Mutual Fund Application Forms Download Any Applications
Invest in Tax Saving Mutual Funds Invest Online
Infrastructure Bond Application Forms Download Applications

Thursday, October 25, 2012

Debt portfolio can yield good returns

Invest Mutual Funds Online

Call 0 94 8300 8300 (India)
It's a good time for debt allocation with both short-term and long-term options offering good returns


   In the midst of a rising inflation and the resultant higher interest rate scenario, there is some good news if you are a short-term investor. Your money, even if parked for a short period of time, can get you good returns. In the last few months, the annualised returns offered by money market and liquid funds have moved upwards. The annualised returns have been in the range of over six percent.


   Ironically, the returns offered by a number of sector funds have been substantially lower or negative during the same period. After more than a 1,000-point rally, index funds managed to add some green to their chart.


   So, the debt market is not a bad place to be in considering that many other assets are looking not too comfortable. While equity always carries risk and its riskreward ratio changes according to timing of entry, other assets too are demanding perfect timing. Property is a perfect example which was once considered a safe haven for the long term. Commodities, because of their global linkage, are increasingly volatile and expensive too. Hence, for the risk-averse investor, there are only a few options in terms of asset classes. But the good news is that the segment as a whole is getting lot of action and with the recent budget proposals, the debt market in India, is in for major growth.


   When you consider debt as an asset class, there is a growing confusion among - should they choose innovative products or simply stick to vanilla products where what you see is what you get (or earn in this context). The fear is understandable considering the fact that the 2008 financial crisis is a by-product of smart innovations in debt and derivative products.


   So, in an era where debt products are giving smart returns and even closer to double digit, investors can stick to vanilla options. While debt is for the short term and for those who don't need risk, it can have some allocation if the portfolio is aiming for a 10 percent growth over the medium term. Here, investors will have to keep in mind the tax implications as 10 percent returns offered by a fixed deposit need not be tax-free returns. Since interest income is taxable, you need to keep in mind the tax-free exemption limit. While super senior citizens have the luxury of parking a large corpus because of their higher exemption limit in the coming days, it is not the case for many others.


   In this context, monthly income plans of mutual funds can come in handy. While dividend is tax-free because of dividend distribution tax, it offers some added advantage in the form of lower effective tax on long-term capital gains. If you were to take into account the indexation benefit, the real returns from these products can be superior to other vanilla debt products.


   Interestingly, in the last few months, investors have also had the opportunity to park long-term money in debt options with a number of issuers hitting the market with 10-year maturity papers. They are a good option in the current environment because of high interest rates. For instance, any investor would be willing to settle for a 9-10 percent interest rate option for a period of 10 years if liquidity is not an issue.


   Unfortunately, very few investors fall into this category as more often than not, debt investors prefer liquidity. While a retired individual needs regular source of income, a high net worth individual may look at debt for tiding over liquidity. For such investors, a 10-year product may not fulfill the requirement unless asset allocation demands such a product for risk management. Those who can afford to allocate can make the best use of the current environment.

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 Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

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 Mutual  Funds  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

 

 

No comments:

Mutual Fund Application Forms Download Any Applications
Invest in Tax Saving Mutual Funds Invest Online
Infrastructure Bond Application Forms Download Applications
Related Posts Plugin for WordPress, Blogger...

Popular Posts