Investing in debt funds

By Morningstar |  07-09-18 | 
 

Can you suggest a debt fund with very low risk for 6 months - 1 year for a lumpsum investment?     

- Mukesh

You can look at investing in a low duration fund. These funds run their portfolio duration in the range of 6-12 months. Pick one as per your investment duration. Though a lot of funds that fall in this category can invest in the slightly lower rated AA papers, funds like Axis Treasury Advantage, Canara Robeco Savings, ICICI Prudential Savings, IDFC Low Duration, Invesco India Treasury and Mirae Asset Savings are amongst funds that typically invest over 75% of their portfolio in higher rated AAA papers.

These are just broad based examples of funds that you could possibly look at, based solely on your investment horizon. Do compare the funds to make sure that these meet your goals and return expectations.

You can view detailed performance and portfolio level data on each of these funds here.

I have a list of debt funds I invested in during April and May 2015. Since September 2016 I have been withdrawing a small amount from many of them through SWP. I want to switch the existing amount to equity and balance funds. And opt for the direct/growth option. Is it possible? 

- Bharat

Yes, it is possible to switch from debt funds to direct growth plans of equity and balanced funds. If the equity and balanced funds that you want to invest into are from the same fund house as your debt funds are, then you can use the transaction option of “Switch” to transfer your assets from debt funds to the chosen equity and/or balanced funds. This would be same as doing a lumpsum investment.

However, you can also use the facility of Systematic Transfer Plan (STP) to transfer a fixed amount from your debt funds to equity and balanced funds at a regular interval. Thereby, instead of switching the amount in one go, you would be spreading it over a certain time-period, which will help you to avoid trying to time the market and average out the cost of acquisition of new units; this is like doing a Systematic Investment Plan (SIP).

In both the cases i.e. Switch and STP, make sure that you select the Direct Growth Plan of the equity and balanced funds that you want to invest into. These transactions can be done in online and offline mode, both.

If the equity and balanced funds that you want to invest into are not from the same fund house as the debt funds are, then you would need to redeem the units from your debt funds and use the proceeds to invest in the equity and balanced funds of the other fund house. Again, this would be same as doing a lumpsum investment. Alternatively, instead of redeeming all your debt funds’ units in one go, you can redeem them in the form of SWP and use the proceeds to invest in the desired funds from other fund houses. This would be like doing a SIP and will help you avail the associated benefits, as mentioned earlier. Note that, all these transactions i.e. switch, STP and redeeming of units, attracts the relevant capital gains tax (STCG/LTCG).

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Sanjib Basu
Sep 8 2018 03:43 PM
If I have 2 crore to invest How much to invest in equity fund and how much in Debt funds, I need capital protection an minimum returns of 15%/yr for 5-7 yr. scenario/
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