Are mutual funds still a good investment in this economy?

Where should you invest your money when the markets go crazy? Mutual Funds make sense for a number of reasons, not the least among them being the benefit of investment decisions being made by those with tons of financial experience and expertise.

Yomesh Bhatt, 30, who is deputy manager (finance) in a multinational, feels that one of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital.

While that is your average investor’s perspective, the next question that comes up, is what do the experts recommend?

Lakshmi Iyer, Head – Fixed Income & Products, Kotak Mahindra Asset Management Co Ltd, points out that the current scenario is being characterised by high interest rates at the shorter end in order to stem the fall in the Indian rupee. This had led to higher yields at the shorter end of the curve leading to an inverted yield curve. Hence, the shorter end offers a great opportunity at the current juncture.

“Investors may look at options like ultra short and short term funds to potentially benefit from such a scenario. Also, Fixed Maturity Plans (FMPs) may be looked at for locking in at such high short term rates. Tightness in liquidity may put some funding pressures on certain segments within corporates. Investors could therefore focus on good quality top rated credit underlying at this juncture,” she advises.

Sudhir Mahyavanshi, director of the South Mumbai-based Trimurti Capital Services, points out that any investor in mutual funds needs to be very clear about the duration of the investment, based on his goals and choose the option accordingly. “Those who are investing for just three months or so should opt for liquid funds while investors with a horizon upto a year should go for short-term debt funds. The logic is simple; if I want my money back after three months, invest in a fund having portfolio maturity of same level. Those who are investing for less than a year should not go in for an equity or equity related funds. Adopt Systematic Investment Plan (SIP) mode; it gives you cost average benefits and regular investment will be done. ”

Current scenario

“In my opinion this is the best time to buy, when the market has fallen and the share prices have come down. One should invest in a large cap well-diversified equity fund having a stock of repute companies with an established track record because they have survived bad times also. Growth may not be dramatic or as much as you want but they manage the down times better. One should avoid sector-specific funds at this time as they are very risky. Such an investment might affect your financial planning. The smart thing going ahead, is to first park your money in liquid funds. Whenever there is a downfall, one can shift their investment from liquid funds to equity funds.”

- Sudhir Mahyavanshi,
Director, Trimurti Capital Services

DNA/Pooja Vora