This story is from April 28, 2006

Derisk your portfolio with debt funds

Madhu T / TNN / Apr 28, 2006, 01:10 IST

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With the stock market hovering around all-time highs, debt investment has taken a backseat in the minds of many investors.

MUMBAI: With the stock market hovering around all-time highs, debt investment has taken a backseat in the minds of many investors.
Most of them believe that since the Reserve Bank of India has not increased any key policy rates in its last weeks annual policy statement, the interest rates are likely to behave for the time being. However, the optimism is not shared by many investment advisors.
RBI may have bucked the trend this time by leaving the rates alone, but there is a near consensus that it may not be able to do it for a long time.
Robust industrial credit, firm oil prices and rising global interest rates point towards hardening of interest rates in the medium to long-term, said an analyst.

It is difficult to take a call on rates in the long-term of one to two years. So our advice is to go for short-term investment products, said Sandesh Kirkire, CEO, Kotak MF.
Naval Bir Kumar, CEO, Standard Chartered MF, also votes for shortterm schemes. Caution is the word one should keep in mind in a rising interest rate environment.
Since the yield curve is on the rise, investors should put their money in fixed maturity plans or shortterm funds, he adds. For the uninitiated, fixed maturity plans work like bank FDs.

They are basically close-ended schemes with varying maturities. The advantage of FMP is that it allows the fund manager to match the maturity of the portfolio with the scheme and makes the scheme immune to any change in interest rate regime.
Some investment advisors are also asking investors increase allocation to their equity portfolio. Since longterm debt funds are likely to register a fall in returns once the interest rates start climbing, it is wise to invest more in equity.
Investors can use concepts like monthly income plan (MIP) if they are not comfortable investing directly in equity, says a senior official with an investment advisory firm.

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