Last year saw an equity rally and debt funds suffered. What is the market like this year?This year cash or floating funds have done well and only because the investor is looking at quicker returns. They want to avoid the risks associated with equities yet reap the benefits of liquidity and quicker returns. As a result they are investing more in short-term debt funds. We have faced an erosions of more than 60 per cent in our income plans which are long-term debt funds. Has this erosion affected the funds you manage?Our income plans may not have done well but liquid and floating funds have done extremely well and covered up for the losses. They have balanced out our portfolio. Since inflation is falling and oil is static, will interest rates fall, leading to a bond rally?No, in fact, we see exactly the opposite. Interest rates are going up and will continue to do so for another six months. But, inflation is a cause of concern as even the credit rate growth is high. International interest rates are bound to go up and the US is speeding up the process. So what should the retail investor do in this scenario?An upward pressure on interest rates will continue to exist. But, interest rate changes mostly affects floating or liquid funds, where you are looking at short-term returns. If you are going for a income plan which has a lock-in of three years, you may be able to tide over higher interest rates. Say for example, if in the first year, due to high interest rates, your returns are less, then in the next two years, your returns will be averaged out eventually. So, although you do suffer an initial setback, your investments are safe and at the end of three years, you are getting the promised returns. Given the current scenario, what should a retail investor do?Retail investors should begin to realise that in the new Indian economy, one must start investing much earlier in life. The typical retail investor in India always starts late and then wants to earn money fast. As a result they end up chasing returns. They don’t have the foresight to catch a trend or to realise that they could end up losing a lot more money than they could make. For example, when the equities market does well, you see retail investors rushing towards it. What they fail to realise, however, is that by the time they start making any profits, the rally is already over. So, it always makes sense for the retail investors to go through a mutual fund house. We have the knowhow to not only catch a trend before it starts but also to ride it and give safer returns to the investor. The debt funds provide a safer investment opportunity. The returns may not be as high as equities but they are safer. Besides debt funds give you a wider choice.
