Invest in debt income funds for medium to long term gains and use gilt funds at opportune times...
28-Feb-2013 •Research Desk
I would like to Invest Rs 5 Lakh in debt mutual fund for medium to long term (1-5 years). Please suggest few schemes where I can invest for an average return of 11-14 per cent per annum. Also advise whether it is better to invest now in debt income scheme or debt gilt scheme.
- Mohit Srivastava
Considering the term of your investment you should choose debt income funds over a gilt scheme. Specifically, opt for dynamic bond or flexi debt funds in this category. Debt funds can invest in all kind of debt instruments with varying maturities, depending on interest rate scenario. Such flexibility helps in uncertain times. These funds adapt themselves to the changing interest rate scenario, thus reducing interest rate risk to some extent. For instance, with current interest rates going down majority of income funds have invested a significant portion of their assets in government securities.
Investment in gilt schemes should be done in an opportunistic way rather than for long-term. Gilt schemes invest in government securities. They have a long maturity period because of which they are actively traded and every bank is a buyer. This makes them volatile to interest rate changes. When interest rates go down, they benefit the most and vice-versa. So, one can invest in them opportunistically in the falling interest rate scenario but should move out before the interest rate reversal.
Following are the returns delivered by an average dynamic bond fund over the past five years.
Some of the good performing dynamic bond funds are Birla Sun life Dynamic Bond, DSPBR Strategic Bond, ICICI Prudential Dynamic Bond etc.