[vharihar]

Originally Posted by SmartCat

Just like stocks, bonds are traded on NSE everyday. Just like stocks movement, bond movement too depends on actions of buyers and sellers (aka supply and demand). That's why NAV of debt fund moves everyday. NSE website link for bonds trading data:
https://www1.nseindia.com/products/c..._bonds/cbm.htm

Individuals can invest and trade in bonds too at https://goldenpi.com/. This platform is owned by Zerodha. But minimum investment is too high.



Refer to this post where I take the example of gilt funds. Bond funds work the same way too

Thanks a lot, that explains it. I didn't know bonds, FDs, etc were tradable.

So I guess it's similar to NCDs in that respect right, as regards sensitivity to interest rates. Right? As in, if interest rates are lowered, then the NCD (which is locked in at a higher coupon rate) is more valuable and it's price rises; albeit after weighing in the fiscal strength of the company whose NCD it is. Right?

[SmartCat]

Originally Posted by huntrz

I have never invested in ETFs, but thinking of investing in S&P 500 ETF from Motilal oswal. Is there a liquidity issue with ETFs, like say I want to redeem by selling but there is no buyer? Is the sale guaranteed by the AMC running the ETF? In normal Mutual funds I know that redeem always works.

If liquidity dries up, you can approach Motilal Oswal directly to sell your ETFs. From NASDAQ ETF document:

Originally Posted by vharihar

Thanks a lot, that explains it. I didn't know bonds, FDs, etc were tradable.

Fixed Deposits are NOT tradeable. I was just trying to simplify how bonds work

So I guess it's similar to NCDs in that respect right, as regards sensitivity to interest rates. Right? As in, if interest rates are lowered, then the NCD (which is locked in at a higher coupon rate) is more valuable and it's price rises; albeit after weighing in the fiscal strength of the company whose NCD it is. Right?

Right!

[adithya.kp]

March fact sheet is out. There has been a substantial shrinkage of liquid fund AUM. ( Except for HDFC liquid which is almost the same as last month. I dont know if there is any error in the reported AUM size of HDFC.)
Not sure if this can be attributed to corporate selling due to the need of money or panic selling by corporate + retail.
Over the next 2 months or so, a lot of papers will mature. It will be interesting too see what happens when they mature.

[carboy]

Originally Posted by vharihar

Can someone explain to me how/why exactly do the NAV of debt funds move?

Debt funds consist of tradable bonds. Bonds which be bought & sold on the market like stock. In normal times, the price at which they trade depends on 2 things - interest rate changes & also risk/safety.


Let's take the interest rate change first. For that, we will take a Govt bond which has practically no risk most of the time. So the only thing it depends on is the current interest rate for another instrument with the same safety.

So today Govt issues a bond for Rs. 100. Let's say it pay 5% coupon - i.e at the end of each year, it pays the holder Rs. 5 (5% of 100). Say it's a 5 year bond.

So you buy bond today.
After end of first year, you get Rs. 5
After end of 2nd year, you get 5,
3rd year - Rs. 5
4th year - Rs. 5
5th year - 105 (Principal + Interest).

Now govt changes interest rate & issues new bond for 100 Rs which now pays 6% coupon. Now because of this new bond, your existing bond lost value. Why would anyone buy your bond paying 5% from you in the secondary market, when they can buy a new one paying 6%.

So your existing bond lost value. So when you try to sell it, you won't get Rs. 100 for it, you will get less - how much less - that can be calculated by PresentValue formula. Present Value calculation is the exact opposite of Compound Interest Calculation (also known as FutureValue formula) - compound interest calculates the value how much x rupees today will be worth after y years at z% interest. PV is the exact opposite. It calculates if you want to buy something today which will get you x rupees after y years, how much should you pay for it today.

It's a simple formula, you can google it.

So now, you know your bond pays Rs 5 each for 4 years & 105 for the 5th year, you have to calculate the PV of each of those values using a discounting of 6% (because that's the current rate) & add it up.

PV of Rs. 5 at the end of 1nd year = 5/(1.06^1) = 4.72
PV of Rs. 5 at the end of 2nd year = 5/(1.06^2)
PV of 5 at 3 = 5/(1.06^3)
PV of 5 at 4 = 5/(1.06^4)
PV of 105 at 5 = 5/(1.06^5)
(I calculated only line 1, you can calculate the rest).

You total up those 5 numbers, you get Rs.95.79. So your bond which you bought for Rs. 100 which pays 5% is worth only 95.79. So when you go to sell it, that's approximately what you will get (I have simplified calculations assuming that you sell it at the start of the year, rather than in the middle - I have made few other simplifications also)

So if the debt fund owned such a bond, and interest rates changed, then their NAV also changes because of Mark to Market of the bonds inside the debt fund.


