Skip to main content

It is time to review your debt investment portfolio

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 

Debt funds have lost heavily after the RBI tightened liquidity. Here's what you should do with your debt investments

 

 As the Reserve Bank of India (RBI) brought down interest rates, his funds shot up almost 9% in just five months. However, a large part of those gains were wiped out when the RBI tightened liquidity in the debt market on July 15.

What lies ahead

With the rupee continuing to trade at around 60, the RBI's liquidity tightening steps may not end in a hurry. "The recent RBI measures may remain in force for a few months and yields may sustain at current levels till these measures are reversed.


In the worst case scenario, if the rupee continues to depreciate, the RBI may have to resort to more draconian measures that would hurt India's fragile economic growth. Several domestic and foreign brokerages have already cut India's GDP growth projections. Our current growth projection for 2013-14 is 5.6%, and the recent measures have increased the downside risk to it. Lower economic growth could result in FIIs withdrawing money from the equity market, where their investments are 10 times higher than in the sovereign debt market. The panic could then be more widespread.


The other, more optimistic, scenario being projected by market experts is that the RBI's basic monetary policy stance has not altered. Once the rupee stabilises (over the next 2-3 months), the liquidity tightening measures are likely to be withdrawn. Rate cuts could then follow after a gap. A focus on reviving economic growth should lead to lower interest rates across the yield curve in the medium term.

What should you do

Investors should either move to lower risk categories or stay put. Investors who can't digest volatility will be better off with short term and ultra short-term bond funds at this juncture.


The current fall in prices even spells opportunity. With securities in fund portfolios being marked lower now, the returns (via daily accruals) going forward will be relatively higher.


Experts are optimistic that investors will recoup their losses in due course. The losses that investors have suffered in their portfolios will be wiped out in the next 3-4 months. With interest rates having risen, debt fund managers will raise the average maturity of their portfolios. These will stand to gain whenever rates are cut next.


The advice to hold on to your long-term debt funds, of course, assumes that you have the necessary risk appetite and a holding period of at least 12-18 months. Let us turn to what your response should be in individual debt fund categories.

Liquid funds:

Do not redeem your liquid fund investments as whatever losses occurred after the July 15 tightening were likely to be temporary. Some retail investors who park their money in liquid funds for transfer to equity funds via systematic transfer plans (STPs) should also hold on.

Ultra short-term funds:

Though a decline in NAV dented historical returns, the return from this category should improve in the future due to the sudden jump in yield for maturity up to a year. Hence, investors should consider this as an opportunity to enter or increase their holdings.

Income funds (short-term and long-term):

This is the debt fund category that retail investors primarily choose. Since their portfolios have medium or long-term bonds, their NAVs took a severe beating. Several retirees park their money in these funds, especially in the monthly dividend option to get tax-free dividends. Many of these funds may not pay dividends for the next few months. Investors should shift out of the dividend option to the growth option and use systematic withdrawal plans (SWPs) to fund their regular monthly needs. The recent increase in dividend distribution tax (DDT) is another reason why they should do so.

Gilt funds (short- and long-term):

Though there is no default risk in these categories, the NAV volatility is the highest because government bonds are very liquid. The retail investors who entered these funds recently in the hope of gaining from falling interest rates would be sitting on losses right now. Investors should learn about the risks in these products and not invest in them based on hearsay or on the advice of someone who is not fully aware of the risks.


Exiting at this stage would mean big losses. Besides, interest rates may move down once the turbulence is over. Any rise in interest rates (and, hence, fall in NAVs) in the short term, if it happens, could even be an opportunity to invest an additional sum in long-term funds.

 

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

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

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

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund

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 Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund Tata Mutual Fund has decided to merge Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund, with effect from January 16, 2015.   Investors of Tata Indo-Global Infrastructure Fund can redeem/ switch out units from December 13, 2014 to January 12, 2015 without paying any exit load. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund A...
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