The liquid funds and debt funds have started giving negative returns over the last couple of weeks after Reserve Bank of India intervened and tightened the liquidity, personal finance expert, Feroze Azeez, Anand Rathi Private Wealth Management said.
In an interview to CNBC-TV18, Feroze Azeez, Anand Rathi Private Wealth Management shared his views on how one should approach gold and mutual fund from a long-term investment perspective.
Should you invest in fixed maturity plans now?
Below is the verbatim transcript of Azeez's interview with CNBC-TV18.
Caller Q: I have been investing in mutual funds with the aim of earning decent returns. I have invested about Rs 5 lakh with a two years horizon. However the current scenario is bad and the liquid debt fund is giving negative returns. What should I do now?
A: As you pointed out that liquid funds and debt funds have also started giving negative returns over the last couple of weeks after Reserve Bank of India intervened and tightened the liquidity.
If you have Rs 5 lakh to invest and the time horizon is about two years then you should stay away from equity, still debt will have some volatility but to my mind liquid fund have given negative returns, not because of inherent nature but there was a change in the method of computation of the net asset value (NAV). I do not think it is going to be a very long phenomena, it is going to be short-lived. Therefore, you should not be too worried as long as your timeframe is two years.
However, the question about where your money should get into. I think there is immense amount of opportunity which has emerged on the debt market side and fixed maturity plans (FMP) which was indicating a return of almost about 8-8.5 percent till a couple of weeks back, today can deliver 10 percent or 9.8 percent. So, can almost have a post tax return of about 9 percent, which is as good as, for example like 13 percent fixed deposit (FD) if you are in the highest slab, almost like 11.8-11.7 percent FD. Therefore, any of us should miss this opportunity which is an outcome of RBI’s liquidity tightening.
Moving on the riskier asset classes on the debt side space on the short-term fund my best pick would be the Templeton India Short Term Income Plan , on the dynamic fund the best plan would be SBI Dynamic Fund and on the income fund category IDFC Income Fund. Having said that there is going to be volatility on the way over the next year-year-and-a-half but if you can stick to your timeframe so you will beat inflation by handsome margin going forward.
Caller Q: I want to begin investing in mutual funds and gold considering that they are down in value currently. Please advise on which schemes are preferable.
A: In my opinion gold as an asset class is not an investment asset class going forward because it will give immense amount of trading opportunity. However, I am not a huge fan of gold for different reasons. I know gold would have bounced back from its lows but it is predominantly due to the currency depreciation. Therefore, going back to September 2011 when it touched the peak in dollar terms; if you assume the same currency rate then gold today should not have been at Rs 28,000 per 10gm but should have been at Rs 20,500 per 10gm, which to my mind would be a low level. I think currency has attributed significant portions of these gains. Therefore, I do not think gold would be a very wise investment at least from couple of year perspective.
Coming back to mutual funds, which have got beaten down in the recent time, there are debt mutual funds which have got beaten down. If somebody is starting up then should look at three equity funds and two debt funds. The three equity funds would be ICICI Prudential Focused Bluechip Equity Fund , which is ranked well in our ranking methodology. We have specific ranking methodology which takes care of lot of statistical tools, so ICICI Focused Bluechip, UTI Opportunities Fund are two largecap funds and in the midcap and smallcap space look at SBI Emerging Business Fund , which has done well and it is ranked on top in that category and on the debt side if you have risk appetite then take the volatility and forgetting it is going to be at least half as volatile as an equity fund but if you have the timeframe right then IDFC Income Fund and HDFC Income Fund could do the trick for you.
Q: When you say timeframe, you are calling for a five year investment plan?
A: No. On the debt side my recommended timeframes would be about a year-and-a-half and for equities the holding period should be three to five years in Indian context is long-term.