Debt mutual funds help maximize gains!

By | July 10, 2011

This has been possibly after RBI hiked its interest rates. Now, you as an investor need to carefully evaluate your investment decisions in the light of:

Your investment objective

Risk appetite

Span of your investment

Investors can basically look forward to moving towards debt investment as part of their portfolio re balancing or just to take advantage of the current interest rate scenario. Depending upon your choice, you can look forward to stacking your investments into debt funds in order to earn higher returns and continue to invest in equities through the Systematic Investment Plan (SIP). It is very important to factor these since, they can help you generate good returns in future disabling you to opt for credit like a car loan, personal loan etc. in future.  Given the current interest rate scenario, investors can look forward for investing in:

Liquid or Ultra short term schemes:

These schemes basically, have a maturity period of upto 91 days. Ultra short term schemes are basically much more liquid since they are money market schemes and take marginal exposure to securities that are beyond a 3 month investment period in order to yield higher returns. They also carry the advantage of higher returns during phases of high inflation or tight liquidity and investors also enjoy lower interest rate risk.

Short term funds are best for those individuals who wish to fulfill their short term financial goals like buying a laptop or going for a nice vacation. Investors who seek to park their funds for gaining those tax benefits are also inclined to invest in Short term schemes.

Fixed Maturity Plans (FMPs):

Investors who look to invest in assets for a period of 1 year, look forward towards investing in Fixed maturity plans. These assets invest their funds in securities that have the same tenure so that, you can avail the returns as and when required.

Investors need to evaluate their possible rate of return along with the prevailing market yields and the liquidity and credit risk factor. Investments in higher-rated securities, helps you to manage credit risk efficiently, whereas for liquidity, you need to look at the exchanges where the schemes are listed.

Short Term Income Funds:

Investors who are willing to take moderate amount of risk and wish to seek liquidity of their assets, Short term income funds provide the right option. These assets carry a tenor of a minimum of 6 months to 3 years where your returns will be generated based on your accrual income and capital gains on the money that you have invested. These schemes are exposed to lesser interest-rate risk and would appeal to investors even in the current interest rate cycle. With a combination of accrual income and capital gains, you are likely to generate good returns in the future.

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