Across the investing community, most investors turn to liquid funds to park their investible short term funds as they offer superior returns than bank fixed deposits. Liquid fund is a good vehicle to park the funds with almost negligible chance of capital depreciation. The average return that the investors get comes to around 6.5 per cent to 7 per cent.
The investors are unwilling to invest in income or gilt funds on account of the risk of capital depreciation in the short term as these funds with their longer average maturity are exposed to the impact of market volatility. In the short run, investors may have to bear capital depreciation in case unfavorable market conditions.
Investors who have short term investment needs, instead of going for liquid funds, if they are willing to take little extra risk, can think of investing in short term debt schemes offered by mutual funds, which offer higher returns than the liquid funds. Such schemes are short term gilt funds, Fixed Maturity Plans (FMPs), short term debt plans etc.
Fixed-income funds (i.e. debt funds) are likely to provide better risk-adjusted and tax-adjusted returns to an investor over a period of time.
Let us understand how fixed income mutual funds work. Fixed-income mutual funds receive money from various investors and they in turn invest in variety of fixed income securities depending on the view on interest rates. Because of their size and reach, they may be in a position to bargain better interest rates on fixed-income securities than retail investors could possibly obtain.
If the view on the interest rates is that they are going to come down, the fund may invest in long-dated fixed-income securities to capitalise on possibility of price appreciation as the interest rates decline. It has been observed that due to their presence and continuous monitoring of the fixed income market, fixed-income mutual funds are in the position to offer better risk-adjusted returns.
Apart from offering attractive returns, fixed-income mutual funds offer liquidity to the investor, which may not be available to retail investor in case if the investor decides to invest on his own. This element of safety combined with liquidity, and attractive risk-adjusted returns may provide the investor with an attractive investment proposition.
The investors are unwilling to invest in income or gilt funds on account of the risk of capital depreciation in the short term as these funds with their longer average maturity are exposed to the impact of market volatility. In the short run, investors may have to bear capital depreciation in case unfavorable market conditions.
Investors who have short term investment needs, instead of going for liquid funds, if they are willing to take little extra risk, can think of investing in short term debt schemes offered by mutual funds, which offer higher returns than the liquid funds. Such schemes are short term gilt funds, Fixed Maturity Plans (FMPs), short term debt plans etc.
Fixed-income funds (i.e. debt funds) are likely to provide better risk-adjusted and tax-adjusted returns to an investor over a period of time.
Let us understand how fixed income mutual funds work. Fixed-income mutual funds receive money from various investors and they in turn invest in variety of fixed income securities depending on the view on interest rates. Because of their size and reach, they may be in a position to bargain better interest rates on fixed-income securities than retail investors could possibly obtain.
If the view on the interest rates is that they are going to come down, the fund may invest in long-dated fixed-income securities to capitalise on possibility of price appreciation as the interest rates decline. It has been observed that due to their presence and continuous monitoring of the fixed income market, fixed-income mutual funds are in the position to offer better risk-adjusted returns.
Apart from offering attractive returns, fixed-income mutual funds offer liquidity to the investor, which may not be available to retail investor in case if the investor decides to invest on his own. This element of safety combined with liquidity, and attractive risk-adjusted returns may provide the investor with an attractive investment proposition.