Monday, October 18, 2010

‘Inflation may surprise on the upside'

Monthly Income Plans and balanced funds have demonstrated that they have beaten inflation over a longer period of investments and should be actively considered by investors. - AMANDEEP CHOPRA, HEAD-FIXED INCOME, UTI AMC

The debt market is hotting up, with short-term debt funds doing well, fixed maturity plans delivering good yields and rates rising. Business Line put a few questions to Mr Amandeep Chopra, Head-Fixed Income, UTI AMC on the attractive options for investors today.

Excerpts from the interview:

What is your outlook on interest rates? Given that RBI has stated that 'reversal of monetary stimulus' is almost done, how much more do you expect rates to rise?

We expect the interest rates to remain largely range bound. With inflation being on the forefront again, the RBI may go ahead with two more rate hikes of 25 bps each. The market appears to have already factored in at least one more rate hike and may not react to the actual hike unless the central bank continues to be hawkish in its stance.

With the equity market touching new highs and the debt funds continuing to invest in shorter-term instruments, which reduces effective yields, where should debt investors focus today?

While the short-term debt funds will remain an anchor in an uncertain time, investors can look at close-ended funds such as fixed tenure plans and fixed maturity plans and Monthly Income Plans with a stable dividend distribution history like the UTI Monthly Income Scheme.

Given the outlook that we are nearing a peak in interest rates, it would be a good strategy to allocate a small portion of overall investment portfolio, say 5 per cent, to income funds such as UTI Bond Fund.

What is your outlook on inflation? What are the safe investment options for those looking to beat inflation over the long term?

Inflation may surprise on the upside in the near months as it has remained pretty sticky based on the recent data releases. However, we expect it to moderate from January 2011 onwards, yet remain above the RBI's target levels.

Monthly Income Plans and balanced funds have demonstrated that they have beaten inflation over a longer period of investments and should be actively considered by investors.

Recent months have seen a slowdown in bank deposit growth. Are retail investors allocating the money to other debt investments?

The real rate of return on bank deposits is low due to high inflation at present, and it appears that there has been no significant credit growth yet that can compel banks to hike deposit rates, hence retail investors are chasing higher yield and riskier asset classes like equity, real estate and commodities.

Unless the credit growth on a year to date basis picks up substantially the deposit rates may maintain status-quo.

Over the last few months yields of longer-dated securities have somewhat stabilised. Are mutual funds moving to long dated instruments or will they stay with short-term debt?

Based on our view, we have increased duration of our long term funds - UTI Bond Fund and UTI Gilt Advantage.

FMPs have made a strong comeback in recent months with MFs raising a large sum through these funds. Can 3-month to 1 year FMPs offer better yields than bank deposits today on a pre-tax basis?

Yes, based on prevailing short-term rates – 3-month at 7 per cent and 1 year at 8 per cent, FMPs can offer better returns than deposits.

Quite a few companies are opening up FD programmes again. How should an investor choose between fixed deposits and debt mutual funds?

The factors to consider are diversification of the invested portfolio which a single company's fixed deposit cannot offer. Liquidity too may be non-existent in a company FD.

With introduction of infrastructure bonds and renewed interest in the debt market, will there be improvement in corporate debt trading volumes?

Yes, we have already seen improvement in debt market volumes for year-to-date FY2010 with more issuers and larger issues hitting the markets. With no surprises on enhanced supply of G-Secs, we can see more activity in corporate bond markets in the second half.

Source: http://www.thehindubusinessline.com/iw/2010/10/18/stories/2010101850521300.htm



--
___________________________________________________________________________________
'I made my money by selling too soon.'

Website: http://indianmutualfund.co.cc/

Blog:http://indianmutualfund.wordpress.com/
___________________________________________________________________________________

No comments:

Post a Comment