The investing environment today is very volatile. The general view is that the debt markets are at a crest and the equity markets in a trough. Therefore investors should ideally unwind their debt holdings and increase their exposure to the equity markets.

Seems simple, doesn't it? Things get a little trickier when one realises that this view has been prevailing in the market for over a year now. In fact, during year 2002, debt funds continued to generate very good returns. Equity funds turned in a mixed performance. And given that debt funds comparatively are less risky, investors with moderate to low risk appetite continued to do very well.

Today the investing environment is very challenging for investors.

On the one hand, there is the debt market which has turned in a fantastic performance over the last couple of years. Interest rates have declined to levels not expected by anyone. Even now there is anticipation that there is still some more downside left given the high liquidity levels. So, if you stay invested, returns could be attractive. But then, there is a contrararian view that is fast gaining credibility  debt markets have had their run and going forward investors should settle for a return of about 10% per annum.

  Top Debt Fund Performers

Income (Long Term) Funds	NAV (Rs)	1-Mth	6-Mth	1-Yr	3-Yr	5-Yr	Incep.
TEMPLETON INC. BLD G	21.6	2.9%	11.2%	18.1%	15.7%	14.6%	14.8%
SUNDARAM BOND A	19.9	3.0%	11.0%	17.6%	15.1%	14.6%	14.4%
BIRLA INC B	26.0	2.6%	10.5%	17.3%	15.0%	14.0%	15.1%
IL&FS BOND G	16.0	2.7%	11.1%	17.1%	14.5%	NA	14.3%
IDBI-PRIN INC G	14.3	2.8%	10.4%	17.0%	NA	NA	17.4%

(NAVs as on January 12, 2003. Growth over 1-Yr is compounded)

The stock markets on the other hand have had a few down/flat years. Presently, the investment case is very compelling as stocks are available at historically low valuations. But, even in 2002, the rally in the stock markets has been limited to certain sectors. Moreover, views on the prospects of the stock markets are still mixed, due to the tense global environment.

Top Equity Fund Performers

Diversified Equity Funds	NAV (Rs)	1-Mth	6-Mth	1-Yr	3-Yr	5-Yr	Incep.
RELIANCE VISION	27.2	5.0%	2.9%	71.9%	3.0%	18.5%	14.6%
RELIANCE GROWTH G	30.5	4.3%	-0.2%	52.7%	-9.0%	19.1%	16.4%
FRANKLIN PRIMA FUND G	29.2	4.0%	-1.0%	41.6%	-6.2%	26.6%	12.5%
ZURICH I TOP 200 G	17.3	3.6%	3.3%	21.6%	NA	NA	3.4%
FRANKLIN I BLUECHIP G	23.3	3.8%	2.0%	18.3%	-3.3%	27.8%	21.6%

(NAVs as on January 12, 2003. Growth over 1-Yr is compounded)

Performance of diversified equity funds has been skewed a little with nondescript funds like Reliance Vision and Reliance Growth dominating their peer group on the back of a midcap rally. For consistent performance look at longer time frames like 3 to 5 years.

As the above tables indicate, both the debt and equity markets offer opportunities. (To get daily NAVs of equity and debt funds, register for free email alerts) But then there are risks, as discussed above. Some of us, who understand the risk and are willing to take it on, can and should allocate money accordingly.

However, those for whom capital preservation is a key factor, there are several mutual fund schemes available in the market today that will help them tide over this uncertainty as well as capitalise on any investment opportunity that may present itself. Below is a brief list:

If you wish to stay in debt only -

• Grindlay's Dynamic Bond Fund
• Templeton Floating Rate Fund
• Prudential ICICI Flexible Income Plan

These schemes have in built flexibility to tide over any change in trend in the debt markets. While the floating rate fund does this by investing in securities where the coupon rate is reset at regular intervals, the other debt schemes can choose to become more like liquid funds or short term funds in case the situation demands so.

If you wish to have an exposure to both equity and debt

• Prudential ICICI Dynamic Fund>

This one of a kind scheme has the flexibility of investing both in the equity/debt markets depending on where the opportunity lies. This way you get to can make the most of the opportunities that present themselves in either market.

A rapidly developing mutual fund industry does offer solutions to investors with varying risk appetite. Some of the funds listed above are a case in point. Investors need to make use of such schemes to help them stay on course to realise their larger objectives.

 

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