[SmartCat]

Originally Posted by eyesice

So will investing via SIP over a period of say 12 months have an impact on the overall yield of investment?

If the rates shoot up over the next 12 months, you will definitely be better off with SIP. Conversely, if the rates drop over the next 12 months, you will be better off with lumpsum investment. So it's a coin-toss situation

Meanwhile, I'm getting these offers via email. Looks like some NBFCs have started offering reasonable rates on their bonds.

[eyesice]

If the rates shoot up over the next 12 months, you will definitely be better off with SIP. Conversely, if the rates drop over the next 12 months, you will be better off with lumpsum investment. So it's a coin-toss situation

Thank you. As I mentioned earlier, I have a choice to invest in lumpsum v/s SIP. Given the abysmal return from bonds this year, I do not want to jump all in by investing a lumpsum into debt funds. I think event post tax, RBI's Floating rate bonds offer better returns comparatively.

However, I will start doing SIP from my income onto the liquid, PSU & Banking and GILT now that I understand a little about about the nuances of these funds.

[2000rpm]

Originally Posted by SmartCat

Gents, no point in wondering about stock price (why is it up? why is it down?) or NIFTY. As mentioned many times before, all you have to do is maintain a particular asset allocation (eg: 50% equities/50% debt). For individual stocks, have some kind of hard valuation metrics (based on trailing or forward PE ratio for example) below which you will buy a stock.

Hi SMARTCAT,

How do you buy Debt funds? I recently understood the amazing tax benefits Debt funds have over FDs and felt so sad that I used to stick to FDs (which are also kinda debt instruments).

I have two queries regarding debt funds
The value of debt funds fluctuate with Repo Rate. If repo rate decreases, debt funds value increases and vice versa. Is this a good time for entering debt funds? (since repo rate decrease is unlikely, in fact the increase is very likely)

Debt funds provide a fixed return on maturity. Do we get capital gains from debt funds also? Because of the appreciation related to Repo rates??

[SmartCat]

Originally Posted by 2000rpm

Debt funds provide a fixed return on maturity. Do we get capital gains from debt funds also? Because of the appreciation related to Repo rates??

I have moved your post to this thread. Read from the beginning ask if you still have questions.

A debt fund gets capital appreciation because the underlying bonds moves up and down just like a stock. Individual bond in the mutual fund portfolio can either pay interest periodically or at maturity. The proceeds will add to debt MF NAV.

If repo rate decreases, debt funds value increases and vice versa. Is this a good time for entering debt funds? (since repo rate decrease is unlikely, in fact the increase is very likely)

Just like how we cannot predict stock prices/GDP growth/inflation etc, we cannot predict what RBI will do with interest rates either.

To be on the safer side, use a 50/50 mix of overnight/liquid funds and gilt funds (regular, not fixed maturity)

[DigitalOne]

Originally Posted by 2000rpm

Debt funds provide a fixed return on maturity. Do we get capital gains from debt funds also?

Smartcat has already answered but I would add a couple of points for emphasis. Debt funds do NOT provide or guarantee for return. There are various categories of debt funds and each category has its own risk and expected return profile.

Do read up well on the risks and ask questions before you invest.

[adimicra]

Any suggestion for fixed income investments for the next 2-3 years?
I have a clear idea on the equity side of things but I am struggling to find any reasonable fixed income investments with 7-8% annual returns (pre-tax)
The less said about FDs the better.
I have a few short term funds (Axis and HDFC) but the last 1 year returns are hovering around 5%, which does not even cover for inflation.
Are there any other options, with reasonable safety? ( I don't want to go for high credit risk funds investing in bonds of highly leveraged poorly managed poor companies)
PPF is not very useful due to the ceiling and lock-in period.
What about GOI floating rate bonds? Current interest rate is 7.15% and it offers protection against increasing interest rate scenario.
I have never done much research about floating rate MFs. If anyone has more information on this, please share

[huntrz]

Originally Posted by adimicra

Any suggestion for fixed income investments for the next 2-3 years?
I have a clear idea on the equity side of things but I am struggling to find any reasonable fixed income investments with 7-8% annual returns (pre-tax)
The less said about FDs the better.
I have a few short term funds (Axis and HDFC) but the last 1 year returns are hovering around 5%, which does not even cover for inflation.
Are there any other options, with reasonable safety? ( I don't want to go for high credit risk funds investing in bonds of highly leveraged poorly managed poor companies)
PPF is not very useful due to the ceiling and lock-in period.
What about GOI floating rate bonds? Current interest rate is 7.15% and it offers protection against increasing interest rate scenario.
I have never done much research about floating rate MFs. If anyone has more information on this, please share

if interest rates rise in next 2-3 quarters then bond yields will fall. Hence among MFs short term debt funds are best bets. I have only heard PPFAS conservative hybrid fund which says that their strategy will change depending on interest rate cycle. So I guess that should be one good bet but they don't have a history as they are new.

[SmartCat]

Originally Posted by adimicra

Any suggestion for fixed income investments for the next 2-3 years?

Don't try to predict rates (because it is impossible). So stick to 33%/33%/33% investments in short/medium/long term debt.

I have a clear idea on the equity side of things but I am struggling to find any reasonable fixed income investments with 7-8% annual returns (pre-tax) The less said about FDs the better.

Credit risk funds have been hitting the ball out of the park in the last one year. I think what was once considered a NPA have been written back, thereby resulting in shooting NAV values. Yield to maturity of credit risk funds are still high (8 to 10%).



So if you feel adventurous, you can give this a try.

What about GOI floating rate bonds? Current interest rate is 7.15% and it offers protection against increasing interest rate scenario.

