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FUND MANAGER 2006

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Says Amandeep Chopra, president and head-fixed income, UTI Mutual Fund, “In the medium to long term, interest rates are likely to be stable. They could also come off a little since economies like those of the United States and European Union (EU) are expected to slow down. Long term yields too are unlikely to move up significantly unless the central bank hikes rates.”

Adds Mahendra Jajoo, vice-president and head-fixed income, ABN Amro Mutual Fund, “Interest rates are likely to remain more or less stable as foreign money is chasing Asian assets. The inflows into a growing economy like India should get easily absorbed since there is a demand for capital to fuel growth. Moreover inflation is also largely under control.”

Rajiv Anand, head of investments, Standard Chartered AMC, feels that for India to be able to achieve its targeted growth, inflation and interest rates both need to moderate. “We believe the authorities will ensure an environment that is conducive to growth. Therefore, in a high growth economy we expect interest rates to be moderate,” he says.

However, the market could remain volatile, according to Ritesh Jain, head-fixed income, Kotak Mutual Fund. “Volatility could continue to be high for some time till the global picture becomes clearer and the uncertainty is reduced,” observes Jain. STAY WITH SHORT-TERM BONDS While most fund managers agree that the risk associated with debt products is now manageable, they are more confident about recommending short term plans for the time being. That’s because there remains some degree of uncertainty following the sub-prime loan crisis in the US. Fund managers believe short term rates will remain firm on the back of a strong demand for funds mainly from the corporate sector. The yield curve, which shows the interest rates for varying maturities, they say, should remain flat.

RITESH JAIN Head-fixed income, Kotak Mutual Fund Investors should put at least 20 per cent of their money into short-term schemes

In other words, interest rates for short-term paper should be more or less same as that for long-term paper. The risk-reward ratio for such schemes, they explain, is favourable but since the outlook for the longer term is still unclear it might be too early to buy into long-term schemes. They rule out even gilt schemes (schemes that invest in government securities) and feel these can be looked at after the visibility on rates is better.

STAY LIQUID…

Fund managers,therefore, recommend that for the next three to six months, investors put the bulk of their money—perhaps as much as 80 per cent—in liquid, liquid plus and fixed maturity plans (FMPs). While liquid funds can have as low a maturity of even one day, liquid plus and FMPs have a maturity of three months to one year with some being even longer at even two years.

Business Standard • FUND MANAGER • October 2007