Since the returns of debt funds are going down regularly, is it advisable to exit from these funds, wait for some time with cash in hand or in FD and then get in again?
Manik Gulati
To do what you are suggesting calls for two things. The first will be to know when is the best time to exit. Secondly, when things will improve so that you could re-enter the market. Since we don't have answers to these two riddles (and for that matter no one else has), we will not advise you to try and take a decision based on the state of the market.
Instead, we will advise you to take a decision based on your needs. On this you can be more certain and it is easier to take a decision rather than trying to second-guess a fickle market.
If you require consistent returns over a period of time with liquidity, we would suggest you to stick to debt funds. An investment horizon of over a year should ensure that you overcome the current bout of volatility.
At the same time, we hope that your return expectations are grounded at 6 to 7 per cent in a year. This is what you should expect now, as the rally in the bond markets seems to have ended. If you can handle a bit of risk, do take a look at monthly income plans. These are debt funds, which can invest up to 15 per cent in equities. The equity component can boost returns here but risks will also be higher than a pure debt portfolio.
On the other hand, if you are highly risk averse and do not require your investment then you could consider the traditional debt instruments like tax-saving bonds, post-office deposits etc. But do remember that nearly all of these have lock-in periods and your money will in all probability not be available to you without a penalty.
This article was originally published on February 02, 2004.
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