Monday, April 15, 2024
HomeBusinessFinanceHow can I spread my investment across debt funds to achieve medium-term...

How can I spread my investment across debt funds to achieve medium-term goals?


I am a retired individual. With a medium-term goal of 5-6 years, I’d like to invest in a debt fund. Please recommend a few funds to spread the investment for the best-expected return

– Name withheld on request

While choosing debt funds, it becomes important for investors to understand the risk associated with them. Generally, most debt funds carry two types of risks: credit risk and interest rate risk. One shouldn’t look at the higher returns (abnormally high) in fixed-income products as there may be a risk of losing invested capital due to the higher credit risk. On the other hand, the risk associated with interest rates is high in the prevailing economic condition of high inflation. Hence, investing in products that mitigate the risk associated with an investment in debt and help you get decent returns is prudent.

If your investment horizon is 5-6 years, Target Maturity Funds (TMFs) can be a good choice as they have various advantages over the other categories of debt funds. The first and most promising advantage of TMFs is their relative immunity to interest rate risk. Since their portfolios have a reduced duration, they are less sensitive to interest rate change. Secondly, TMFs have better return visibility than the rest of the debt funds since the portfolio of bonds is held till maturity. Thirdly, being passive in nature, target maturity bond funds deploy their funds based on the composition of the underlying bond index. Hence the portfolio of these funds tends to be heavily invested in government securities, SDL and PSU Bonds, which lowers the default and credit risk of TMFs. Currently, the net YTM of many TMFs with maturity dates between 5-6 years is hovering in the range of 7.10%-7.40% and seems attractive in the current situation. So, you may consider investing in these funds with the maturity that suits your investment horizon. Some suggested funds are ICICI Prudential Nifty PSU Bond plus SDL September 2027 40:60 Index Fund, Kotak Nifty SDL Apr 2027 Top 12 Equal Weight Index Fund, SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund, IDFC CRISIL GILT 2028 Index Fund.

Query answered by Rajiv Bajaj, Chairman & MD, Bajaj Capital Ltd. If you have any personal finance queries, write to to get them answered by experts.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint.
Download The Mint News App to get Daily Market Updates.



Source link


most popular

Recent Comments