The Hindu Business Line : `Equities as an asset class will beat inflation'

MR VED Prakash Chaturvedi, MD of Tata Mutual Fund, is not a naysayer when it comes to stocks. Equities will surely beat inflation if you consider them from a longer term perspective, he tells Business Line.

Excerpts:

Given the steep valuations of Indian stocks, is your enthusiasm for fresh allocations slowing down?

The equity markets have been buoyant over the past several months primarily on the back of expected good corporate performance, strong global liquidity and firm flows to the emerging markets. While the fundamental potential of the local corporate sector has never been in doubt, the sharp run-up in the recent past has clearly increased the risks of short-term investing in equities.

So, our advice to investors remains simple: exercise caution if you are a short-term participant. Remember, from a short-term perspective, risks have indeed gone up. However, if you take a longer-term view and if you are a believer in the potential of our economy and the corporate sector, be assured that equities as an asset class will beat inflation.

How do you look at ELSS, now that they are at the centre of some debate?

Investment in funds (perhaps with a medium term orientation) that are quasi close-end in nature will do well at this point of time. Some of the tax advantage funds, which implicitly have a lock-in of three years as well as embedded I-T benefits, are worth looking at.

From an investor's point of view, such schemes offer benefits of tax deduction. Besides, there is a medium term exposure to equities. As a review of performance figures will tell you, this has in the past proven to be beneficial to committed investors.

How are dividend yield funds, often perceived as typical `bear market products', placed at the moment?

Well, these funds are expected to outperform more in bearish markets. In the current situation, these have been giving returns in line with the overall market performance. However, their true merits will really be judged when and if we see a steep correction in the market.

A number of dividend yield schemes are currently available, Tata MF's own product being one of them.

Will you now advise investors to take home gains? Or, should they stay invested a bit longer to gain from possible upsides?

In our opinion investors with a long-term view and an appetite for stocks can stay put in equity funds. This may sound somewhat repetitive but we are clearly advising clients to invest in equity products with a medium-term horizon, preferably through systematic investment plans.

But those who have invested earlier and want to book some profits at this stage as well as those who do not have the right degree of patience should take home some profits.

What are the mistakes a new investor can make at these levels?

Typically, the three major follies in the market are fear, inaction and greed. Each of these can cause distress to investors. With our markets having run up, short-term greed is at its zenith. However, those who are looking only for short-term gains may at some stage get affected by the steep volatility, which is inevitable in the current conditions.

In a scenario such as this, you should invest only that part of your assets, which you can risk and not be worried about.