1.) Take Exposure into Income Funds: The Current scenario makes it a good time to take some exposure into Income Funds. With G-Secs hovering above 9% mark allocation into Income Funds might prove a decent bet for a horizon of 18 to 24 months.
Rationale:
RBI has been determined to fight inflation and the huge volatility in the currency. First it squeezed the liquidity by raising the MSF. Then it has been on a rate hike spree from the last two times. Even though the differential between the MSF and Repo was brought down to 100 basis points liquidity in the market has been an issue. Inflation has been moving northwards, Oct CPI was above 10% mark and WPI above 7% making it difficult for RBI to bring down the rates. Moreover FII's have been net sellers of Indian Government Securities. This has led to a steep rise in Bond Yields since June 2013 with yields crossing the 9% mark. It needs to be seen on how RBI comes out with its policy in Dec 2013.
Over the next 12 - 18 months I see the rates coming down as slow growth of Indian Economy is a key concern. High Interest scenario shall not be favourable to push the growth and sooner of later RBI will have to bring down the rates to regain the growth momentum.
This downward scenario of rates shall be extremely favourable for investors with exposure to Bonds / Income funds as they stand to benefit the most. (Remember Bond Prices are inversely proportional to Interest rates.) Hence with G-Secs hovering above 9%+ mark it becomes a lucrative option to take some exposure in Income Funds.
2.) Equity Exposure SIP and Lumpsum: For Risk averse Investors SIP remains the best mode irrespective of time. For those who are willing to take risk upto a certain level Lumpsum investments can be done in Small and Mid Cap Funds.
Rationale:
SIP investments can be done anytime as they average out your costs. But for Lumpsum Investments are Markets at 21000 a good investment bet. Well equity has been a favourite for Investors in India during rising markets. Many would happily invest assuming that Markets will go up further.
At 21000 the belief is widespread that there is a lot of value in Indian Markets. The sudden upwards movement of Indian Equity market is primarily driven by handful of Bluechips which have witnesses significant buying from FII's. At these high's still 90% of stocks are trading far below their book values (Especially Small and Mid Caps) suggesting a strong underlying value in Markets. Hence some Lumpsum Investment into Small and Mid Cap Funds can prove to be a good bet. Suggested Horizon: Min 5 years. Warning: Be prepared to withstand the volatility and donot panic as the NAV might fluctuate significantly during bearish phases.
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