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Retail investors warm up to debt Mutual Fund

Nov 12 2013, 09:17 IST
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While SIPs are being increasingly used for investment in equity schemes (PTI) While SIPs are being increasingly used for investment in equity schemes (PTI)
SummaryWhile SIPs are being increasingly used for investment in equity schemes

can avail benefits of indexation, which can bring down the tax impact significantly, for investment in mutual fund debt products with maturity of one year and above.

Apart from these debt products, which yield relatively attractive returns, without being significantly affected by market conditions, opportunities could be available in duration products, like gilt fund, income fund, dynamic bond fund, short term bond fund etc, at various points of time depending on evolving market conditions. In view of limited familiarity and popularity of these products, it is desirable that investments in such products are made on the basis of professional check/advice.

Given the current market dynamics, what duration advice will you give to investors wanting to put money in debt?

The prevailing rates appear more elevated from the longer term perspective of development objectives. It is, therefore, tempting to conclude that there is a possibility of rate cut over the medium term and, thereby, suggest a duration debt product. However, there are quite a few uncertainties in the global and domestic economy. Inflation is persistently high in the country. There is an added uncertainty on the political front with the impending elections. We feel that the macro policy perspectives, which could have a significant impact on the return in debt schemes, is uncertain. It is therefore, not desirable to consider duration debt products especially by retail investors, at this juncture. Investments in liquid fund schemes and FMPs, which are evergreen products can be considered for investment at this stage also.

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