I am looking for good fixed income/debt funds to invest for a period of two to three years and five to 10 years. Please suggest schemes that are less risky with good returns and investing majority of the funds in AA or above-rated bonds.
- Shabbir
If you are ready to take a little extra risk and want to benefit from a likely fall in interest rates, you invest in a dynamic bond fund with a three-year investment horizon. Investments in debt mutual funds held over three years qualify for long-term capital gains tax of 20 per cent with indexation benefit. Dynamic bond funds have an actively managed portfolio that varies dynamically with the interest rate view of the fund manager. This means an investor need not take a call on interest rate movements and leave the job to the fund manager. Some may argue that long-term debt funds (income and gilt funds) may benefit more from falling rates. However, an average investor would find it difficult to take a call on interest rate movements and time the entry into and exit from these funds. You can choose one of these top-rated dynamic funds: Birla Sun Life Dynamic Bond Fund, Tata Dynamic Bond Fund and UTI Dynamic Bond Fund.
If you are investing with an investment horizon for five to 10 years, you should consider investing in equity. This is because equity has the potential to offer superior returns over other asset classes over a long period. If you can take a little more risk, you should consider investing in a balanced scheme (if you prefer lower volatility) or a diversified equity scheme to achieve your long-term financial goals.
This article was originally published on November 23, 2015.
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