Skip to main content

Bonds are for risk averse investors


   The equity markets have gone up by almost 20 percent over the last six weeks, and are consolidating close to crucial levels. The markets are expecting a direction from the global markets for a decisive breakout from the current range. Since the markets are in a consolidation mode, investors are advised to review their portfolios and make the necessary changes in terms of profit booking, and cutting loss. Investors can also rebalance their overall investment portfolios with respect to investments in equity and debt instruments.

What is a bond?    

A bond is a debt instrument issued by the government or a corporate house to raise funds from the markets. A bond has a specific maturity date which can range from a few days to many years. Based on the maturity period, it can be a short-term bond or a long-term bond.


   A bond has a fixed maturity value. It is based on the type of bond. There may or may not be regular interest payments, known as coupon payments. Large institutions such as banks, mutual funds and foreign funds are some of the large investors in government and corporate bonds.


   Individual investors mainly invest in bonds taking the debt-based mutual funds route, or directly in corporate bonds or tax-saving bonds.

Who should invest in bonds?    

All investors should have some exposure to bonds. The percentage of allocation to bonds can vary based on the risk profile of the investor. Including debt-based instruments brings stability to the overall investment portfolio of an investor.
   Some bonds also qualify for tax rebate and hence their overall returns net of taxes become quite attractive.

Advantages of debt instruments    

Interest rates have reached their peak levels and expectations are the Reserve Bank of India (RBI) will go for some monetary softening, going forward. Investments in debt based instruments seem quite attractive from many perspectives such as capital preservation and risk returns ratio. Capital appreciation is intact even if interest rates go down in the future.


   Investors with a low risk appetite can reduce exposure to equity and rebalance the portfolio by investing in debt based instruments.


   Here are some options in bonds:

Debt funds    

These instruments are good options for investors with a low risk appetite. These funds invest in debt based instruments and government bonds.


   Therefore provide safety of principal with decent returns. These funds come without any lock-in such as bank fixed deposits. They offer quick liquidation and hence come in handy for those wanting to invest with a short to mediumterm perspective without any investment risk.


   Since interest rates are up, debt-based instruments are attractive from many perspectives such as capital preservation, low risk, high returns and the possibility of capital appreciation if the interest rates go down in future.

Liquid funds    

Liquid funds are good for investors who want to park their funds for a short term. These funds invest the corpus mainly in money market instruments, short-term corporate deposits and treasury. Liquid funds can be liquidated on a very short notice. Therefore, they score over other short-term deposits.

 
   Returns from bank fixed deposits are taxable depending on the tax bracket of the investor, which pulls down the actual returns considerably. Dividends from liquid funds are tax-free in the hands of the investor. This increases their effective returns.

Tax-saving bonds    

There are various bonds available in the market that qualifies for income tax rebate. These tax-saving bonds come with a lock-in period of five years or more. The returns from these bonds, including the income tax savings, are attractive for investors in higher income tax brackets.

 
 
---------------------------------------------

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 )

  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

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...
Read more

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...
Read more

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...
Read more

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...
Read more

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Read more
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