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Debt Mutual Funds to make money for you soon

WITH the Reserve Bank of India (RBI) easing its stance on cash reserve ratio (CRR) and ending open market operations (OMO) in Tuesday's monetary policy announcements, fixed income fund managers feel that yields of long-term bond will come down after witnessing a temporary spike.

This may mean that the temporary losses incurred by debt mutual fund investors on Tuesday may be reversed quickly. When yields go up, prices of the debt instruments go down and vice-versa.

Ten-year bonds that were trading at 8.14 per cent prior to the policy came off to 8.08 per cent following the CRR cut.

However, uncertainty on further OMOs has pushed up yields over 8.30 per cent. Expect the benchmark 10-year yield to trade in 8.15-30 per cent per annum range in the near-term. Tuesday's movement in the long-term bonds means that there will be a slight negative impact on investments. On a dayon-day basis, this is not good. But, this might be a short-term movement.

With the interest rates cycle likely to be reversed soon, investors must be in a position so that they can catch the up-move as well.

However, yields on the shorter-term instruments came down after RBI actions the yields at the shorter end of the maturity spectrum, particularly money market yields have come down by 25-30 basis points due to infusion of primary liquidity in to the system.

The entire yield curve to move southwards. Fund managers are of the view that it is important for investors to position themselves according to the type of instrument.

Investors with one to three year horizon must consider regular savings funds. At the same time, investors focusing on gilt funds should perhaps wait for the budget to get a better picture. We continue to believe that RBI will look to initiate a rate cut only in the next financial year.
 

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Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

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