 "With double-digit inflation, equity investment only option: Jaideep Bhattacharya")
Redemption pressure in equity funds has continued, despite regular increase in assets under management. What is your take?
If we look at the last five-year trend, most of those who entered in 2006 or 2007 had made losses. Now, the fund values are at par and, therefore, people have opted for redemption. However, I think the redemption pressure has peaked. People who had to exit or book profits have already done so. I expect a steady flow of money coming into equity funds.
Further, if we look at the US data, there has been a substantial shift and people are moving into the equity markets. I think India will see a similar trend. Also, on the positive side, a lot of money is coming into the debt segment. Investors have merely moved out of equity into debt-oriented schemes. So, whereas equity folios have fallen, debt folios have increased.
How should investors approach equity funds and how important is it to invest in these?
People should understand that investment should be based on goals. Also, investments should be for a longer period of time. One cannot time the market but one's time-frame and goals should be clear. Equity funds give returns, but, over a period of time. There is no choice beside investing in equity, looking at double-digit inflation.
Which segment, according to you, is seeing good traction?
I see good traction in the Systematic Investment Plan format. It is positive and also coming from other than the top 15 cities. People are coming with a matured way of regularly investing in a long-term goal such as children's education, retirement plans, etc.
So, how should investors manage/build their portfolios in the current markets?
Every Indian should have investment in equity, as well as gold, based on their risk appetite. If one is around 25 years of age, 70 per cent of the investment should be in equity and the rest in fixed income products. As one reaches 60 years of age, 20 per cent in equity, 10 per cent in gold, and the rest in fixed income. Around 30 per cent should at anytime be invested in equity and gold. No fixed income product has been able to match the returns of equities. Today, you don't have the choice of too many asset classes that can beat inflation.
How do you look at investment in other funds, such as gilt funds, etc?
Gilt funds as a category is seeing traction but retail investors are not so polished as to take interest rate calls or duration calls and, hence, they are a very small part of the portfolio. Also, as a category, they are not movers or shakers and investors are looking at simplified products.
Is the Rajiv Gandhi Equity Savings Scheme helping to drive investments?
It is a wonderful investment scheme and a great opportunity for retail investors to come into the market, particularly for first-time retail investors to come in with a tax benefit. This will help get a larger penetration. Tax has brought a lot of pull factor. And, it is over and above the benefit from ELSS schemes. This year, we are also seeing a lot of traction in ELSS.
How do you see the equity markets panning out?
The environment is becoming conducive. The first few weeks of February have seen $4 billion (Rs 21,600 crore) of foreign inflows. If we look at domestic institutions, mutual funds have become positive and are investing in the market. From the retail investor perspective, valuations are at a historical average. The Asian markets' valuation is also nearing about 13.9 times and so, they are also in the attractive zone. I feel with the easing of interest rates across the world, India will continue to attract investments.
Some of the retail investors are also waiting on the sidelines. The concerns on inflation are also easing; core inflation is at a three-year low. The concentration has also shifted towards growth. All these should boost the market.