Newsletter April 2014
Investor Education Module: Debt Mutual Funds
Debt mutual fund schemes can be a preferable avenue for those seeking to invest in a mix of debt instruments, such as G-secs, money market instruments, etc.
By investing in these schemes, investors benefit from the underlying interest rate scenario. For instance, when the interest rate is expected to rise, short maturity mutual funds such as liquid funds, ultra short-term debt funds, fixed maturity plans (FMPs) and short-term debt funds are preferable options. When the interest rate is expected to fall long-term debt funds and gilts funds are preferable options. In addition, these funds are more tax-efficient vis-à-vis Fixed Deposits (FD’s)
Besides, they also provide benefits such as professional management, regular income, diversification, liquidity, and lower tax burden. However, these funds do not offer guaranteed returns.
Types of Debt Mutual Funds
Fund Type |
Expected Returns |
Risk |
Suitability |
---|---|---|---|
Preferable in rising/high interest rate scenario |
|||
Short Term Income Funds |
Moderate |
Low |
|
Liquid Funds |
Very Low |
Very low |
|
Ultra Short Term Debt Funds |
Low |
Very low |
|
Fixed Maturity Plans (FMPs) |
Moderate |
Moderate |
|
Preferable in falling interest rate scenario |
|||
Long Term Income Funds |
Moderate |
Moderate |
|
Gilt Funds |
Moderate |
Moderate |
|
During an uncertain interest rate scenario |
|||
Dynamic Bond Fund |
Moderate |
Moderate |
|
For those keen to have a smaller exposure to equities |
|||
Monthly Income Plans (MIPs) |
Moderate |
Moderate |
|
Capital Protection Oriented Funds (CPFs) |
Low |
Low |
|
Theme Topic: Money Market Fund
Many people prefer to park their savings in savings bank accounts owing to the safety and liquidity offered by these accounts. But these deposits do not provide adequate returns to beat inflation or offer any kind of tax benefit. In addition, there is also uncertainty marking the prevailing interest rate scenario, and with no clarity about the Reserve Bank Of India (RBI’s) future policy stance. Hence, look at money market funds which are more likely to offer better returns than savings bank accounts and preferable for investors looking for safe and conservative investments. However these funds do not offer guaranteed returns like savings bank deposits.
Money market funds
- Invests in short-term corporate debt bonds, certificates of deposits (CDs), commercial papers (CPs) and government treasury bills (T-bills).
- Offers reasonable levels of safety and liquidity as well as higher tax-adjusted returns.
- Although not backed by any principal guarantee, are safe as their portfolios mostly comprise ‘A1+’ rated CPs and CDs.
- Availability of faster liquidity
Types of money market funds
- Liquid funds
These funds invest in debt instruments that have maturity of 90 days or less. These funds are preferable for investors with a low risk profile and who are planning to build a corpus for contingencies or for very short-term goals such as children’s tuition fees or settling of one-time bills.
- Ultra short term funds
These funds invest in debt instruments that have maturity of one year or less. These funds give slightly higher returns than liquid funds, as the risk is comparatively higher, and are suitable for investors wanting to park surplus funds to achieve specific short-term goals.
Summing up
To start with, investors can park a small portion of their savings bank deposit in a money market fund and gradually build their portfolio depending on their requirements and goals. However, these funds do not offer guaranteed returns like savings account.
FAQ-Consolidated Account Statement (CAS)
What is a Consolidated Account Statement (CAS)?
CAS is a single account statement which consolidates an investor’s holding in various folios across all mutual fund schemes/fund houses. The consolidation is done by identifying unique investors across fund houses based on their permanent account number (PAN).
What are the benefits of CAS?
- Convenience - Investors receive just one document - a complete snapshot for all mutual fund transactions across fund houses - instead of multiple documents.
- Consolidation -Investors can gauge the value of each of their transactions plus see the total value of their entire portfolio holdings in a single document.
- Mobility - Investors can also access CAS through emails. It is also an environment-friendly initiative and will help reduce the usage of paper.
What are the details provided in CAS?
- Details about different schemes and their folios by each fund house.
- All types of mutual fund transactions such as purchase, redemption, switching to other schemes, systematic investment plans, systematic transfer plans, systematic withdrawal plans and dividend declaration.
- Scheme’s closing units and market value
- Investors’ details such as address, registered email id, PAN, and KYC (Know Your Customer)
Transaction done via demat mode are not available in CAS.
How can an investor get CAS?
Either through email or in physical format on registered address.
Your feedback matters to us.
Connect with us and let us know what you think about this Newsletter.
Disclaimer:
The information on this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices or any representation that any such future movements will not exceed those shown in any illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to on this document and should understand that statements regarding future prospects may not be realised. Opinions, projections and estimates are subject to change without notice.
UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.