I see this in a few debt mutual funds I own. My dad has taken the traditional route and has applied for these bonds
https://sbi.co.in/web/personal-banki...emes/rbi-bonds

I have never done much research about floating rate MFs. If anyone has more information on this, please share

There are not many floating rate instruments, so floating rate MFs is a dead category. The fund manager of these funds just switches between securities of different maturities. My 33/33/33 debt investment idea should give you returns of a floating rate bond fund.

[Jedi.Knight]

Question to all the gurus on this thread:

As the debt part of the portfolio, along with the debt mutual funds, should I also consider my FDs, PF, and EPF investments?
If I do, then I need to completely stop my investments in debt MFs as the debt portion goes way too high and rebalancing is really difficult.

[SmartCat]

Originally Posted by Jedi.Knight

As the debt part of the portfolio, along with the debt mutual funds, should I also consider my FDs, PF, and EPF investments?
If I do, then I need to completely stop my investments in debt MFs as the debt portion goes way too high and rebalancing is really difficult.

Definitely. All interest bearing instruments should be considered as part of your 'debt' holdings when looking at your debt/equity mix.

[adimicra]

For my debt portfolio, I had so far only short term funds (HDFC and Axis). Last 1 year returns are in the range of 4-4.5% which is still much better than FDs after adjusting for income tax.

Given the huge run up in equities, I am planning to sell a portion of my equity holdings and put into debt as part of asset allocation and rebalancing (Current equity holding has crossed 70% and I want to get it back to 60%). Should I be adding in the same funds or go for medium/long-term (Gilt) funds? I am not planning to withdraw any money before the next 3-4 years.

About equity, I do a combination of mutual funds and direct equity. These are the Mutual funds I am currently holding and plan to keep holding for some more time.

Axis focussed fund - mostly largecap
UTI nifty next fund - large cap index fund investing in the nifty next index
Can Robeco emerging equities fund - large and midcap
Parag Parikh flexi cap - flexi cap fund with 30% exposure to international/US stocks (FANG)
Kotak Nasdaq FoF - invests in Nasdaq ETF

[SmartCat]

Originally Posted by adimicra

For my debt portfolio, I had so far only short term funds (HDFC and Axis). Last 1 year returns are in the range of 4-4.5% which is still much better than FDs after adjusting for income tax.

Given the huge run up in equities, I am planning to sell a portion of my equity holdings and put into debt as part of asset allocation and rebalancing (Current equity holding has crossed 70% and I want to get it back to 60%). Should I be adding in the same funds or go for medium/long-term (Gilt) funds? I am not planning to withdraw any money before the next 3-4 years.

We have a debt MF thread too:
https://www.team-bhp.com/forum/shift...ebt-funds.html (Investing in debt funds)

Within your debt MF portfolio, split your asset allocation equally between short duration/medium duration/long duration funds. Purely from safety of capital point of view, choose these categories:

Overnight/Liquid funds - 34%
PSU & Banking funds - 33%
Gilt funds (regular, not constant duration) - 33%

Equal allocation solves the "problem" of predicting future interest rates. This strategy is called LADDERING and can be used for fixed deposits too.
https://www.investopedia.com/terms/c/cd-ladder.asp

Fixed Deposits: How FD laddering can maximise your investment benefits
https://www.financialexpress.com/mon...efits/1792759/

[anandhsub]

Originally Posted by adimicra

Should I be adding in the same funds or go for medium/long-term (Gilt) funds? I am not planning to withdraw any money before the next 3-4 years.

Long term yields have gone up quite significantly over the past year and hence levels look attractive to put more in medium-long term funds. I am myself planning to accumulate some debt around 6.75-7% on the 10yr yield and hoping the high inflation in the US and expectation of rate increases causes yields to rise a bit more by the budget when I will make my investments.

I have only one debt fund in my portfolio so far which is the DSP Govt security fund but to take on a bit more of duration risk I am also looking at some 10yr constant maturity funds.

[adimicra]

Thanks for your replies.
Any suggestions for gilt funds? Never invested in these funds, so don't have much knowledge. Any reputed/large fund house with low expense ratio should be fine I guess.

Also, between the 10 yr constant maturity and normal gilt fund, which is preferred?

[SmartCat]

Originally Posted by adimicra

Any suggestions for gilt funds? Never invested in these funds, so don't have much knowledge. Any reputed/large fund house with low expense ratio should be fine I guess.

Yeah, nothing new to add here - stick to reputed fund houses, largish AUM, diversified portfolio (securities of different maturities), low expense ratio etc.
https://www.valueresearchonline.com/...uspended-plans

Thankfully, fund managers cannot screw up much in this category of funds (since there is no credit risk).

Originally Posted by anandhsub

I have only one debt fund in my portfolio so far which is the DSP Govt security fund but to take on a bit more of duration risk I am also looking at some 10yr constant maturity funds.

Also, between the 10 yr constant maturity and normal gilt fund, which is preferred?

Regular Gilt Vs Constant Maturity Gilt:

1) Fund manager of regular gilt fund can shift 50% of portfolio to short term treasuries (90 days to 1 yr maturity) if he thinks that interest rates are going to rise. But fund manager of constant maturity gilt is allowed to invest only in long term g-secs (5 yr/10 yr etc). So regular gilt funds will be less volatile than constant maturity gilts, and is ideal in an environment where interest rate direction is uncertain.

2) 80% to 90% of AUM is in regular gilt. Not many investors bother with constant maturity gilt funds.

3) However, constant maturity gilt funds will have lower expense ratio. That's because the fund manager does not have to do much "work". There is no need to 'predict' interest rates.

4) Constant maturity gilt funds have historically had slightly higher long term returns. Fund managers of regular gilt funds might be in 50 short term/50 long term, when interest rates are falling. It might take some time for manager to shift to long term securities. Timing the debt markets are key in regular gilt funds which many fund managers might miss.