[SmartCat]

Originally Posted by adithya.kp

If FD has to be there in one's debt portfolio, what is a decent FD allocation in % terms? ( I mean within debt. Not at the overall net-worth level)

No percentage recommendations as such, but what you can do to FD portfolio is LADDERING.
https://www.investopedia.com/terms/l/laddering.asp



Allocate equal amounts to different tenures/interest rate slabs. Ignore 3+ year FDs because interest rates drop after that. Now that you can book FDs online, this is quite easy to execute.

[adithya.kp]

Thanks Smartcat. It does look interesting. But it's not for lazy people like me. Also, I want to keep things simple. I would appreciate if you could throw some light on my other question. I.e, not having FD at all (in one's debt portfolio) or very minimal FD allocation. I haven't come across anyone who doesn't have a substantial FD exposure.

I know there is no right/wrong answer. But love to hear your views.

[SmartCat]

Originally Posted by adithya.kp

I know there is no right/wrong answer. But love to hear your views.

Depends on the maturity period of your FD. Let's assume that you are going for 2 to 3 years FD (which offers the highest returns). Now this duration is equivalent to a medium duration debt fund.

Now ideally, allocate 33% each to short duration (less than 1 year), 33% to medium duration ( 1 to 3 years) and 33% to long duration (3+ years) funds. Now the FD you are selecting belongs to the second category

So your (FD allocation + medium duration debt funds) portfolio should be equal to 33% of your overall debt portfolio.

If you are selecting 1 yr FD, then your (1 yr FD + short duration debt funds) should be 33% of your overall debt portfolio

[DigitalOne]

Originally Posted by adithya.kp

I would appreciate if you could throw some light on my other question. I.e, not having FD at all (in one's debt portfolio) or very minimal FD allocation. I haven't come across anyone who doesn't have a substantial FD exposure.

I don't have any tradional bank or corporate FDs in my portfolio but my wife's portfolio has. But I do have RBI bonds, PPF, and EPF which constitutes the non-MF debt components.

From a taxation perspective debt funds still score marginally over FDs as the taxation is only during redemption. On the flip side, returns are not guaranteed.

[ramki067]

Hi, I am 44 year old and have a PPF going from last 12 years, but only in the last 6 years I have paid full quota of PPF yearly. My query is that should I continue to invest in PPF after 15 years or is there any better ones to invest? Please advise.
Thanks,
Ramki

[warrioraks]

Originally Posted by ramki067

Hi, I am 44 year old and have a PPF going from last 12 years, but only in the last 6 years I have paid full quota of PPF yearly. My query is that should I continue to invest in PPF after 15 years or is there any better ones to invest? Please advise.
Thanks,
Ramki

General recommendation is yes but it depends on the tax slab you are in. It’s a no brainier if you are in 30% bracket.

[saildrive]

Hi Guys

Needed an expert advice, namely by a CA if I can get it for free. This forum has ONLY helped us all in some way or the other and sometimes to make sound financial decision, need alternatives or suggestions which will help us in taking the right step.

My parents, now in their 80's have a sum of about 20 L in their bank account. That is all their savings/investment, besides giving us kids good formal education and a house to live growing up in Mumbai.

They now live with me and barely do rounds to bank anymore (due to age); most things are managed including any purchases or expenses to meet (operating from home).

However, since this amount is lying idle in their account for a while, I am keen to invest it in a manner which will get monthly / quarterly income (in addition) to their capital without worrying about bank, online, mobile, sms and all other lucrative scams that have multiplied in recent times.

I thought of the following:
1) 5 lacs in sovereign bond (gold)
2) either 5 / 10 lacs in SBI SCSS
3) either 5 / 10 lacs in Mutual Fund

The idea is to try and make optimum appreciation of the capital in hand; avoid any unwarranted taxes - STGT / LTGT etc. etc. At the same time get some monthly / quarterly returns (cash) for any or additional expenses / expenditure.

Hoping that I will hear from some of the learned or well versed BHPians out here with alternative solutions. Do let me know what are the best options in hand.

Thank you for your time.

[SmartCat]

Originally Posted by saildrive

I thought of the following:
1) 5 lacs in sovereign bond (gold)
2) either 5 / 10 lacs in SBI SCSS
3) either 5 / 10 lacs in Mutual Fund

10L in senior citizen savings scheme for tax free returns and 10L in liquid mutual funds for liquidity. That's the simplest plan I can think of.

In Gold, both liquidity and returns are iffy - so avoid.

[vijaykr]

Originally Posted by SmartCat

10L in senior citizen savings scheme for tax free returns and 10L in liquid mutual funds for liquidity. That's the simplest plan I can think of.

In Gold, both liquidity and returns are iffy - so avoid.

I think SCSS interest amounts above 50,000 annually are taxable at the individual's slab rate. Even with this, it is a good scheme for senior citizens and has decent interest rates, but these are being reset quarterly now or some frequency like that.

The Post Office monthly income scheme also is another good option for recurring income.

If the need is ongoing liquidity from the start of investment, liquid funds while safe may not offer much returns.

Other than SGB, there is option of RBI bonds and the LIC Pradhan mantri vaya Vandana yojana for seniors, but all of these have longer tenures. So have to think thru it they make sense based on individual situation.

