Skip to main content

Medium term accrual debt funds a superior alternative to FMPs

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 


Accrual funds are those debt funds which hold short- to mediumterm debt instruments in the portfolio. By investing only in safe and highly rated instruments, fund managers in these funds minimize the credit risk of the portfolio.


When adopting an accrual strategy, the fund manager typically looks for shorter maturity securities that provide good interest yields. Because these funds don't seek to earn income by buying and selling bonds, the strategy is protected from high volatility. The focus is on getting returns through high accrual of interest on the securities that the fund holds.


You will often find accrualbased funds having an average maturity of anything between one and three years. When interest rates are rising rapidly, the fund manager will seek to keep average maturity closer to one year which not only safeguards against interest rate risks, but also helps him/ her reinvest maturity proceeds at more attractive levels.


Conversely, in a falling interest rate environment, the fund manager will also make a subtle shift in the fund's stance by going all the way up to three years maturity. This allows the fund manager to earn moderate capital gains when bond prices rise in response to fall in interest rates. The capital gain helps offset the reinvestment risk that the fund runs in a falling interest rate environment.


Accrual-based strategies offer very high predictability in returns and can be selected even for the most conservative investors. Also, accrual strategies can remain relevant for long periods of time, and need not necessarily be reviewed by you at different stages of the interest rate cycle.


Since the medium-term debt fund on an average delivers around 9% yearly return, which is broadly in line with the inflation index under the Income Tax Act, it results in zero taxable capital gains and hence almost nil tax on earnings from such funds.
The following reasons make these funds a superior alternative to fixed maturity plans (FMPs):

Flexibility/better tax efficiency:

FMPs are for a fixed period of time, at the end of which the investment gets automatically redeemed. In case of any adverse changes in tax laws, one cannot extend the holding period. Since the mediumterm accrual funds are open ended, one can always take advantage by postponing the redemption in line with the changes in the tax laws. For example, investments in oneyear FMPs today will mature in August next year and will thus attract indexation. However, if the new Direct Taxes Code (DTC) gets implemented from next year, all the one year FMPs (growth option) maturing next year will deliver taxable returns, since the DTC is expected to change the definition of 'long term' from one year to one 'financial year'.

Liquidity:

Open-ended debt funds allow you to provide for any emergency, or take advantage of any investment opportunity that comes across, since redemptions in these funds are possible any time with the pay out in your bank account being realised a day after the redemption request is accepted. But here some exit loads may apply, which normally kick in if you exit within a year of your investment. Whereas, in an FMP your money gets locked-in for a fixed period and exit is almost impossible.

Regular or systematic investment:

You can invest in accrual funds whatever surplus amount you have in these funds, which could either be a lump sum investment or systematically every month (like bank recurring deposits but with better tax efficiency and ease of transaction).

Regular income:

In case one needs regular income, there is always an option of systematic withdrawal (the most tax-efficient way of taking out income from debt funds) in these schemes.

Capital appreciation:

In openended debt funds like these, fund managers generate some additional returns by periodically realigning the portfolio in line with the interest rate in the economy. Similar additional returns are not available in FMPs.

For all practical purposes, these schemes work like FMPs only. The idea behind these schemes is to maintain the positive features of an FMP, and eliminate the negative features. 

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

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...
Read more

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...
Read more

NPS Investment Choice for Safe Investors

Invest NPS Online       Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...
Read more

Buy Health Insurance Plan even if you are covered with my Employer

Buy Health Insurance Plan Online Yes, getting a private insurance cover now, which extends beyond your retirement age, is recommended There are a few reasons why buying a health insurance plan may make sense even though you get medical insurance from your employer. Here are the points you need to think about. Firstly, your employer's insurance coverage will only protect you as long as you are employed with the company. The policy will terminate when you quit the job or when you retire. Post retirement is perhaps the phase when one needs it the most but you won't have it then. Moreover, buying a new insurance policy after the age of 50 means that there will be no coverage for pre-existing diseases.   Lastly, health insurance policy you get from your employer may or may not cover your dependants. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver M...
Read more

SBI MAGNUM MIDCAP ONLINE

Invest SBI MAGNUM MIDCAP ONLINE   SBI MAGNUM MIDCAP fund didn't fare well in its initial years but, in recent years, has steadily improved its performance under the capable hands of its current fund manager. Although investing predominantly in mid-cap stocks, the average market capitalisation of its portfolio is lower than other category peers.   Although the stock selection approach is mostly bottom-up , the fund manager doesn't shy away from taking bold sector bets , as is reflected in its large exposure to the healthcare sector. She is equally adept at handling performance across market cycles--the fund has captured more of the upside during market upticks and contained the downside during downturns in a better manner than its peers.   Given its superior risk-reward equation, the fund is a worthy pick in its category.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing EL...
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