Debt Oriented Mutual Funds
In my earlier article we have discussed about Equity Oriented Mutual Funds. Basically Mutual Funds instruments are actively managed by professional fund managers. As such this is one of the best method to take exposure to various asset classes specially for new investors. These funds are available in many flavors and individual needs to find best suited funds as per his requirements like equities, fixed income, hybrid funds which are mix of both and / or funds with different exposure rates to equities / fixed income fund, capital protector fund so on and so forth.
Why invest in Mutual Funds?
As stated earlier Mutual funds and investment instruments managed by professional fund managers. If you are a person who doesn't have inclination, great understanding of financial markets, lack disciplined approach towards equity markets, or lack skill to invest directly into equity markets. Or maybe you need to get exposure to some of the investment instruments that you as an individual cannot participate directly. Or you are looking to achieve risk diversification / appropriate asset allocation then Mutual Funds would be the most preferred route.
Debt Mutual Funds have many flavors like:
Capital Protection funds:
The objective of such fund is to protect the capital at the same time try and achieve growth through investing a small portion into the equity markets. The major investment (80-90 %) in such funds are in fixed tenure and fixed returns instruments like PSU / corporate bonds, government securities etc. The income derived from such investment and / or fixed portion of assets under management are invested into equities of high growth companies.. Thus achieve both capital protection and capital appreciation. This funds are best suited for investors with low risk appetite. Besides a person who is nearing to his long term goals in next couple of years can also seek to invest in such funds after switching out of long term investments that he had created for the respective goals.
Returns though not guaranteed they achieve better returns than what a bank fixed deposit provides. Options available are getting regular payouts by way of dividend or to select growth options as the need maybe. Liquidity is provided by the funds by buying back the fund at the prevailing asset value of the fund.
Floating Rate Funds
This concept came into lime light came into lime light couple of years back with interest rates going up the investors who had invested in fixed rate securities felt left out in the rally of interest rates. Thus fund managers came out with Floating Rate Fund (FRF) concept. The FRF invest in floating rate debt securities and some exposure to fixed rate debt instruments. Floating rates are linked to a benchmark rate for debt securities for e.g MIBOR The basic objective of fund is to generate income at current rate and provide capital protection as well.
Returns from these funds is better than usual Bank fixed deposits as such investments are safe gaurd against short term rate fluctuations. The fund would perform well in rising interest rate scenarios. These funds are typically suitable for short term investment horizon and needless to say for person with low risk appetite.
Gilt Fund
Gilt funds, as they are conveniently called, are mutual fund schemes floated by asset management companies with exclusive investments in government securities. GILT funds are best suited for those who are looking for parking their investment in safe and secured instruments. Since the investment is made purely in government securities which carry zero default risk and provide high liquidity. These funds are for person with low risk appetite with medium to long term investment horizon.
Monthly Income Plans
Monthly Income Plan (MIP) are funds with objective to generate regular income and capital appreciation. In order to achieve these objective the funds collected is invested debt, money market instrument as well as equity or equity oriented instruments. Usually quite a few funds have higher exposure to equity in order to generate higher returns. So before investing in MIP one must carefully examine mandate of the fund for asset allocations. In short term the returns may be volatile.
The fund is is for a person with balanced risk appetite and one who needs income at regular intervals. Rate of return usually outstrips returns provided by Bank FD/ Pure debt funds on either side due to inherent risk exposure in short term.
The fund is is for a person with balanced risk appetite and one who needs income at regular intervals. Rate of return usually outstrips returns provided by Bank FD/ Pure debt funds on either side due to inherent risk exposure in short term.
Pension funds
Under these funds fund manager has mandate to seek capital appreciation in long haul. Thus equity exposure in such funds is usually quite high. But many pension funds offer varying asset allocation based on risk profile of an investor like Aggressive fund (High exposure to Equity), Balanced fund (50-65% in Equity), Capital Protector fund (low exposure to equity instruments). Investment in these fund are very tax efficient and provides tax benefit at the time of entry and also acts as annuity providing regular returns post retirement. Pension funds has found quite a favor amongst investors due to its tax benefits and returns provided over long term.
These funds are ideally suited for regular disciplined investors who wants to create corpus for post retirement goals. A must investment recommended by FinWin in every portfolio if you don't have one go out today and buy one and ensure regular contribution to such funds for your retirement planning. Standard disclaimer applies
These funds are ideally suited for regular disciplined investors who wants to create corpus for post retirement goals. A must investment recommended by FinWin in every portfolio if you don't have one go out today and buy one and ensure regular contribution to such funds for your retirement planning. Standard disclaimer applies
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