MUTUAL FUNDS

The worst of inflation is temporarily behind us and if this trend continues, inflation will be in RBI's comfort zone<
11-Feb-14   16:44 Hrs IST

Mr. Malay Shah
In an interview with Capital Market, Mr Malay Shah, Head-Fixed Income, Peerless Mutual Fund said, CAD is coming down and it kind of seems to have played itself out as far as market perception is concerned. It is expected to be less than 3% and this is a stark reduction.

Excerpts:

1. What factors do you consider will increase the appetite of investors in smaller cities and towns to invest in mutual funds?

Awareness, education and knowledge of mutual fund and more specifically debt mutual funds as a viable alternative to fixed deposits. Infact with the gamut of funds covering entire spectrum of timelines, various debt funds from liquid to monthly income to short term bond funds to long term gilts funds, all these can help an individual substantially in earning more out of his investible surpluses.

2. Have the direct plans witnessed greater retail participation?

Increasing retail participation is an ongoing process, and it's an activity which yields fruits in long term. But yes, we are seeing increased participation in direct plans from more aware and savvy retail investors.

3. Kindly share with us your investment philosophy.

Investment philosophy varies across the schemes. It is the individual scheme's positioning that ultimately determines its investments. Broadly speaking investment horizon, quality of assets and risk/reward ratio are the basic guiding factors. All this has to fit in individual fund mandate and guidelines laid down by investment committee.

4. What will be the impact of tapering, CAD and inflation on the g-sec movement till the end of this year?

Tapering has already been announced, and Indian markets took it in stride, FII flows were impacted but amongst emerging markets, India has not been as severely affected as others. It didn't create any havoc as many had thought so and rupee is holding steady in band of 60-65. This gives us comfort that on that front market is strongly positioned. CAD is coming down and it kind of seems to have played itself out as far as market perception is concerned. It is expected to be less than 3% and this is a stark reduction. Accordingly foreign funds are not required in as much size to fund the CAD. This leaves us with inflation-in our opinion, the worst of inflation is temporarily behind us- lower CPI/WPI point to it and if this trend continues, inflation will be in RBI's comfort zone. However core inflation might be sticky and that could be a discomforting factor from RBI's perspective. The vote on account will present a budget which will reduce the fiscal deficit to below 4.40-4.30. Also net borrowing for next year is not likely to increase substantially as compared to the last year. All these factors will keep yields in a range, and they will move depending on the data releases causing bouts of volatility. 10year gsec should be in range of 8.50-8.90 over a medium term horizon and in 8.60-8.75 band in short term.

5. Which debt schemes are you favouring and avoiding?

Peerless short term fund is a scheme, which is currently optimally positioned to take advantage of the uncertain markets and good returns from medium term perspective. High accrual, good quality asset mix and lower duration resulting in low volatility-these are the factors that are going to give it strong performance.

6. What is your advice to investors considering present conditions?

Investors will appreciate that the risk reward ratio is turning favourable, and investments from here on will be an attractive proposition. Having said that, individual risk appetite and investment horizons are the factors to be kept in mind. An optimum asset class allocation and constant monitoring of the portfolio is what would aid the investors in achieving their individual investment/financial goals. On a specific note actively duration managed dynamic bonds funds and medium term-short term investment plans looks the best bet.

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