The Hindu Business Line : Debt fund: Be patient

CONSIDER the attention that equity funds are getting from all quarters. And the fact that investors in debt funds are generally unhappy with the returns that their investments are generating. But does that mean that debt funds are at the end of the road, waiting eternally for the good times that refuse to come? No, if you go by the developments that are taking place on the debt front. For those who have not lost hope, here's a list of things that may be kept in mind.

Income schemes are by and large trying hard to preserve capital and provide steady returns to their unit holders. The fund managers in question are well aware of the factors that determine the way they function — abundant liquidity in the system, the level of inflation, RBI actions and the like. Among the real negative issues are increasing petro prices and inflationary pressures.

Investments by the debt products are as usual locked in a whole lot of options: G-secs, corporate bonds, treasury bills and more. A small segment - check out the latest portfolio of Escorts Income Plan, will you? — is chiefly invested in paper issued by state government undertakings of various hues. The scheme, it is claimed, has provided returns of over nine per cent across time periods, and more significantly, during unstable periods marked by interest rate fluctuations.

Investment circles, however, point towards the performance turned in by debt funds in recent times. The numbers can be best described as pedestrian, especially if you compare the latest figures with those generated in the past. The so-called medium term options have given an average 0.72 per cent in the last three months (as on February 29, according to Value Research, the fund tracking agency). And an average 1.73 per cent for the six-month period ending on that date. The medium-term institutional variety has not fared much better - 0.78 per cent and 1.89 per cent over the last three and six months respectively. Medium and long term gilt funds too are quite similarly placed.

Based on one-year rankings, some of the players that stand out in terms of superior performance are Deutsche Premier Bond Regular, Kotak Bond Wholesale, Chola Gilt Investment and FT India Gilt Investment. And the worst performers include Sundaram Select Debt Long Term, Libra Bond, ING Vysya Gilt and BoB Gilt.

The investor community, one feels, should be aware of these names although decisions to make fresh allocations should not necessarily depend on historical data.

Investors in pure debt funds are currently being advised to wait till the bad patch ends. Impatience is growing and many of them, urged by distributors and financial planners, have already shifted to monthly income plans (MIPs). These are schemes with a slight exposure to equity, which can mostly go up to 15-20 per cent. The MIPs, however, have their own risks to contend with. Such risks can emerge from non-performance of the stocks chosen by them during periods of uncertainty in the bourses.

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