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Are debt funds safe or do they go down when the broader markets go down?
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I don’t have much idea about debt funds. My sister keeps a EMERGENCY FUND incase there’s a recession and her companies starts laying off people again. So wouldn’t it be better if she keeps this money deposited in a debt fund so that she doesn’t atleast loose purchasing power? And IF debt funds are safe, which debt fund should she invest in ?
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Are liquid funds safer than debt funds?
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Keeping dhfl fiasco in mind, Under what circumstances can liquid funds too get impacted?
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Liquid funds NAV can also be impacted. No fund is immune. If the issuer defaults then any fund can get impacted. The safest scheme is overnight fund.
Why sudden love for debt mutual funds?
Main Post: Why sudden love for debt mutual funds?
Top Comment: Nothing, it's all noise. Nothing meaningful can be inferred from it. Two months ago 92k was withdrawn from debt mutual funds. So if anything there is a hate for them as the net outflows are greater than inflows. https://economictimes.indiatimes.com/mf/mf-news/debt-mutual-funds-see-rs-92248-cr-outflow-in-june-on-uncertain-macro-environment/articleshow/92823404.cms
Why would anybody invest in debt mutual funds?
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I was looking at the returns for last 5,10 years and they're around 8%. But if we take into consideration LTCG of 20.3% it comes down to around 6.4%. Why would that be lucrative then. Why not invest in EPF, VPF, PPF or SSY where returns are not taxed and you get >7% on all the schemes.
Top Comment: For me it is liquidity, the ssc's have long lock-in
Does it even make sense to invest in short term debt funds in the present economy?
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The only debt fund in my portfolio right now is ICICI short term debt fund direct growth. I have been holding it for approx 6 months, and have got a pre tax return of 0.83% which is much worse than savings account if my maths is not wrong. I thought it must have been my mistake when selecting the fund but then with some research I found out that most popular funds of this category have been performing worse than savings account returns.
On doing further research, I found out that the reason for low returns is probably the interest rate hike by RBI. Is my analysis till this point correct?
Now that we have just entered the rising interest rate cycle, does it even make sense to add new short term debt funds in my portfolio? I am thinking it might be a better choice to add ultra short term fund or FD instead of short term debt fund in my portfolio.
More context for those interested: I am 23M, and am going to receive a bonus of ~7. 5L from my employer today or tomorrow, so I am exploring and comparing in which debt instrument to park the money. I will most likely hold the investment for 3 years so that I get charged LTCG instead of STCG on the returns
Top Comment: I have seen a lot of comments. They seem to be mixing up numbers big time. I guess the OP posted absolute returns. From what I know the 6 month return from the direct plan of this fund is close to 1%. I am not sure if we are even talking about a full 6 month period. Most of the other numbers given are XIRRs or annual returns. These can't be directly compared. Please look at the yearly returns of the mentioned fund over the last few years, and see the trend. Three big points Taxation difference between debt funds and direct bonds - this has been mentioned already in the comments The numbers that you see in debt funds are past returns, while the interest rate on new deposits, bonds. etc is future. If you can estimate the future return of the short term fund, you can then make a comparison. In debt space, interest rates do incerase with duration. This is why the yield curve slopes upwards. (And if it doesn't lots of people get anxious.) So comparing the returns from any 2 year duration instrument (typical short duration and banking/PSU funds, 2 year FD, etc.) with that of a 10-year instrument is pretty much meaningles. You can see here for how the yield curve for Indian government securities looks - http://www.worldgovernmentbonds.com/country/india/ (that page also shows how the curve looked 1 m and 6 month ago and you can see the massive shift) In a way dissing debt funds just after an interest rate hike is not different from dissing equity just after a market correction :-)
Question: Debt Mutual Funds with similar risk profile as Bank Fixed Deposits
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Long time lurker on this subreddit. Majority of my investment is in equity mutual funds. I want to start increasing my debt exposure. Currently, all my debt exposure is from fixed deposits at banks. Some of these are at lower rates (~6%) and with the increase in rates, I was planning to move them over to Debt Mutual Funds. I am familiar that Debt MFs are not risk free (credit risk, duration risk, interest rate risk) and am I looking at funds which offer a similar risk profile to bank FDs. Any recommendations?
