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Income funds: Proceed with caution

Sep 11, 2001

Most income fund investors could not be happier with their investments. However, going forward, investors need to be a little cautious. Nothing lasts forever, and there is no reason to believe that the current Ďbull runí in income funds (debt and gilt) is going to change that. The last few months have been witness to an amazing run-up in bond prices. This has been a welcome relief to investors who didnít know where to look in face of the serial financial crises (Ketan Parekh stocks, US-64) that hit capital markets. Income funds have provided that much-needed solace and have served to fill the void to a large extent.

PNB DEBT FUND (G) 14.0 1.0% 8.7% 21.0% 16.4%
PIONEER ITI INC BLD (G) 17.4 1.2% 9.1% 18.5% 14.1%
K BOND WHOLESALE G 12.8 1.2% 8.1% 18.5% 14.7%
IDBI PRI DEP BOND G 12.0 1.3% 8.4% 18.3% 17.9%
GRINDLAYS SP SAV G 11.9 1.2% 8.5% 18.1% 17.7%
(Returns over 1 year are annualised)

Most fund houses have already cautioned investors of lowering their expectations as their fund managers are unlikely to be able to repeat the performance over the next few months. The economic scenario isnít really encouraging and as the industry and the Reserve Bank of India (RBI) root for a lower interest rate regime, income fund performances will adjust to a lower level. Investors who are already invested should view the current performance of their funds in this light.

However, under the current economic scenario and given the superiority of income funds in terms of tax efficiency, liquidity and returns, frankly right now there is no instrument that gives income funds any serious competition. Investors can continue looking at income funds although they need to get a little more realistic and not expect the moon.

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