Quite often over the past few months, in my conversations with people from the mutual fund industry, I have been told that these are tough times for not only investors, but for the asset management companies as well. At a time when no one knows where the markets are headed, it is quite understandable that people are skeptical about putting their money into equities. As it is, Indian mutual fund investors comprise a very small percentage of the country’s population, and in such uneasy times, this numbers gets reduced further. ‘Where are the investors?’ is a common lament that I come across.
As far as I am concerned, the fund industry shouldn’t be complaining about the dwindling investments, it should be the other way round. It doesn’t matter if you are a long-term investor, or a short-term goal-specific investor, now is a good time to invest in mutual funds. And I don’t mean just equity funds, but debt funds as well. A long-term investor can buy equity at cheap valuations today. A short-term investor can benefit from the interest rate outlook by investing in medium- and long-term bond funds. For the rest, who want the best of both worlds, balanced funds are the way to go.
Balanced funds can turn out to be a godsend in uncertain markets. If you are a new investor, this is what should be your starting point. Such funds are hybrids that invest in equities as well as debt. An equity-oriented balanced fund invests around 60-70 per cent of its assets in equities, which allows it to generate returns. At the same time, the debt component acts as a cushion against upheavals in the equity markets. Effectively, what you get here are substantial gains during bull runs and protection against losses during bear phases. They are not as volatile as equity funds, and earn a great deal more than bond funds. On top of that, long-term gains from balanced funds are tax-free.
For new investors, balanced funds are a great way to learn the mechanics of mutual fund investing as well. Once you have the hang of investing in funds through the relatively less risky balanced funds, you can venture forth into pure equity funds. To begin with, start monthly SIPs in one or two well-performing balanced funds that have a proven track record. You can pick the ones you like from Birla Sun Life 95, Tata Balanced and HDFC Prudence. All three of them have a good performance history that has earned them a place in the Value Research Fund Select. You can go through their details on our website and choose the ones you're comfortable with.
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