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Personal Finance - Debt funds are ideal investment options during volatile times
22-Nov-2011
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In India, it is still the institutional investors who mostly invest in fixed income mutual fund products. Retail investor participation in this asset class through mutual funds is negligible. This is counter intuitive considering the vast amount of savings that the Indian investors have in bank fixed deposits.

If one looks at the asset allocation pattern of Indian retail investors, it is evident that Indians are predominantly fixed income investors by nature and convention. This anomaly is clearly an opportunity for the mutual fund industry.

Diversity of product offerings

In terms of diversity of product offerings, the industry has come a long way. Debt mutual fund products come with different permutations of liquidity (or tenors), credit quality and interest rate-related volatility to address various investment requirements based on an investor's investment objective, risk appetite, and time horizon.

The product bouquet encompasses liquid and ultra shortterm funds, which invest in money market securities; fixed maturity plans that invest in securities matching the scheme tenure so as to lock in the yield prevailing at that time; income and gilt funds; capital protection-oriented schemes; and a vast offering of hybrid products with different combinations of equity and debt.

Product offerings are multifold

The industry needs to invest in increasing awareness among retail investors so that they can take advantage of a wide array of useful products.

The product offerings in debt space today are multifold and designed for retail as well as institutional investors - right from avenues such as gilt funds, which typically provide returns in the form of capital appreciation and interest income by investing in government securities of varying maturities, to various short-term investment avenues such as FMPs designed to lock in yields by buying and holding papers of similar maturity, and shortterm and ultra short-term funds, which are more accrual based meant for short-term deployment of funds.

Source : ET back