[Small Bot]

I realised that I had never paid much attention to debt funds until about a year ago, and have been working to rectify that.

My emergency cash is in a stable Liquid fund (though I badly need to raise the corpus to at least 6 months' expenses). And I've done short term lumpsum investments and SIP (ideally might need the cash in 5-6 years' time) in a Corporate Bond fund.

Like a dunce, I missed optimising PPF, though I've had it for nine years, and have now been doing SIPs of 12.5K a month for the last few months. Will try to maximise the 1.5 Lakh limit for this year by the 1st of March.

I don't have any FDs or RDs, though the wife is investing in it rigorously. So I'm not interested in that for now.

VPF doesn't make sense to me over PPF any more, as the post tax returns might be lower (that 2.5 lakh limit was crossed quite a while ago).

Am I missing anything else here that could be useful, from a debt perspective?

[SmartCat]

Originally Posted by Small Bot

SIP (ideally might need the cash in 5-6 years' time) in a Corporate Bond fund.Am I missing anything else here that could be useful, from a debt perspective?

Corporate bond funds offer higher returns but have higher risk and volatility, when compared to liquid funds. But the extra risk is not commensurate with the extra returns, especially under certain negative global/local scenarios (like pandemic, war, economic/political crisis etc).

Explore the world of Gilt funds either as a replacement for corporate bond funds or as an add-on debt investment avenue.
https://www.valueresearchonline.com/...t&tab=snapshot

Historically, gilt funds have given similar returns to that of corporate bond funds, but with zero risk of permanent loss of capital. That is, gilt funds are safer than the safest bank fixed deposit there is. You can read more about it here:
https://www.team-bhp.com/forum/shift...-deposits.html (Government Bonds - Safer than even Fixed Deposits)

But you should read initial few pages on this thread to understand how NAV in gilt fund or corporate bond fund moves, and its relation with the interest rates. Safe does not mean NAV will keep going up everyday like a liquid fund.

Bonus: Whenever there is a major global crisis, stocks go down. Corporate bond funds go down. Real estate becomes illiquid or goes down. But gilt funds go UP in value.

[vijaykr]

Yes, you are right. Corporate bonds in addition to interest rate risk also carry credit risk. Good amount of due diligence is needed to understand the fund portfolio holdings, what percentage is below AAA etc. I've become a little more circumspect on them for now.

One other option I've started to look at in the debt fund space is Target Maturity Funds (TMF). The returns in these seem good if held to maturity. There have been several launches in this category with varying end dates - 3, 5, 7, 10 years and horizon. Typically they seem in invest in Sovereign bonds, T-bills, state development loans and PSUs. So depending on the duration, bond constituent mix, some options can be considered.

I have invested in Bharat Bond ETFs with 7 and 10 year duration.

[SmartCat]

Originally Posted by vijaykr

I have invested in Bharat Bond ETFs with 7 and 10 year duration.

Bharat Bond ETF has low credit risk. If you are looking at equivalent mutual funds, take a look at 'Banking & PSU Debt MF' category:
https://www.valueresearchonline.com/...uspended-plans

[vijaykr]

Originally Posted by SmartCat

Bharat Bond ETF has low credit risk. If you are looking at equivalent mutual funds, take a look at 'Banking & PSU Debt MF' category:
https://www.valueresearchonline.com/...uspended-plans

I specifically was looking at debt funds where the component of sovereign and SDLs was higher compared to PSUs and hence picked Bharat Bond ETF maturity years where I noticed this in their portfolio. Since the TMFs include bonds in their portfolio which mature around the same time as fund maturity date, there is little reason for the MF/ETF to churn their bond portfolio. While I expect volatility the initial holding years, closer to the maturity this should reduce and I expect return to be close enough to the projected yield to maturity. I specifically looked at TMFs to align their maturity date with my financial goal requirement. Hence did not consider the usual open-ended Banking/PSU funds.

[DigitalOne]

Originally Posted by SmartCat

Historically, gilt funds have given similar returns to that of corporate bond funds, but with zero risk of permanent loss of capital. That is, gilt funds are safer than the safest bank fixed deposit there is. You can read more about it here:
https://www.team-bhp.com/forum/shift...-deposits.html (Government Bonds - Safer than even Fixed Deposits)

But you should read initial few pages on this thread to understand how NAV in gilt fund or corporate bond fund moves, and its relation with the interest rates.

As SmartCat correctly says, the NAV of a Gilt fund has an inverse relation to the interest rates. So in effect, Gilt funds are a play on the macro-economics scenario. If you believe the interest rates have peaked, and will come down in the next couple of years you can invest in Gilt funds.

I believe the macro economic conditions are so, and thus invested in Gilt funds; standard disclaimers apply, please do your own research .

Originally Posted by vijaykr

The returns in these seem good if held to maturity. There have been several launches in this category with varying end dates - 3, 5, 7, 10 years and horizon.

Yes, TMFs are a good option with a (almost) predictable returns. I had written about them last year in this thread (Investing in debt funds).

Buying Government securities directly from your broker is another ultra safe option with predictable returns. ICICIDirect shows this government auction as of today:



The disadvantage of government securities or RBI bonds is that they don't have cumulative option (half-yearly interest payments). So you carry a reinvestment risk.