Short Term Mutual Funds- The saving grace amidst all the confusion

I was just going through the Economic Times website for some new scoops to write about this morning when my eyes fell on this rather interesting article, to say the least. The article stated that in case you had invested your money into liquid mutual funds scheme some six months ago, then the right time has to reap the benefits was now, since statistics show that the last six months have depicted an average rate of return close to 4% on the investments in short term money market instruments. The analysis was conducted on 14 different types of open-ended mutual fund schemes which are continuously opened for subscription and redemption purpose.

It is normally seen that liquid funds offer lower returns as compared to other avenues. This is mainly due to the reason that these funds are available at low degree of risks. Linking to the soaring interest rate regime, short term mutual funds topped the charts in terms of offering positive returns. Next came the 'debt and debt (income)' mutual funds, with the only other scheme yielding positive returns in the last six months being the GILT funds, that invest only in government securities of different maturities.

Let's take a look at the general scenario over the past few months; funds that are exposed to equities haven't performed that well since the stock market crash in January. The average six month returns of equity funds (278 schemes) stood at (-)9.59% while the same for Exchange traded funds, Balanced Funds, Sector Funds and Index funds ranged between (-)16% to (-) 19%. Monthly income plans (MIP) funds, designed to give regular rate of return to the investors, have also done reasonably well when compared to equity linked schemes.

So where does that leave the investor? After considering all the above-mentioned factors, would he still be willing to risk his savings in the stock market for a mere increase of 4%, which can easily be had by any FD (add to that the reassurance of not losing out on any money)? I really don't know. Because the way things are going, it really seems like 2008 is going to be a very difficult year for the Indian economy. My advice : Put money in stock only if you are a long term player, and figure something else out for your short term needs, if any, because the Sensex is definitely not in the giving mood these days.