Top Comment: I strongly advise consulting with a fee-only financial advisor about it but my favourite debt funds with safety in mind are: Franklin India Savings Fund ICICI Prudential Money Market Fund HSBC Ultra Short Term Fund Parag Parikh/Quantum Liquid Fund These funds have relatively short durations, high credit rating, relatively low expense ratio. I’ve old investments in HSBC UST but no longer invest in it.
Debt mutual fund vs FD vs Arbitrage fund for 30% income tax slab
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Hello all,
I am in a dilemma. I have some cash which I want to invest in 'safe' instruments like Fixed deposit and/or liquid mutual funds but since i fall into the 30% tax slab, i am unable to decide which route i should chose. Both fixed deposits and debt funds seems to be taxed like 'income from other source' but we have Arbitrage mutual funds which seems to be low risk like FD (but slightly higher risk than FD) and also taxed like equity mutual funds.
Should I park my money in arbitrage fund? Or am i missing something? My time horizon is anywhere between 3-10 years
Top Comment: Calculations are with the assumption of a 6% average return over a longer period for arbitrage fund and 7.5% return on Debt fund/FD. Invested amount - 100; Time - 5 years Arbitrage @6% - 133.82; Capital gain - 33.82; Tax@ 15% (assuming LTCG is hiked further)- 5.07; Final sum - 128.75 Debt @7.5% - 143.56; Gain - 43.56; Tax @30% + 4% cess- 13.07 + 0.52 = 13.59; Final Sum - 129.97 There are a bunch of assumptions here with worst case returns assumed in arbitrage and best case returns assumed in debt (all the calculations are done on the fly so there might be some mistakes), but overall, its basically the same returns in either case. I would personally still go for arbitrage fund as there is a chance of LTCG not actually increasing to 15%. I have also assumed a 1.5% difference (7.5%-6%) in CAGR of debt minus arbitrage but it usually is closer to 1% or lower if you look at history so arbitrage should give slightly better post tax returns.
What debt funds do you use for debt portion of your portfolio?
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The following are the kinds of debt funds available which we can use in our debt portion of our portfolios (in addition to PPF, EPF, FD, RD etc)
a. liquid/overnight b. ultrashort c. short d. medium e. gilt f. dynamic g. credit risk
Since the primary function of the fixed income portion of the portfolio is capital protection and not returns, the general recommendation is to primarily use liquid/ultra short term debt funds.
I am curious to know what debt funds do all of you use.
Top Comment: I have invested in the Nippon India Liquid fund.. low risk low returns debt portfolio... My annual returns for the past 18 months are 4.2% It's pretty stable and I have it basically to add a stable component to my folio... I have it set up as an SIP
Debt funds or FD ?
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Which one to go for if need to invest for short term like for 6 months or for an year. As per data 6 months return are same as both. I’m confused here or am I wrong. Please advise.
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How do I have debt components beyond Fixed Deposits in my portfolio?
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I'm currently relying on deposits for the debt part but I realized how tax-inefficient they are. Add inflation to that, the money keeps getting depleted over the years. I want to have tax-efficient, actual capital preservation instruments for the debt portion. Please share your thoughts.
Any suggestion would be highly appreciated. Thanks in advance.
Top Comment: GILT and liquid mutual funds. Max out your PPF contribution (1.5L/year). I would stay away from corporate bond and credit risk funds since the whole point of debt allocation is reduction of risk. You can move your money from FDs to liquid funds. I personally invest in ICICI Pru GILT Fund and max out my PPF contribution. I do not have EPF, or any bank deposit.
What are the safer option to park money for short period with high liquidity?
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I know about few.I am not able to decide where I should put my money for short term. And with
- Fd - but they charge early withdrawal fee
- Govt bonds? - don't know how to purchase and what about liquidity?
- Saving account? Very low return and also affect the spending. And people keep asking for money.
- Stock market - right now I don't want to invest in stock market. It's risky and have other plans regards to this.
Main focus is Max return and preserving the principal with high liquidity. Want to get the opinion. Will also my research.
Thanks.
Edit : thanks everyone for your valuable inputs. Sorry I couldn't reply individually. I am traveling right now.
Top Comment: liquid funds, these are type of Debt funds. you can park your money there with no exit load