Mutual fund investors dump equities and buy gilts in January 2013

Mutual fund investors sold equities and opted for gilt funds in January 2013. According to recent data release by Association of Mutual funds in India ( AMFI), equity funds have seen net outflows of Rs 2,501 crore and gilt funds have seen net inflows of Rs 1,145 crore.

Gilt funds have seen highest monthly inflows in month of January as compared to any other month in FY2012-2013 till date. Equity funds continue to bleed in the current financial year, keep aside the month of May when there were net inflows of Rs 506 crore.

"Equity investors are exiting their investments as they see their investments going above their purchase price. Debt at the same time attracts investors, as it has given double digit returns in last one year while 10 year benchmark yield move down from 8.4% to 7.8%," says Abhishek Gupta, CEO, Moat Wealth Advisors.

He advises investors to go for both "accrual-driven mutual fund schemes and duration-driven mutual fund schemes."

Accrual driven mutual fund schemes include short term bond funds that focus on earning interest and limit their interest rate risks by investing in bonds with low maturity. Duration driven schemes however take the extra risk, by investing in the long term bonds, the prices of which move, along with the changes in interest rates.

In a falling interest rates regime, such schemes can offer capital appreciation to investors. Gupta advises taking exposure to equity through balanced funds, as the debt component can reduce volatility in the returns.