You shouldn’t take everything we say seriously. Some of the things that you read in here or in our magazines are best read and then ignored. The reason for this simple—some of the things that we publish are of no practical use. By now, I think I must have alarmed many of you (not to speak of offending my own team) so I’ll explain what I mean. The operative word in the above sentences is ‘you’, and for every article or analysis that we publish, that ‘you’ might be different.
Different parts of the magazine and the website are intended for different sections of our readership. It may be either pointless or actually harmful for any reader to try and act upon advice or analysis that is not meant for you.
Moreover, I’m writing about this topic in this particular issue because I think that the cover of the current issue is an excellent example of this phenomenon. I doubt whether the cover story ‘Income Funds: Do they make sense?’ would be of much practical use to many retail investors. You see, it’s great that interest rates are going to fall and investors in fixed-income funds can certainly take advantage of it. When rates fall, or even when the expectations of a fall in interest rates become widespread, then income-fund managers position themselves to take advantage of this fall. They do this by holding debt securities of as long a duration as possible. In an environment of falling interest rates, these funds can make windfall gains by the standard of income funds. However, income funds are of mostly of interest only to companies and not to individual investors.
But my point today is that none of this is of much use to the typical retail investor who is doing SIPs in equity funds for a long period. And, as I said above, it would be positively dangerous if a naïve investor would read the cover story and be inspired to stop his equity SIPs and shift the money into income funds. In general, at different points of time, different kinds of funds may become more promising. However, that doesn’t mean that they are suitable for anyone. If income funds fit the asset mix you need, then this is a good time to look at them. If they don’t, then it will never be a good time.
However, that doesn’t mean that you should not be knowledgeable about different kinds of investments and how they are faring. After all, the readers of this magazine or of ValueResearchOnline.com can hardly be described as having only an ordinary level of interest in mutual funds. Many of you subscribed to this magazine because you either need or like (or even enjoy) learning everything that there is about all kinds of mutual funds.
We believe that our readers are members of an elite group of people who have superior knowledge and understanding of financial products compared to the general population. Many of them are often asked for advice by friends and family and some are, of course, in the actual business of giving financial advice.
Therefore, writing articles and analysis with the specific purpose of increasing readers’ knowledge levels is part of our agenda. Even if we don’t need to invest in income funds and are thus not directly affected, there’s no harm in understanding exactly how interest rates impact such funds. It enables us to understand better how the financial system works and how funds are managed and used for different purposes.
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