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Battling the Downturn

Market downturns have hit some funds hard. Here is what to do in a tight situation

Dhirendra Kumar, CEO, Value Research answers viewers' queries on mutual funds, stocks, personal finance issues and more on the Market Mantra programme on All India Radio

I have invested in Tata Indo Global Infrastructure Fund. An investment of  Rs 65,000 has been reduced to Rs 35,000. Should I remain invested?
Tata Indo Global Infrastructure Fund invests in Indian and foreign infrastructure based companies. This fund was launched at the peak of the market. And since then the stock market has fallen. If you cannot stay with the fund, then I would recommend that you should withdraw your money.

I want to know if I invest in ICICI Life Time Policy or Tata infrastructure, then what is the difference between the two? Because I find that NAV is declared for both of them.
The ICICI Life Time Policy, I think is a Unit Linked Insurance Plan (ULIP). A ULIP is a long contract which is of 10-15 years and you will have to continuously contribute to it as stated in your contract or scheme. A part of the money goes out for your insurance and another part goes for your investment, for this section you get to see the NAV. When you are choosing a mutual fund, all money goes to investment. And the performance of your money depends on the market.

Give your opinion on the performance of Birla Sun Life Income Plus as its NAV has fallen. What will its performance be in a month’s time. Should I stay invested or withdraw? Will it be able to give returns equivalent to bank deposits or it will not be able to do so?
My understanding of the Birla Sun Life Income Plus is that it is a good fund. But it will not be able to give you more returns than a fixed deposit in a month’s time. I would suggest that you invest in this only if you intend to stick around with it for more than a year because it is tax efficient. Any time span shorter than that and these income funds can get quite boring. What we have seen is that the bond market is extremely volatile now.

Don’t expect any magical return from the fund. If your time horizon is one year then only stick to Birla Income Funds or any income funds, if it is for one month or so then take your money out.

If I invest money for 5 years will get the money doubled.
Maybe. Maybe not. If you had invested in January 2008, then there is a possibility that by 2013 the money would get doubled.

However, a good return doesn’t mean your investment will double in 5 years. What matters most is when you have invested in the mutual fund. There is a possibility that your investments will more than double by that time, but there is also a possibility that it may not happen. The basic thing about investment is that you should invest in a continuous manner and also that you should not speculate. That especially is most important I think.

Union minister Murli Deora made a statement that the oil prices in India are increased or decreased based on price movements that takes place in the international market. Is this a political statement or a practical statement?
I think before this deliberation, a person must understand that the Indian scenario is very different. Who will get kerosene at what price? Or what should be the price of LPG. These are political issues. The price is subsidized for the benefit of a certain class. However, new costlier cars (like SUVs) that are diesel-based also enjoy the benefit of the subsidy and these are people who can afford to pay high prices easily.

The rich are also getting LPG at subsidized price, same as a poor person. I personally feel that these are complicated issues. If you start deliberating on such issues then differentiating between their many aspects will be difficult for you. Therefore, I think a big bang reform approach here will not be easy to implement. Petroleum products cannot be deregulated one fine day.

Rates shall change over a period of time. There will be some sort of segregation between rich and poor. There should not be much differentiation of rates between the cities and villages because in that case smuggling will start. So the government will have to think about how it will be taking the benefits at large to the masses.

As you said, the serious issue for the government will be to ensure that benefits reach to those who are in need of it. As we see that diesel is widely used for generating electricity through generators and this is not done for the poor.
Yes, and I think the tough time for the government will be when oil prices increase a lot. At that point of time the gap between the administered prices and the government’s ability to increase the price will be different. And the way the prices shot up last year, the gap was too wide. Sustaining these in tough times will be very difficult. I think in the coming days the government’s direction would be that if the prices of international oil spike, then the government will be revising prices periodically.