspeak

Debt, as in investing in debt funds, will never be entirely out of vogue. There will always be a sizeable section of investors for whom this will mean a lot. Despite all the downturn that has happened, the merits of debt funds can never be ignored.

Mr Sandeep Dasgupta, Chief Executive, Deutsche Mutual Fund

Feedback may be sent to blcal@vsnl.net

More Stories on : Mutual Funds | Mutual Confidence

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Do the markets have the stomach for IPO feast?
Yes, say lead managers

Tough call for retail investors

Benefits and costs of investing abroad

Withdrawing in haste not the best solution

Incentives roll the dice in MF tournament

With the political kite flying high — Sensex may test support levels

BSE adds 13 more securities for derivative trading

`Smaller players need to look at specific products, niche markets'

Value, premium see further fall