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Sunday, Dec 01, 2002

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HSBC Income Plan: Unattractive

B. Venkatesh

INVESTORS need not participate in the initial offer from HSBC Income Fund for the following reasons:

Firstly, government and corporate bonds have risen sharply since 2001. According to the JP Morgan India Government Bond Index, short-term bonds rose 22 per cent, medium-term bonds 35 per cent and long-term bonds 45 per cent since January 2001. With bond yields at all-time lows, scope for sustaining high returns from this level appears limited.

Secondly, bond prices have fluctuated wildly since 2001, indicating high volatility in returns from debt funds. The fluctuation in the yearly returns in the JP Morgan Index was 7.6 per cent since January 2001 against 4.39 per cent between January 1999 and December 2000. If bonds continue to fluctuate, returns may not be commensurate with the associated risks.

Thirdly, those who want to invest in an Income Fund as a diversification measure would probably be better off choosing from the existing funds, which already have a track record. Since providing attractive returns in the future may prove a difficult task,funds with a track record would carry a greater comfort level than a new entrant.

The fund offers Short-term Plan and Investment Plan; the former will invest primarily in money market instruments and short-term bonds, and the latter, medium-term and long-term bonds.

There is no entry load for both plans, but the fund will levy an exit load of 0.25 per cent if the units in the Investment Plan are redeemed within 90 days of investment. The minimum amount needed to buy units is Rs 5,000. The initial offer opened on November 14, and closes on December 3.

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