LOOKING AHEAD

Mumbai, Dec. 28: Mutual fund investors may prefer debt funds to equities in the coming year because of the depressing state of stocks following the global financial crisis.

Analysts say fixed income funds can gain immensely. A fixed income fund is a mutual scheme investing in government and company bonds, certificates of deposits and other instruments offering a fixed return.

They are preferred by those who are uncomfortable with the fluctuations in equity funds.

Another reason for the popularity of such funds is the trend of declining interest rates which leads to higher bond prices.

“2009 will be a year of debt products as investors will focus on capital protection. The composition of debt in their portfolio will increase,” said Jaideep Bhattacharya, chief marketing officer, UTI Asset Management Company Ltd. UTI MF is now the country’s third largest fund house in terms of assets under management after Reliance and HDFC.

The share of debt funds in the total assets is at around 71 per cent. It was 61 per cent in the beginning of this year.

Rate cut helps

With the RBI bringing down key rates over the past couple of months, debt funds have topped the performance charts. According to Crisil Fund Services, these funds have provided the highest return in November.

The Crisil MF-Gilt index, which tracks gilt funds, was the top performer among all mutual funds, providing a monthly return of 3.07 per cent.

For the 30-days ending December 18, few funds have generated returns as high as 10 per cent, while many have gained more than 6 per cent, according to Dhirendra Kumar, the CEO of Value Research. “Fixed income funds will be the flavour of 2009. Risk aversion amongst investors will see them not putting lots of money into equity funds,” he told The Telegraph.