Tired of bear hug? Here is how to beat the market

Mumbai: Having made money in the five-year rally in Indian stocks, retail investors are now slowly turning to other asset classes and markets to boost returns, mutual fund officials said.

A 21 per cent drop in the benchmark index this year that wiped out more than a fifth of the net values of local equity funds is also making investors view diversification more seriously and invest in mixed asset and bond funds, they said.

Balanced funds, investing about 35 per cent of assets in bonds and the rest in stocks, mobilised Rs 194.40 crore in January — highest monthly inflow in nearly seven years — while bond or income fund assets doubled, data from fund tracker ICRA showed.

"That is a trend which is going to continue in a bigger way," Sunil Subramaniam, executive director of Sundaram BNP Paribas Asset Management, said.

"People will allocate more to debt from a desire to protect gains of the last few years," Subramaniam, whose firm aims to double the market share of its debt funds next fiscal, told Reuters.

Only 19 of India's 33 fund firms offered balanced funds at January-end but many more are likely to enter the fray soon. "In the long term, balanced funds will certainly merit far greater level of attention than they have in the past," Anthony Heredia, executive director, Morgan Stanley Investment Management Pvt Ltd, said.

Morgan Stanley, which launched its second fund after a 14-year gap, is now planning a balanced fund in the next six months, he said. Investors are also increasingly looking to diversify globally, making firms launch funds buying foreign equities, gold mining firms and real estate investment trusts.

Eighteen internationally-invested funds managed about Rs 1,019 crore at the end of January, four times more than the amount they held a year ago, when there were only two such funds.

DIVERSIFICATION NEED

Indians investors are not adequately diversified, said Vineet Vohra, chief executive of ING Investment Management (India), adding their portfolio is limited to a few stocks making them risky and huge cash making it tough for them to beat inflation.

Risk-averse Indians still park more than half their savings in bank deposits but the sustained stock market bull run has also made many opt for stocks in hope of superior returns. Shares and debentures made up 6.3 per cent of savings in 2006/07 as compared with 1.1 per cent two years earlier, as per data from the Reserve Bank of India.

Vohra said the time is now favourable to look beyond local stocks and diversify into foreign equities, real estates, bonds and gold. "Debt has about a fourth of the risk of equities," he said. "A portfolio with all four asset classes optimally combined would be more efficient and be better equipped to give an investor a good bang for his buck."