Skip to main content

Debt Fund Investors Should Plan to invest for Long Term

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 

Despite a marketwide unanimity that the Reserve Bank of India (RBI) in its policy review meeting of September 4 will maintain a status quo on key policy rates — the repo and reverse repo rates that determine the rate of interest in the economy — the central bank under a new governor raised rates. RBI also shifted its focus from targeting wholesale inflation (measured by wholesale price index, or WPI) to retail inflation (measured by consumer price index, or CPI). The twin moves led to a rise in the rate of interest in the economy, fall in bond prices and hardening of yields (bond prices and their yields are inversely related). What is worse is that since RBI is targeting CPI rather than WPI, which was the norm earlier, there is rising expectation that it will raise rates again in its monetary policy review meeting later this month.


For investors who are relatively risk-averse and invest in debt instruments (also called fixed income instruments), this is a moment of uncertainty. This stems from the fact that when there is a chance of rate of interest going up, yields rise and bond prices dip, leading to losses in the portfolio of bond investors. Since mutual fund schemes hold various fixed income instruments in debt funds, the fall in bond prices also pulls down their net asset values (
NAVs), leading to losses for investors in those schemes. So the question for debt fund investors is how they should behave in such times.


According to financial advisors and planners, mutual fund investors, whether investing in debt or equity, should always have a long-term approach, which is 5, 10, 15 years or more. So they should not panic or jump to rejig their portfolio just because there is come uncertainty about the rate of interest in the economy at present. Investors should not rush in to take advantage of the interest rate volatility. In other words, investors should not try to time the market and play the rate of interest game.


They should plan for the long term and invest in instruments which give about 8-9% return annually. This is because for long-term debt investors, the intervening rate volatility does not matter much. What matters more is the credit risk they would carry in their portfolio while investing for the long term. Credit risk is a dynamic factor and any risk of downgrade of the debt instruments should be kept in mind while investing for the long term.


The credit risk in a debt instrument is important because in the bond market, if a bond is downgraded then the price of that bond falls because less number of people want to hold that instrument in their portfolio. The reverse is also true: An upgrade in credit rating leads to a rise in prices of that bond. So it's important to invest in the fixed income instrument of companies with history of stability, a long history and also a track record of stable cash flows. There are quite a few companies which meet all the three criteria and debt investors, who prefer to invest directly, should look at such companies.


A recent research by HDFC Securities pointed out that generally, the prices of the lower rated debt instruments fall the most during periods of high uncertainty over direction of interest rate movements in an economy in comparison to the highest rated debt instruments. Consequently, mutual fund schemes which have allocated most to these securities see depreciation in their NAVs and end up with lower or negative returns.
However, the report also pointed out that in the last two years, interestingly, debt mutual fund schemes that have invested maximum of assets in "
AA & below" rated debt securities outperformed the schemes that hold maximum in "AAA/A1" rated debt securities in the last two years. AAA-rated bonds are the highest rated debt instruments which carry lowest amount of risks while anything rated below has higher risks of investment.


Financial planners also say that if a debt investor invests for the short term, say for a year or two, then he/she will have to carry large price risk as well as re-investment risk with portfolio. Price risk means if there is a downgrade or a rise in the rate of interest in the economy, the price of the debt instrument will fall, leading to a loss in the portfolio. Re-investment risk is the risk of getting a lower rate of interest when the debt instrument in which the investor is currently invested matures and the money received at maturity has to be invested in other debt instruments that pay rates lower rate. For example, some of the better debt mutual fund schemes are poised to give about 9-9.75% return for one year investments. However, if after a year the best of the ones are set to pay about 8%, the investor will have to settle for the lower rate.

 

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

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...

Perpetual SIP - Its Advantages

Retail investors have taken a fancy to investing in mutual funds through systematic investment plans (SIPs). As per industry estimates, Rs 4,000 crore flows into SIPs every month. One way to take advantage of SIPs in a true long-term manner is to opt for a perpetual SIP 1. What is a perpetual SIP? In an SIP , you make periodic investments in a mutual fund scheme of your choice generally every month for a pre defined tenure. While signing up an SIP mandate , you have the option to leave the end-date column blank. If the column is blank, it means the investor has opted for a perpetual SIP . Most fund houses assume this SIP will continue till December 2099 unless you give a written communication to stop it. However, some fund houses require you to tick the `perpetual option'. 2. What are the advantages of perpetual SIPs? Registering an SIP involves a lot of paperwork and it takes time. It is observed that many investors skip their SIP instalments when they go for short-tenure option...
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