Lakshmi Iyer, Senior Vice President & Head (Fixed Income and Products) feels that duration funds and dynamic funds could work well for investors.
Would you recommend investors to
invest in Gold Funds at this juncture given that some fear that there will be a
fall in gold prices? If yes, what percentage of the investor’s portfolio should
be in gold?
We believe that value of key global currencies (Euro or Dollar) may come under supply pressure since their governments may spend their way out of the current economic crisis sooner or later. As a consequence, institutions would continue to increase their allocation in gold to hedge against loss of value. However, it would be speculative to time the market for short-term momentum play.
To answer your second question, a portion of investment in gold is advised. The proportion of allocation is dependent on the investor’s appetite. Given the short term vagaries, SIP is better suited to accumulate gold investment. This will help in averaging the cost of acquisition while creating long term capital.
The government has tried to discourage gold imports. It is also considered to be an unproductive asset. Does one look at gold from investment perspective or to hedge against inflation?
Gold buying in India is largely a cultural behavior, enmeshed with conservative economic viewpoint. We believe that monetizing gold would be more fruitful. Indians look at gold through multiple lens and investment and hedging perspective is one of them. We believe that gold should be looked as an insurance cover on one’s investment portfolio to ride through the uncertain financial markets
What is your outlook on gold?
We maintain an optimistic outlook on gold. The expanding currency circulation, globally coupled with declining investment opportunities in traditional investment avenues would see gold attract larger investments. The increasing allocation by the central bankers to protect their forex reserves may also drive-up gold prices. However, in the last few years, bulk of the return to Indian investors has also accrued due to Indian Rupee (INR) depreciation apart from rise in dollar price of gold. We expect range bound movement in INR with an appreciating bias in medium to long term, thereby offsetting the dollar price rise in gold. That would be the caveat to watch out for.
How are you seeing the demand for your gold fund?
Gold fund is a good medium to attract gold investors to invest through paper route. Given the nature of a mutual fund scheme, gold fund has been able to successfully channelize disciplined investments in gold through the SIP route. We have seen a substantial growth in folios as also AUM since the launch of the fund, which is really encouraging. That also signifies high investor acceptance for Kotak’s Gold schemes. We believe that this momentum would continue and increase as more and more investors realize the convenience and tax-efficiency of gold purchase through this route vis-à-vis the physical horde.
How do advisors/investors choose the best Gold ETF?
Gold ETF is an investment in gold through a direct mutual fund route. Naturally, an ideal fund would be one which completely reflects actual gold’s performance for the investor. Thus, it is the Gold ETF with the lowest tracking error (minimal deviation from Gold price) that is ideally recommended. Moreover, ETFs that have reasonable liquidity on the Exchange also would be useful.
On the fixed income side, what is your advice to investors at this juncture? Which category of funds look attractive and what time horizon would you suggest?
The visible deceleration in the GDP growth (8% last year to around 5.8% in the current quarter) implies that growth would increasingly become a policy priority in the coming period - something that RBI has hinted amply in its recent policy statement. We therefore believe that repo rate cut is inevitable; what is not foreseeable is its timing. From this stand point, duration funds seem more viable. Investors with an investment horizon of 1 year or more can look at duration funds, which provide an opportunity to ride the interest rate curve.
Should investors consider dynamic bond funds which have better flexibility to ride interest rate changes?
Markets are likely to remain in a trading zone, albeit, with the trajectory of interest rates headed lower. Hence actively managed strategies could potentially work well in this kind of a market scenario. Also, these funds allocate funds between sovereign and corporate bonds based on view, thereby attempting to capture any rally across the fixed income segment. Investors with 1 year plus investment horizon may consider this option.
