 
INTERNATIONAL
FUNDS BEST
FUND MANAGERS FUND
MANAGER OF THE YEAR Sandeep
Kothari Suyash
Choudhary FUND
CAFE DISTRIBUTION
OF FUNDS FUND
DIRECTORY SECTOR
FUNDS |
Bond with the short PRIYA KANSARA Since the outlook on interest rates continues to be hazy, fund managers believe it’s wiser to stay with schemes of a shorter tenure It may not have been the kind of party that’s happening in the equity markets but debt products too have brought some succour to investors over the last year or so. Over the past couple of years, interest rates in the system have risen by at least 400 basis points since the year 2006. The ten-year benchmark has also moved up from 7.2 per cent to the current 7.9 per cent after touching higher levels of 8 per cent. Compared with just 7 per cent in early 2006, banks have been willing to pay up to 9–9.5 per cent for a year’s money in 2007. Even then, investors in money market mutual funds must be feeling a little left out. The average return that a retail short plan has given them, over the past year, is barely 3.5 per cent, while the average return for long–term schemes has been 2 per cent. If investors had parked their savings in a floating rate short term plan, for instance, they would have barely made 3.7 per cent.
Now with banks lending less — credit growth has tapered off to about 23 per cent from about 29 per cent this time last year —they’re not willing to dish out too much. A couple of banks including bigger players like State Bank of India and ICICI bank, have actually cut deposit rates by 25-50 basis points across maturities especially at the shorter end of between 15 days and one year. And now others such as Union Bank and home loan player HDFC have also started dropping rates on home loans, albeit for new borrowers. So, while it appears rates may have peaked, whether they will drop further is not clear. HAVE INTEREST RATES PEAKED? It’s important to know which way interest rates are headed because small movements can have a big impact on the net asset value (NAV) of a scheme. Typically, when interest rates go up the price of the paper, or bond, falls and vice versa. With inflation ostensibly under control, interest rates appear to be peaking. Business Standard • FUND MANAGER • October 2007 |
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