Skip to main content

Advantages debt funds - Help balance risk

   The core holdings in a debt fund are fixed income investments. A debt fund may invest in short-term or long-term bonds, securitised products, money market instruments or floating rate debt. The main investing objectives of a debt fund will usually be preservation of capital and generation of income.

 

   You should invest in both debt and equity. Investors should have a diversified portfolio. In the current market situation, should you invest in equity or debt? It is not advisable to put all your eggs in one basket. The portfolio should have a part of debt as well.

   Investors should have a mix of investment instruments in the portfolio so as to avoid risk, even if this may provide lower returns when compared to the booming stock markets. In addition to equity or equitylinked mutual funds, you should also allocate funds to fixed deposits and other small saving schemes. It is better to be risk-averse and sacrifice a part of the market gains.

   Debt funds are a good option. They give good returns and offer tax benefits. By investing in debt mutual fund schemes as a part of debt allocation, you get many advantages. Debt funds offer a superior riskadjusted proposition along with tax benefits.

   Fixed deposits are a popular option with conservative investors. They generally have a lock-in-period. A premature withdrawal by an investor involves a penalty. From an inflation adjusted perspective, fixed income mutual funds are a better option. Debt funds have a wide range of schemes offering something for all investors. Liquid funds, short-term income funds, GILT funds, income funds and hybrid funds are some.

   Depending on their investments in different instruments and maturity period, debt funds are classified as gilt funds (short-term, medium-term and long-term), income funds, short-term funds and ultra short-term funds. Gilts funds basically invest in government securities with different maturity periods while income or short-term funds invest in both government and corporate bonds, and other instruments.

   There are also ultra shortterm funds, which have an investment horizon of 3-6 months, invest in short-term papers such as certificate of deposits (CDs) and commercial papers (CPs). There is one more category called liquid funds or money market schemes. These funds are meant to provide easy liquidity and preservation of capital. These schemes invest in short-term instruments like treasury bills, collaterised borrowing and lending obligation (CBLO) market - an overnight borrowing and lending market for domestic financial institutions, CPs and CDs.

   The NAVs (a unit price) of these funds are directly linked to yield and hence likely to do better when interest rates are upward bound. However, the former categories are different from liquid funds. Their NAVs are directly linked to bond prices as they aim for capital appreciation and trading gains by trading in the bond market.

   Debt funds could generate better yields during economic growth, depending on the kind of scheme chosen by the investor. A fund invests in a range of securities leading to diversification of risk, an important parameter for an investor. Also, certain funds offer regular income schemes where interest is paid to the investor on his investments at regular intervals.

   The biggest advantage with debt funds is the many features. These include fixed income, tax advantage, riskreturn balance, and liquidity. The main advantages of debt funds are relatively lower risk, steady income, liquidity of investments, professional fund management expertise at low costs, besides diversification of portfolio to have a balanced risk-return profile.

 
   Debt funds also tend to perform better in periods of economic slowdown. They are an effective hedge against equity market volatility. They lend stability in terms of value and income to a portfolio. Some hybrid debt schemes take exposure to equity allowing investors to participate in the stock markets as well.

   Performance against a benchmark is considered to be a secondary consideration to absolute returns when investing in a debt fund.

 


Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

ICICI Prudential Value Fund Series I

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Performance of the scheme will be benchmarked to the S&P BSE 500 index ICICI Prudential Value Fund is a closeended equity scheme. The scheme will have tenure of three years (1095 days) from the date of allotment of units. Units of the scheme will be fully redeemed at the end of the maturity period, unless rolled over. NFO PERIOD:   The NFO is open from October 18 to 28. The minimum subscription during the NFO period is Rs 5,000. SCHEME OBJECTIVE:   The scheme aims to provide long-term capital growth by investing in a well-diversified portfolio of equity and equity-related securities. INVESTMENT STRATEGY:     The fund proposes to invest in stocks that are trading at a huge discount in the BSE 500 index and plans to book profit and distribute dividen...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now