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Neha Kapoor

MUMBAI, Sept. 3

MAKING an investment decision is no cakewalk. And, current market conditions certainly haven't made the process any easier for retail investors.

Take, for example, a decision of whether to look at debt or equity offerings of a mutual fund at this point in time. With double digit returns from debt schemes being relegated to history and equity markets refusing to budge from their current state of inertia, a perplexing situation confronts investors.

There is a school of thought that says there will be natural transition to equity investments given the current interest scenario and less than attractive returns from debt schemes. Though most fund managers agree with this line of thinking, they are quick to add that this shift will be a gradual one.

According to Mr Gul Teckchandani, Chief Investment Officer, Sun F&C Mutual Fund, "the move from debt to equity is a function of risk taking ability of each investor. The return from debt schemes is definitely going to be in single digits rather than double digits. Further, the alternative investment opportunities e.g real estate and gold do not promise significant upside."

"With the manufacturing sectors, particularly automobile, showing good growth and the tech sector also showing signs of revival, it is likely that the investment surplus would move to equity," Mr Teckchandani says.

"Although, in the short-term the risk appetite for equity products is rather low for most investors, it is a matter of time before investors begin assessing the relative return potential of equity products, particularly in a low interest rate environment," says Mr Rajiv Vij, Regional Head-India, Middle East and Eastern Europe, Franklin Templeton Investments.

Mr S.V. Prasad, President Zurich Mutual says that the debt schemes haven't lost their charm as yet. "Even though returns from debt schemes will not be as dramatic as they were last year but the general feel is that interest rates will remain soft. As for equity markets, there is still some uncertainty. Also people are looking at how the US story unfolds."

"On the whole, equity markets have seen some interest and ideally investors should look at equity right now as the valuations are low. But what is actually happening is that there is a fair share of interest in the debt market. For Zurich itself, though our equity assets have grown this year, debt assets have grown faster," he adds.

So what do experts recommend for a retail investor who has say Rs 10,000 worth investible funds? Equity is the preferred destination for Mr Teckchandani who says, "my advice would obviously be predicated on the back of his risk taking ability. However, if return is the only criteria, then, in our opinion, equity will give better returns in the current financial year."

Mr Prasad suggests that investors first exhaust various fixed income options such as PPF, post-office savings etc. before venturing into mutual funds. "Even so, investors should first come into debt schemes and then move on to equity schemes. And the rationale behind this is that if an investor happens to come to equity at the wrong time and burn his finger, he will run away and it will be that much more difficult to get him back. This is what happened after the 1993 mutual fund IPO boom and the tech boom and, as a result, even now retail participation is happening mostly at the high net worth individuals (HNI) level."

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