The Hindu Business Line : Better to stay close to cash funds

'Let oil prices increase, inflation rise and markets be volatile'. If you are a keen follower of mutual funds, chances are that you will have noticed this line, part of an advertisement issued by a fund house promoted by one of the country's top industrial groups. No prizes for guessing what the ad was talking about - a floating rate fund that hopes to stay in tune with interest rate movements.

The point that we are trying to make here has little to do with floaters. But it has everything to do with the ad and the message those words have tried to convey.

Yes, international crude oil prices are on the move up, inflationary pressures are strong and the markets are dancing too wildly. And, no, you and I can't really maintain our cool in the given situation, not when we have to go through the rigours of investing our hard-earned money.

Indeed, moving our capital to safer places may be an advisable thing at the moment. Uncertainties associated with assorted events do tend to drive us away from a certain class of funds. Equity funds are very risky, and not many investors will be prepared to put in fresh amounts in them. Debt funds too have their own risks to contend with. Hence, staying close to cash (cash funds in this case) may be a good idea for those who wish to fine-tune their asset allocation strategy.

A whole range of cash funds are available in the market; some of which are currently quite large, thanks to the institutional money that gets parked in these schemes on and off, as and when required by investors.

Incidentally, floating rate schemes too are many in number, thanks to MFs' new-found penchant for these products. Floaters come in various styles - short and long term, retail and institutional. Consider some of the typical names: UTI Floating Rate - Short Term, Kotak Floater - Long Term, Principal Floating Rate - Flexible Maturity. The latest figures point to the fact that schemes such as these now collectively manage a decent amount of money.

Fund managers admit that there are not many floating rate instruments available in the market. Yet, a true-to-label floater fund must be predominantly invested in such securities, and that makes the portfolio management exercise a real uphill task.

A few fund houses still do not offer floaters, a gap that is expected to be bridged soon. The likes of Escorts, Sundaram, HSBC and Canbank MF need to add floaters to their product baskets quickly, it is felt.

Investors also need to look at the comparative numbers before they make a choice. A fund's investment profile, the returns it has provided in the past and the kind of risk management strategies it has pursued should be weighed before investment decisions are taken. There is no point in getting lost in a maze of competing products.

Elsewhere in the asset management industry, fund houses are still keen on launching new equity products. Many of these are expected to be different from the run-of-the-mill variety; in fact, quite a few innovative themes are likely to be introduced. It seems there is a treat waiting for the discerning investor.

Feedback may be sent to nilanjan@thehindu.co.in

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