For this part of the portfolio, you need to have a personal yardstick which you may aim to better with your investment in a debt or debt oriented fund. This may, for example, be the returns that you have been getting from some of the traditional investment options like deposits, bonds and small savings schemes. To achieve this in the year 2010, the key would be to manage credit and duration risk.
Going ahead, inflation as well as the subsequent movement in the interest rates are going to be the most influential factors for this part of the portfolio both in terms of selection of instruments as well as their performances. While, one may debate about how quickly interest rates will start moving up, there is no doubt that interest rates will increase from here.
Hence, you may be better off either focusing on short term bonds funds for another couple of quarters or invest in floating rate funds. Thereafter, debt funds and FMPs will have a role to play in investing long term funds. For those who do not mind some exposure to equity in order to get better returns than pure debt and debt oriented funds, MIPs will continue to be a good option for at least 1-2 years time horizon.
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