Skip to main content

Medium and Long Term Debt Funds

 

In the last few months, as the Reserve Bank of India went on cutting rates, mostly surprising market players with mid-policy decisions on rates, debt funds with longer duration came into the limelight. This is because in a falling interest rate scenario, medium and long term debt funds stand to gain from capital appreciation. As yields fall because of the lower rate of interest in the economy, prices of bonds would rise which, in turn, would lead to capital appreciation for the funds holding bonds with maturities of 1,2,3... years. Change in the rate of interest, however, usually does not lead to much price appreciation for bonds of shorter duration. In the mutual fund industry, usually debt funds which aim to take money from investors who have an investment horizon of between one and three years are categorised as medium-term funds. On the other hand, those funds which aim to take in investors with a horizon of more than three years are categorised as long term debt funds. Fund industry officials say about 15-20% of one's debt portfolio should be invested in medium-term funds which take credit calls as well as duration calls. Credit calls are betting on those bonds which have lower than `AAA' rating on the hopes that these bonds, over the next 2-3 years, will improve their credit ratings, leading to price appreciation. Usually, these funds invest in AAA rated bonds and also some part into bonds rated lower, but do not invest in debt instruments with credit ratings lower than AA. There is no junk play in these funds.

On the other hand, a duration call is betting on the fact that the rate of interest in the economy will fall, leading to price appreciation. These funds are usually more aggressive in nature and have the potential for good YTM (yield-to-maturity) for investors with up to three years investment horizon.

In these funds, the fund managers invest in bonds of good companies which, as the economy improves, are likely to do better than the economy in general and, hence, could improve its credit rating. In addition, if the rate of interest in the economy falls, prices of these bonds will also rise because of falling yield, which in turn would lead to capital appreciation. And, hence, the gains in these funds could be two-fold.

Bond yields and prices are inversely related

Bond yields and price are inversely related. Here's why. Assume the annual rate of interest on a bond is 10% and its price when offered to the public for the first time is Rs 100. So all those people who hold the bonds for a year will receive Rs 10 at the end of the year. If over the one year after allotment, the price of the bond steadily rises to Rs 110. At the end of the first year, the original investor takes Rs 10 (interest income) and then sells the bond at Rs 110. The second holder will get Rs 10 at the end of the second year. However, for the second holder the interest income at the end of the second year will be Rs 10 on an investment of Rs 110.So, for this person, the yield (interest income as a percentage of the price paid) works out to approximately 9.1%. So here a rise in the price leads to a fall in bond yield.

Inversely, if the price of the same band falls to Rs 90 at the end of the first year and is sold to another buyer who holds it for a year and receives Rs 10, the yield for the second holder will be approximately 11.11%. In the second case, the fall in bond prices led to higher yield.

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] Com

OR

Leave a missed Call on 94 8300 8300

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

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

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.

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

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

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

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]
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