The Hindu Business Line : `One major area of concern could be rising oil prices'

FOR mutual funds, the current boom in the equity market has provided a great learning experience, feels Mr Raghvendra Nath, Vice-President, Strategy & Business Development, Birla Mutual Fund.

Excerpts:

Debt has been out of favour for long. How do you see it evolving over the coming months?

It is the long-term debt funds that have been out of favour. Debt products like cash funds, floating rate funds and fixed maturity plans have managed to maintain their attractiveness.

The difference between the long and short-term rates has become very thin; add to this, the volatility in interest rates. This has been the primary reason that has made long-term debt funds less attractive.

Till the time the interest rate spreads do not improve, the long-term debt products may continue to have moderate appeal.

Lower levels of interest rates have helped floating rate funds become quite popular with investors. The amount of floating rate paper available in the market has also increased. This has boosted these funds.

Equity has been racing ahead. Is this the beginning of the end?

Rather than conjecturing on the level of indices, one needs to ask why the equity market has done well and find out the factors that have led to its growth. The question of sustainability of these factors is also crucial.

There have primarily been three or four reasons why sentiments have remained buoyant. The country's economy has done very well in the past two or three years. Low level of interest rates is not only enabling economic expansion but is also driving the demand for products and services.

Corporates have between witnessing healthy rates of growth. And last but not the least, there is a significant increase in participation from institutional investors, both domestic and foreign.

What can propel the equity market further?

As I mentioned earlier, as long the fundamental factors - economic growth, corporate earnings, demand for products and services and fresh inflows - do not alter, the stock market may continue to look attractive.

The one major area of concern could be rising oil prices. Unforeseen global or domestic events may also have an impact.

How do you react to the idea of variable AMC fees?

It is a novel concept. However, in the case of equity funds, the variations in return are substantial. A small cut in AMC fees may hardly make a difference in the overall returns of the investors.

Any mutual fund worth its name puts its best efforts forward in order to optimise the risk and maximise the returns.

In India, is there scope for `bundled products', say, ones that combine insurance & investment?

Yes, bundled products definitely have a market. Insurance companies have come out with unit linked insurance plans successfully. Similarly, mutual funds are also looking at bundling insurance along with their investment schemes. It will ultimately depend on the investor fraternity.

Some sections may go in for such products, while others may like to keep their insurance and mutual fund investments in separate baskets.

Bundling of benefits like insurance will make it easier for mutual funds to retain investors for longer periods of time. However, the attractiveness of mutual funds even on a standalone basis would always remain.

As the markets mature and investors look at longer time horizons for investing in mutual funds, the standalone funds do not have to offer combinations of insurance to draw investors.

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