yield an attractive carry, giving good and tax-efficient returns to investors. There is no exit load and investors can exit as soon as they want. Ultra short-term funds also provide quite similar benefits to investors for short-term deployment/investments. At the prevailing rates, these products do not only generate yields higher than savings product, but also than recurring deposits of comparable maturity.
An investor looking for a low-risk attractive yield longer duration investment, spreading over an year or beyond, can invest in FMPs, where the returns are usually higher than the prevailing returns in guaranteed debt products. Further, investors in FMPs 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.