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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

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.