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Though the excitement of direct investing cannot be matched by mutual funds, adopting the fund route works better for most investors as they get to benefit from the expertise of fund managers, Sandeep Bagla, CEO, TRUST AMC, said in an interview with Money9.

What is your view on inflation and interest rates going forward?

In India, we moved away from targeting Wholesale Price Index (WPI) to Consumer Price Index (CPI) a few years back. While WPI was unpredictable, there was some lagged correlation with the broad commodity prices. In case of CPI, approximately 50 percent weightage is given to food and 30 percent is given to services.  Globally, commodity prices, including food, are climbing higher, but the central bankers believe that the inflation is transitory, implying that monetary conditions will not be required to be tightened in the foreseeable future. Given the wide output gaps and absence of wage inflation it is probable that growth impulses could return without stoking the inflationary fires any further. RBI is unlikely to signal any rate hike/normalisation in the near future. Market yields may go up if participants start believing that inflation is stubbornly entrenched, and is unlikely to come down without heavy RBI action.

With interest rates at multi-year lows, return on debt is minimal? Where should fixed income investors invest their money and why?

Given the steepness in the 1-3 year segment, it appears that a few interest rate hikes are built-in by the market in those segments. Short term funds and Banking & PSU Debt funds with up to 3 year maturity offer optimal risk reward trade-offs. Any options with higher maturities carry interest rates risk which could reduce returns substantially when yields go up and floating rate funds will at best earn slightly higher than liquid funds. Credit funds have lost their mojo, and may make a comeback once credit spreads are at a reasonable level.

So far you have launched three bond funds. When will you launch equity funds? Why is there a hesitancy to launch equity-oriented products?

All our funds offer differentiated options bringing tangible benefits to investors. The Banking & PSU Debt Fund is a roll down structure with residual maturity of 3 years, the TRUSTMF Liquid Fund invests in only companies with stable, large AAA companies and the Short Term Fund is a AAA fund with Macaulay Duration between 1.5-2.5 years.  Our approach is structured and transparent. We have tied up with CRISIL to make our investment process more objective. Once we have finished with our fixed income offerings, we will come out with our equity offerings as well, all in good time. We would prefer to offer products that are well structured and process driven to bring in greater consistency and predictability.

The stock market has had a phenomenal run. What is your view on where the market is headed? Are equity markets overvalued?

It is difficult to predict whether a market is overvalued at any point of time. There have been significant productivity gains for larger companies and the demand is not showing signs of weakening so far. Easy monetary conditions have been known to raise all boats in the past as well.

What according to you is the best strategy that equity investors should adopt at this point?

Periodic rebalancing of portfolios could be adopted to ensure balance between equity and debt allocations.

Many investors, including those investing for the first time, are trying to go for direct investing instead of going through mutual funds. How do you see this trend?

It is always better to go through mutual funds where one can hire some of the best minds to work for them at fees as low as 1-2% of your corpus. However, the excitement and adrenaline rush of direct investing cannot be matched by mutual funds. If one were to objectively assess performance of individual skills versus the consistency of fund managers, the results will be quite clear and evident, in favour of professional investment managers

Stock IPOs are getting oversubscribed many times. How do you see this trend and what is your advice to investors?

There are no reliable models that can rate IPOs and that is for a reason. Equities are volatile, incomprehensible to laymen and at times whimsical. Liquidity leads to all kinds of excesses and the oversubscriptions seem to be more indicative of excessive liquidity, rather than the superior quality of companies on offer.