The Hindu Business Line : Tottering in high-risk zone?

Here's a witticism that investors in mutual funds must remember at all times, especially now that a number of negative factors are raising their ugly head, threatening to crush the buoyant sentiments that were evident till some time ago.

We are referring to equity funds here, which did manage to attract some genuine inflows in recent times. Their investors must remain aware of the risks posed by rising oil prices, high inflation and a general slump in sentiments.

It is not that such risks are the only things that are evident in the market. Right in the midst of these threat perceptions and worse, fund managers are still bullish on a number of counts. Most of them are maintaining their stance on major sectors, including IT, engineering and certain commodities. Many have built up cash positions to take advantage of fresh buying opportunities in the secondary market and the primary issues that are expected to troop in over the next few months.

Investors, however, must still exercise extreme caution at every stage. An aggressive stance may not help every time - and it is easy to get carried away by seemingly bullish views backed by persuasive sales strategies. It is, for instance, vehemently stated that corporate profitability will not be a source of trouble for the market, at least not over the near term. But just think of inflation rates, and you may like to question the sweeping statement about profits. High inflation rates may actually impact bottomlines and overall businesses sentiments.

All said and done, there is no reason why a relatively young investor should not consider equity funds actively. Debt, after all, is not quite happening, as the performance figures turned out by debt funds undoubtedly indicate. Those who are still pursuing a debt-oriented strategy must realise fund houses are vigilant about a number of issues - inflationary pressure, oil price movements, interest rates and the like.

Most fund managers hold conservative views on the future of debt investments. But even disillusioned sections will say that positive factors are not missing altogether. Bank credit, for instance, is recording more than marginal increase, while credit growth figures are on the rise. Investment programmes are taking off in greater numbers as well.

Let us at this stage move to a completely different subject - a general warning issued by a bank-sponsored fund: "The views of the fund manager should not be construed as an advice and investors must make their own decisions based on their specific investment objectives and financial positions, and using such independent advisors as they believe necessary". That's an evergreen concept, wouldn't you say?

Meanwhile, here are extracts from an advisory posted by The Armchair Millionaire, which urges investors to define several things - financial goals, time horizon, risk tolerance and target asset allocation.

What are the targets that you have to meet in order to be financially secure or independent? How many years until you need to start tapping your portfolio for money? Do you need long-term growth, current income, capital protection or a combination of all three? These are some of the questions that must be asked before financial plans are constructed.

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

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