I'm very close to retirement and want to invest the first five years expenses in debt funds. However, because of the recent IL&FS episode, I'm extremely scared. What should I do?
- Balaji
Yes, you should be scared but don't be so scared that you deprive yourself of the great opportunity that these funds provide. Also, in the light of the new side-pocketing rules, if anything like that happens now, even that kind of money will be recovered.
To deal with your fear, I would advise you to follow a methodical pattern in the form of creating a ladder. Keep the money that you are likely to need for the next three to six months in a savings-linked deposit so that you can access the money easily. Although it will provide you with a three to two and a half per cent lesser returns than bond funds, it is good enough for the selected time horizon.
For the next four and a half years, look for the funds that are not necessarily the best performing funds but the funds that have the best quality portfolios. You can use Value Research online to analyse the funds that are consistently focused or invested only in the highest rated bond funds. Another thing to keep in mind is that you should not try to maximise the fixed income returns and invest only in ultra short duration or short duration funds for the remaining time period.
Precisely, your portfolio should be built on the following three layers:
1) Keep the first six months worth of your expenses in a savings account
2) Invest the money that you are likely to use in the next one and a half year in an ultra short duration fund
3) The remaining money can be kept in a more consistent, steady and high-quality short duration fund.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
