The Hindu Business Line : Dynamic asset allocation need of the hour

NERVOUSNESS in the equity market may actually mean good news for debt funds. Inflows into the latter are expected to look up even as their equity counterparts record a decline in collections.

Liquid and short term schemes could gain particularly as investors refrain from putting in fresh money into riskier products.

Monthly income plans, which can make only a limited allocation to stocks, too are likely to do well in terms of mobilisation.

Going forward, investors will expect debt fund managers to dispense consistent performance with low volatility. But will debt funds really deliver this year? The answer is not easy to find.

However, there is a general feeling that returns generated by these funds will be on the lower side in the months to come.

In fact, such potential returns (and the presence of a number of other factors that may well boost the stock market) make equities a relatively more attractive alternative for investors, especially those who can afford to remain patient over the medium term.

As mutual fund sources indicate, floating rate schemes (which, as the name suggests, predominantly invest in securities that do not carry a fixed coupon) may do well in the days ahead. However, there are not too many floating rate products available in the market at this juncture; the lack of adequate choice, in fact, is a limiting factor for investors.

The near term outlook may be depressed for equities but that does not seem to be a barrier for a small section of investors who are still taking aggressive calls on the market.

Fund managers point out that there will be considerable scope for cherry picking once prices get depressed further.

The future, they say, will belong to those who are good at stock selection.

Let us tune in at this stage to Mr A.K. Sridhar, CIO of UTI MF, who dwells on an evergreen theme — the need to diversify one's savings between various classes of assets.

He also underlines another time-tested theory: Lower the age, the higher could be the risky assets; higher the age, the lower could be the risky assets.

Mr Sridhar, in a statement to investor further goes on to add that "equities over a longer period of time will give superior returns, commensurate with the risks associated".

Dynamic asset allocation, therefore, will be the key to success in the days to come. The lay investor, it is advised, should address only those risks that are controllable and the market by itself will correct the risks that are not so.

All said and done, investors will do well to acknowledge the broad economic & business factors.

On the positive side, these include the fundamentals of the Indian economy, the potential of better corporate performance, the prospects of a developing nation and the opportunities that may arise in specific sectors such as pharma, auto and banking.

On the negative side, there are elements such as possible increase in oil prices, growing inflation numbers, unpredictable monsoons and, above all, political uncertainties.

And we will let Mr Sridhar have the last word: "There is a case for planning our investments beyond all short-term volatility. In fact, this should be seen as an opportunity to reallocate our savings".

Feedback may be sent to blcal@vsnl.com

More Stories on : Mutual Funds | Mutual Confidence

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Consolidation leaves many fund managers jobless

Dynamic asset allocation need of the hour

Overseas equity funds take out $18 m

Stocks on the path of recovery

It's Left hand drive on Dalal Street

Buying and selling shares is no sin