In today's market there is this and also there is panic selling and also there is fear that many companies who issued the bonds may default because of bad economy - if PVR issued a bond & nobody is watching movies, they won't have money to pay back, so their bond is worthless. So bond values are totally out of whack today & hence debt fund NAVs are also out of whack now. Now very few bonds can be priced according to calculations, so no one knows what they can buy or sell for. This is not true under normal circumstances - in normal circumstances bond values are easily calculated if they are AAA rated bonds. In the US, feds are buying even junk bonds to shore up the debt market so even some worthless bonds have gained value. In our country, the central govt & a lot of state govts have issued a lot of bonds now & hence there is oversupply which also changes everything.

[carboy]

Originally Posted by SmartCat

If liquidity dries up, you can approach Motilal Oswal directly to sell your ETFs. From NASDAQ ETF document:

The image says they will buy only if you sell them a creation unit. One creation unit is really large.

https://www.mostshares.com/nav/CreationUnit/n100

For e.g. by my rough calculations, the NASDAQ ETF creation unit is worth around 2 crores currently.

[rayjaycleoful]

I am looking to invest my 80C deductions only in ELSS because I don't have home loan, tuition fee, etc and I do not wish to start an NPS/ NSC/PPF because of the long lock in period(I am 22).

Keeping this in mind, the fund I was looking at investing in is Axis Long Term Equity or Mirae Tax Saver. Looking for suggestions on
1. Any other investment approach I should take considering current and mid term market situation.
2. If I decide to go for ELSS, ideal choice between the two funds in terms of lower risk. (or any other fund suggestions). I have an ongoing SIP in Axis blue chip and notice an overlap in Axis bluechip and Axis Long Term Equity portfolio.
3. Is there anything like a GILT- linked saving scheme

[rayjaycleoful]

Originally Posted by rayjaycleoful

Is there a penalty on Zerodha for not having balance for SIP orders?
Missed adding cash for an SIP and I see 80rs missing from my account. Where can I view a statement of this transaction?

Originally Posted by saket77

I don’t know about Zerodha but your bank may charge penalty towards ‘bouncing charges’.
Check your bank statement.

Thanks for your reply! What I meant was- My zerodha account is not linked to my bank account, I add money manually via UPI whenever I have an order about to go through. I wanted to know what happens when I don't have money in the Zerodha account and the order goes through.


About the 80rs- turned out to be the quarterly AMC

[carboy]

Originally Posted by rayjaycleoful

I am looking to invest my 80C deductions only in ELSS because I don't have home loan, tuition fee, etc and I do not wish to start an NPS/ NSC/PPF because of the long lock in period(I am 22).

Full withdrawal Lock-in is 15 years. And that also is only for full withdrawal. From 5th or 6th year, you can start doing partial withdrawals.

PPF is the best debt instrument available in India. It's Exempt-Exempt-Exempt. Unless you plan to invest 100% of your money in non-debt investments, I would advise PPF. Even if you plan 10%-90% distribution of your debt & equity, that 10% should be in PPF.

[sansvk]

Originally Posted by rayjaycleoful

I am looking to invest my 80C deductions only in ELSS because I don't have home loan, tuition fee, etc and I do not wish to start an NPS/ NSC/PPF because of the long lock in period(I am 22).

Keeping this in mind, the fund I was looking at investing in is Axis Long Term Equity or Mirae Tax Saver. Looking for suggestions on

If you don't have an EPF or if the contributions are minimal then opt for PPF to build your debt portfolio. Keep in mind, going forward the rates will come down but that would still be better than FD rates. At your age long lock downs are good, as you won't need the money.
Stay away from insurance linked products.
ELSS is a good alternate to build your equity portfolio. Both funds are good. Surplus money can be put into an Index funds.

[warrioraks]

Originally Posted by rayjaycleoful

I am looking to invest my 80C deductions only in ELSS because I don't have home loan, tuition fee, etc and I do not wish to start an NPS/ NSC/PPF because of the long lock in period(I am 22).

Keeping this in mind, the fund I was looking at investing in is Axis Long Term Equity or Mirae Tax Saver. Looking for suggestions on
1. Any other investment approach I should take considering current and mid term market situation.
2. If I decide to go for ELSS, ideal choice between the two funds in terms of lower risk. (or any other fund suggestions). I have an ongoing SIP in Axis blue chip and notice an overlap in Axis bluechip and Axis Long Term Equity portfolio.
3. Is there anything like a GILT- linked saving scheme

Here is the list of options I can suggest in addition to what you already considered. Just make sure you do not put all eggs in one basket and have a spread across debt and equity.

1. Index funds
2. PPF and VPF (Fantastic debt instruments)
3. NPS Tier 1 account (tax benefit of up to 50k)
4. NPS Tier 2 account

In both NPS accounts, you allocate money across Corporate debt, G-Sec and equity.
Tier 1 corpus can be withdrawn at age of 60 (so more of a retirement fund) but Tier 2 works pretty much like mutual funds so withdraw anytime.

