How take Mutual Funds in the 2012

2012 is likely to be a volatile year for the markets in general due to the ongoing Eurozone crisis. Rising inflation has been on top of agenda for the Reserve Bank of India (RBI) over the last 18 months due to stubborn oil prices and most recently depreciating rupee.

This prompted the RBI undertaking a tightening cycle in order to rein in inflation. The slow down witnessed in the recent GDP growth numbers which came in at 6.9% is a clear impact of the monetary tightening. We believe that over the next few months inflation would come towards RBI's target due to a slowdown in growth and consumption.

We believe that there will be no further tightening in the monetary policy as indicated in its recent review. Over the next few months with inflation cooling off we are hopeful of a cut in the interest rates by the RBI somewhere towards April 2012.

Given this background investors who are not currently willing to take any additional risks or increasing equity allocation would be better of investing in debt focused funds thereby taking advantage in the turn of the interest rate cycle.

Debt funds, invest in bonds and government securities with higher duration, hence a falling interest rate would increase the value of these bonds thereby resulting in an opportunity to earn double digit return by investing in such funds.

The following debt funds for investing in 2012
SBI DYNAMIC BOND FUND
CANARA ROBECO GILT PGS FUND
TEMPLETON INDIA LOW DURATION FUND

For the not so faint hearted investors we would also advice investors not to shy away from equity and continue with their SIPs. As the markets have corrected 21% we feel this is the time to continue investing in equity through a staggered fashion and accumulate more units in falling markets. Investors should diversify and add the debt component to their portfolio.

The following equity funds for investing in 2012 through the SIP route,
HDFC TOP 200 Fund
Franklin India Bluechip Fund
UTI Master Value fund

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