Skip to main content

Some Myths about Debt Mutual Funds

Experts say slight debt exposure better than an all-equity portfolio Having debt funds in a portfolio allows one to capitalise on equity market downturn

 
ONE of the biggest myths prevalent among people is that debt funds are not for retail investors. There are many myths associated with debt mutual funds, a category that is not as popular with retail investors as equity funds.

 

Myth No. 1: There is no risk in debt mutual funds: All investments carry certain degrees of risk. But on a comparative basis, one investment may be less risky than the other. This applies to debt mutual funds too

Even in debt mutual fund as a segment, income funds have some element of risk involved. However, income funds are less volatile than equities. Debt funds are linked to market movements in the money markets.


Myth No. 2: Those investing for the long-term (10-15 years) don't need debt funds in their portfolio: All investors need exposure to debt in their portfolio. It has been proven that a portfolio with some debt exposure actually outperforms an all-equity portfolio over the long run. Also, having debt funds in a portfolio allows capitalising on investment opportunities in the equity markets during a downturn. For example, debt funds offer good accrual returns over a period of 18-24 months. Monthly income plans are suitable for investors with two to three years horizon, while dynamic bond funds is good for investors who can spare 12-18 months. Fixed maturity plans are most suitable for conservative long-term risk averse investors, experts say.


Myth No. 3: Debt funds are only for institutions and HNIs: Most retail investors feel that debt funds are investments that demand large sums. While almost 75 per cent of mutual funds industry assets are in debt, this statistic shows how retail investors have stayed away from debt. They feel that r k these are short-term investments and not meant for retail investors. This myth is due to lack of education. Debt funds are essential for balancing any investment portfolio. MFs are primarily perceived as `stock s market' investments by retail investors. This myth y should be addressed by distributors.

Myth No. 4: Debt funds are `loans' given by the investor to the fund house: A loan and investment differ greatly. Debt funds are investments and not loans. The matter should be looked at in two ways.

Firstly, the investment is in units with dividend as well as growth options.

Secondly, debt funds don't pay any fixed interest.

The final returns depend on the coupons of the underlying securities as well as the market movement of these debt securities. The units in a debt fund give the investor an ownership in the fund, but a loan does not give any ownership to anything at all.

 

Popular posts from this blog

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.
Read more

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli
Read more

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis
Read more

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l
Read more

IDFC Premier Equity Fund dividend

  IDFC Mutual Fund   has announced dividend under the dividend option of   IDFC Premier Equity Fund Direct-D . The quantum of dividend shall be   R 4.3464 per unit.   The record date has been fixed as May 06, 2015. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in 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]
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