[Sumeru97]

Originally Posted by adithya.kp

March fact sheet is out. There has been a substantial shrinkage of liquid fund AUM. ( Except for HDFC liquid which is almost the same as last month. I dont know if there is any error in the reported AUM size of HDFC.)
Not sure if this can be attributed to corporate selling due to the need of money or panic selling by corporate + retail.
Over the next 2 months or so, a lot of papers will mature. It will be interesting too see what happens when they mature.

Liquid MFs gave a negative return for 1 or 2 weeks in March. Many novice investors hadn't bargained on a negative return,as they had no idea there was a credit and interest rate risk to debt MFs, so they panicked and withdrew their money.

Some smart ones who did not need the money immediately, saw a bargain in equity and transferred their money to an index fund.

Others investors in the 30% tax bracket actually realized that Arbitrage funds gave similar returns to a liquid fund, but with better taxation benefits, so they made the switch.

[Sumeru97]

Originally Posted by rayjaycleoful

I am looking to invest my 80C deductions only in ELSS because I don't have home loan, tuition fee, etc and I do not wish to start an NPS/ NSC/PPF because of the long lock in period(I am 22).

Keeping this in mind, the fund I was looking at investing in is Axis Long Term Equity or Mirae Tax Saver. Looking for suggestions on
1. Any other investment approach I should take considering current and mid term market situation.
2. If I decide to go for ELSS, ideal choice between the two funds in terms of lower risk. (or any other fund suggestions). I have an ongoing SIP in Axis blue chip and notice an overlap in Axis bluechip and Axis Long Term Equity portfolio.
3. Is there anything like a GILT- linked saving scheme

As you are only 22, I assume you are not (yet) in the higher tax bracket. In that case, you can opt for the new tax regime, and you need not do any mandatory investments.
Just save your money in a high interest savings account like in IDFC First bank, and chill.

If you are in the 30% bracket, I would then assume that you do not have any dependents (as you do not have a student loan ). So there is no need to take a term life insurance cover, which is a must for others. Invest in the lowest cost Direct ELSS fund (currently it is Mirae) and withdraw and reinvest the money every 3 years.

[Jaguar]

Originally Posted by carboy

In today's market there is this and also there is panic selling and also there is fear that many companies who issued the bonds may default because of bad economy - So bond values are totally out of whack today & hence debt fund NAVs are also out of whack now.

I am confused. The only fund in my portfolio that is in green is ICICI Prudential Long Term Bond Fund
Not able to correlate with what you have said.

Originally Posted by Sumeru97

As you are only 22, I assume you are not (yet) in the higher tax bracket. In that case, you can opt for the new tax regime, and you need not do any mandatory investments.
Just save your money in a high interest savings account like in IDFC First bank, and chill.

If you are in the 30% bracket, I would then assume that you do not have any dependents (as you do not have a student loan ). So there is no need to take a term life insurance cover, which is a must for others. Invest in the lowest cost Direct ELSS fund (currently it is Mirae) and withdraw and reinvest the money every 3 years.

Isn't this a very bad advice to give to a young person?

1. Do not mix investment with tax saving. Even if there is no requirement to invest in ELSS for tax purposes, one should always make it a point to invest the disposable cash in hand. Not leave it lying in a savings account.

2. It is always better to take the term insurance when you are young to lock in the lower premium. I remember reading somewhere that if you start your term insurance after 30, the premium would be significantly higher.

3. And it is wrong to assume that someone young doesn't have any dependents if he/she is not married. We need to think about aged parents too.

[carboy]

Originally Posted by Jaguar

I am confused. The only fund in my portfolio that is in green is ICICI Prudential Long Term Bond Fund
Not able to correlate with what you have said.

I don't understand. What exactly are you not able to co-relate?

Originally Posted by Jaguar

2. It is always better to take the term insurance when you are young to lock in the lower premium. I remember reading somewhere that if you start your term insurance after 30, the premium would be significantly higher.

But if you start it after 30, you would have saved 8 years of not paying premiums & the compounding of that money in some investment. Why do you think that starting after 30 will be worse over all?

My advice for life insurance is simple.
- First figure out if you need it. You need it only if your death today will radically change the lifestyle of someone else. If not, you don't need it.
- Always buy insurance which gives you zero money unless you die.
- Never buy insurance beyond the term till which you expect to work. For e.g. if you are going to retire at 60, don't buy insurance which lasts beyond the time your age becomes 60.

[Jaguar]

Originally Posted by carboy

I don't understand. What exactly are you not able to co-relate?

Your statement that debt fund NAV's are out of whack but only the debt fund in my portfolio is positive currently. Shouldn't it be the worst performer?

Originally Posted by carboy

But if you start it after 30, you would have saved 8 years of not paying premiums & the compounding of that money in some investment. Why do you think that starting after 30 will be worse overall?

The premium for 1cr insurance would be lower say 10k for a 25-year-old whereas it would be about 15k for a 35-year-old. So, if you start the insurance at 25, you get to enjoy the low premium throughout the life of the insurance which works out better in the long run.