Skip to main content

Tight monetary policy Policy - Debt Instruments good


   The monetary policy of the Reserve Bank of India (RBI) is used to control money supply in the economy which in turn affects the interest rates on loans. The major monetary policy actions include increasing the key interest rates and changing the availability of free money with banks using the cash reserve ratio. These actions directly and indirectly influence aggregate demand. Therefore, they are used as tools to stimulate or control aggregate demand in the economy.


   In India, the interest rates have been going up slowly over the last one year as the RBI is tightening the monetary policy. The inflation rate has been ruling high since the last couple of years. The RBI is using the monetary policy to control aggregate demand, to bring the inflation rate down. Due to the rising interest rates, debt instruments are finding favour as their yields have gone up due to the interest rates hardening. The rates on bank fixed deposits have gone up to almost the 10 percent levels. Therefore, risk-averse investors are increasingly looking at increasing their portfolio allocation to debt based instruments.


   These are some debt-based instruments in the market:

Saving schemes    

These schemes are completely risk-free. They are mainly offered by government agencies and banking institutions. Some examples are bank deposits, Public Provident Fund (PPF), National Savings Certificate (NSC) etc. The returns net of tax are attractive in most of these schemes as they offer tax benefits.


   However, most of these schemes are not very attractive in terms of liquidity. Usually, they come with a long-term lock-in period.

Debt mutual funds    

Debt mutual funds invest the corpus in risk-free government securities and top rated corporate deposits, and offer slightly higher returns than bank deposits. There are various flavours in instruments available in the debt mutual fund category. Liquid mutual funds are good for short-term needs, where you need to park money for a short duration.


   You can also look at investments in debt funds to save on tax.

Hybrid products    

There are many hybrid products on offer in the market. These products offer a balance of risk and returns. Some of these instruments offer a fixed percentage of allocation towards debt and the remaining is put in equity, with the option to change the allocation based on your needs and market conditions. Also, there are some innovative products in the hybrid category that guarantee the principal amount. However, the returns are linked to some equity-based milestones such as the Nifty index, returns from top five companies etc.


   These products are based on the derivatives market. You should understand the various terms and conditions before committing a large amount to these instruments.

Time to review portfolio    

Debt instruments are looking more attractive in the current market conditions as their yields have gone up due to the interest rates hardening. Although the nominal returns on various debt-based instruments have gone up significantly over the last few months (especially on short and medium-term schemes), the real returns (returns after factoring in the rate of inflation) still work out to be quite low.


   On the other hand, volatility and stretched valuations in equity and equity-based instruments have tilted the risk-returns equation towards risk, and the real returns (inflation adjusted yield) have come down on these instruments as well. Therefore, it is important for you to review various aspects of your investment requirement (objective, horizon, risk appetite etc) and take a decision on investing to ensure a balance between risk and returns.

 

Popular posts from this blog

Axis Mutual Fund NFO - Axis Fixed Term Plan Series 18

Axis MF has announced that the NFO period of Axis Fixed Term Plan Series 18 (15 Months) under Axis Fixed Term Plan Series 17 19 has been preponded from February 27 to February 24.        --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDFC Tax Advantage (ELSS) Fund SBI Magnum Tax Gain Schem...

Budget 2014 Highlights for Saving

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

Franklin India Taxshield

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   This fund maintains a quality portfolio of large-cap orientation. The fund manager adheres to a bottom-up investment approach and looks for companies whose current market price does not reflect future growth prospects. Investments are in companies that can drive future earnings growth. Stocks are selected based on the company's financial strength, management's expertise, growth potential within the industry, and the industry's growth potential.   The portfolio is well-diversified across sectors and market capitalisation and follows a blend of value and growth style of investing. The fund follows a predominantly large-cap allocation of over 70 per cent, with small-cap allocation never exceeding 10 per cent since inception.   Performance The fund doesn't dev...

ELSS Funds for different Risk Profile

Match your Goals Risk Profile With ELSS Investment   DIFFERENT TRACKS Unlike funds with a clearly defined investment universe -- large-cap, mid-cap or multi-cap - Tax Saving Schemes do not specify investment focus If you are looking for an equity Linked Savings Scheme (ELSS) to pare your tax burden, the plethora of options may confuse you. Many investors simply opt for ELSS funds , also called tax saving schemes with the best return over a certain time period. However, this may not yield the best results. There are several types of ELSS funds and it requires a nuanced approach to pick the right one. DIFFERENT RISK PROFILES Unlike funds with a clearly defined investment universe -- large-cap, midcap or even multi-cap schemes in the ELSS category do not specify their investment focus. While these schemes have the flexibility to invest anywhere, most tend to follow a defined template. For instance, some funds take a distinct large-cap tilt with a limited exposure to mid or small-cap st...

Reliance Tax Saver Fund Online

Invest in Reliance Tax Saver Fund Online   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a mis...
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