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Consider mixed asset investments for year 2012

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AT THE start of every year, there is a question mark about the performance of various mutual funds during the year.

There is always a doubt as to whether this will be the year of equities or whether it will be debt that will perform well, and it is next to impossible to know this at the start of an investment period.

When there is so much uncertainty, there is a need to take a careful look at the overall position, and for many mutual fund investors, it could be mixed asset investments suiting their requirements. Here are some of the choices that could meet their needs.

Monthly income plans (MIP): One of the routes that will be visible in the mixed asset investment is that of the monthly income plans that are available from mutual funds.

There is a very small percentage of equity present here in the portfolio of the fund; thus, the equity impact will be marginal. This is meant for all those investors who have a firm belief that the interest rates will keep reducing during the year and there will be a rally in debt that will help a large part of the portfolio.

At the same time, the role of equity is marginal.

So, even if there is a small improvement in equities, this will reflect in a good position on the overall portfolio. This investment is not just meant to provide a regular return, but it will bring the benefits of both equity and debt together and is suitable for extremely conservative investors.

Conservative hybrid: Another category of funds suitable for many investors is the hybrid category where there is a predominance of debt in the portfolio with a significant equity component. The equity component can go up to 35 per cent, which is quite high. This is present for several hybrid products that are meant for the medium to long-term time horizon, as this kind of debt and equity mix will help in construction of a stable portfolio to help investors gain from the situation.

The main use of such a portfolio is to plan for future events, where a certain basic corpus will be available so that there is confidence that capital is building up towards specific goals. The base is protected through the debt investments, while the equity component would be used to generate additional gains. This is meant for long-term investors who can afford to take some higher amount of risk.

Balanced funds: For those who consider balanced funds as an equal mix between equity and debt, there is a need to rethink the situation, because the reality is anything but this.

If there is a view that the coming year will see a strong return of equities in terms of performance, then the option that the investors should be considering is balanced funds. This will ensure that there is a larger exposure to equities and then this is used along with debt to generate a strong rise in the portfolio.

In case of these funds, there is a very small percentage of investment in debt, usually less than 30 per cent, so the amount that is being influenced by debt is small to the extent that the impact is not going to be much. With the large equity component, the manner in which the fund manager constructs this part determines exactly how these funds behave.

Some balanced funds have even beaten equity diversified funds during many equity market bull runs. This is meant for those investors who are willing to take high amounts of risk, and hence, they would not be affected even if there was a drop in the values, in case the intended situation does not turn out as expected.

 

 

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