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Good time to park funds in debt, but hang on to those shares

Aug 26 2013, 08:31 IST
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Uncertainty in the market may be spooky but historical data shows that equities have generated high returns after a period of depression. Uncertainty in the market may be spooky but historical data shows that equities have generated high returns after a period of depression.
SummaryHistorical data shows equities have generated high returns after a period of depression.

for long, as has been communicated by RBI. With that being the case, the medium to long-term debt investors should stay put with their investments and not press the panic button and those looking to make an entry should latch on the opportunity being offered by rise in rates.

The bond yields are very volatile in the current market and therefore investors looking to play on duration strategy (capital gains with fall in interest rates) should be very careful as the uncertainty is very high for the next couple of months on the direction in which the rates move. If the yields go up further then the investor may have to suffer some mark-to-market loss for that period.

The one month return for income fund and short-term income fund stands at (-)0.28 and (-)0.27 per cent. Even as the returns have turned negative for the time being, experts advise remaining invested as the losses are only mark-to-market and those who entered the market with 18-24 month perspective will see their losses recover once the RBI reverses its stance.

In fact, financial planners say that it is a good time to park funds in debt as the rates on offer are high.

“Investors who are looking for assured returns can go for fixed maturity plans both for the short and long term, but those who are looking to take some risk and need liquidity, can go with short and long-term income funds depending upon their investment horizon,” said Surya Bhatia, a Delhi-based financial planner.

“As compared to a month ago, all fixed income products look attractive for investment and since the short term rates are higher than the long term rates, investors can look to invest in short term income funds for good returns over the next one year,” said Vishal Dhawan, a certified financial planner based in Mumbai.

Another piece of advice that comes is invest in funds that are holding low risk papers — bank certificate of deposits, ‘AAA’ rated corporate papers, etc.

Home loan and other liabilities

The recent announcement of interest rate hike by the ICICI Bank and HDFC will lead to some pain for the existing floating rate loan customers and they will see a rise in the tenure of their home loans.

For example, if your floating rate loan at 10.5 per cent has a total outstanding of Rs 20 lakh for 18 years (216 months) then as a result of

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