Keep Pace With Changing Times

For investors, looking to have a limited expo-sure to equities in order to enhance portfolio returns, debt-oriented hybrid funds continue to be the best bets. In this category of funds, Monthly Income Plans (MIPs) remain the most prominent options available to them. Needless to say, since these funds have exposure to equities, though a restricted one, investors have to face all the attendant risks of the stock markets. 

The world markets have been facing severe bouts of volatility ever since the beginning of the Eurozone’s financial crisis. Though a crisis of this magnitude is likely to affect our economy and the markets in some form or the other, the overall impact is likely to be limited and manageable. 

MIPs are basically ultra conservative balanced funds wherein the debt portfolio provides a steady return and the equity portfolio enhances the chance of improving overall returns. This asset mix, over a period of time, has the potential to provide returns that are more attractive than other options like fixed deposits and debt funds. At the same time, there is a possibility of fluctuations in the returns in the short-term due to certain market factors.

The general impression about MIPs is that these are best suited for investors who require regular income. No doubt, catering to regular income needs of investors is a major objective of these schemes.  At the same time, MIPs have the characteristics of providing multiple solutions. For example, for an investor who wishes to build his capital over a period of time, the growth option under a MIP provides the most ideal vehicle. The key, however, is to select the right fund in terms of exposure to equity. There are different variants of MIPs. A beginner will do well to start investing in those MIPs that have capped the equity exposure to say 10-15.

For investors opting against any equity exposure, how-ever small, debt and debt-oriented debt funds remain the only option. Here too, investors who aim to earn higher returns as compared to say short term debt funds, the investment strategy could involve either taking undue credit risk or take aggressive duration risk. Alternatively, investors who have a time horizon of at least 1-2 years can consider investing in a new breed of debt funds called Income or Credit Opportunities funds as these funds aim to provide higher returns as compared to short term debt funds without assuming significant interest rate risks. 

These funds assume significance in the current scenario wherein the interest rates are still quite low and the hardening of interest rates, which is likely to happen in the due course will have an adverse impact on a longer duration debt portfolio. To ensure protection from the volatility that could be caused by hardening of the interest rates, some of these funds adopt an accrual strategy. A rising interest rate scenario can contribute positively to an accrual strategy. 

Some of these funds aim to deliver better returns as compared to normal debt and debt-oriented funds by taking advantage of yield premiums through a portfolio of high yielding debt securities. These funds also seek to capitalize on the mispricing available within the credit spectrum without taking any aggressive credit calls. 

Then there are options of investing in the funds that offer a combination of fixed income and gold. Here too, in the current scenario, one should consider funds wherein the debt portion of the portfolio focuses on generating steady accrual income. The gold allocation in these funds aims to generate capital growth. In this category, there are funds that invest the gold allocation into select gold ETFs. 

Needless to say, taking help of a qualified advisor before investing in such funds can go a long way in making the right selection and getting the best results.