Dynamic Bond Funds - Invest Online
The policy changes by the central bank directly impacts your investment in debt funds. Income and gilt funds would make the best capital gains after the rate cut. Yields across the curve fell 10- 15 basis point ( bps) and existing investors have gained to that extent in a day.
To benefit from the rate cut, experts suggest investors look at short- duration funds if they have an investment horizon of less than a year. For longer tenure, up to three years, they should opt for medium- term income accrual or bonds funds.
The portfolio of dynamic bond funds are well positioned to further benefit from the rate cut. They keep agood mix of gilt and bonds for this. The former component can give investors returns arising out of the rate cut. Bonds will gain over the next 18 months as the credit cycle eases.
Income accrual funds bet on corporate bonds, which benefit when there is credit easing. These funds already hold corporate papers that have higher maturities than the ones that would be issued after the rate cut. The difference between the interest rates will result in capital appreciation as most of them will hold it until maturity. With credit easing, there are also chances that the companies' rating will be upgraded that would further cause a rally in bonds. In the past few months, DHFL was upgraded from AA+ to AAA, Mahindra & Mahindra Finance was upgraded from AA+ to AAA. Even smaller firms with a sound balance sheet have witnessed it, such as Sundaram BNP Paribas Home Finance (AA to AA+) and Ashok Leyland ( A+ to AA-).
Investors should ideally keep an investment horizon at par with the portfolio maturity of the fund. Dynamic bond fund and income accrual schemes have an average maturity of two and a half to three years. Due to taxation, it is also better to stick with medium- term income funds for three years. If a person holds debt investment for less than three years, he or she will need to pay short- term capital gains tax. For holding period above that, there's benefit of indexation.
One can stick to short- term funds, such as liquid and liquidplus schemes, if one's investment horizon is less than ayear. Short- term funds will give good returns once inflation comes down.
Experts say investors need not tinker with their debt portfolio as shifting won't be tax- efficient. If they do shift, say from a short- duration fund to a medium- term one, and the yields are affected due to some event, they will suffer a loss.
The policy changes by the central bank directly impacts your investment in debt funds. Income and gilt funds would make the best capital gains after the rate cut. Yields across the curve fell 10- 15 basis point ( bps) and existing investors have gained to that extent in a day.
To benefit from the rate cut, experts suggest investors look at short- duration funds if they have an investment horizon of less than a year. For longer tenure, up to three years, they should opt for medium- term income accrual or bonds funds.
The portfolio of dynamic bond funds are well positioned to further benefit from the rate cut. They keep agood mix of gilt and bonds for this. The former component can give investors returns arising out of the rate cut. Bonds will gain over the next 18 months as the credit cycle eases.
Income accrual funds bet on corporate bonds, which benefit when there is credit easing. These funds already hold corporate papers that have higher maturities than the ones that would be issued after the rate cut. The difference between the interest rates will result in capital appreciation as most of them will hold it until maturity. With credit easing, there are also chances that the companies' rating will be upgraded that would further cause a rally in bonds. In the past few months, DHFL was upgraded from AA+ to AAA, Mahindra & Mahindra Finance was upgraded from AA+ to AAA. Even smaller firms with a sound balance sheet have witnessed it, such as Sundaram BNP Paribas Home Finance (AA to AA+) and Ashok Leyland ( A+ to AA-).
Investors should ideally keep an investment horizon at par with the portfolio maturity of the fund. Dynamic bond fund and income accrual schemes have an average maturity of two and a half to three years. Due to taxation, it is also better to stick with medium- term income funds for three years. If a person holds debt investment for less than three years, he or she will need to pay short- term capital gains tax. For holding period above that, there's benefit of indexation.
One can stick to short- term funds, such as liquid and liquidplus schemes, if one's investment horizon is less than ayear. Short- term funds will give good returns once inflation comes down.
Experts say investors need not tinker with their debt portfolio as shifting won't be tax- efficient. If they do shift, say from a short- duration fund to a medium- term one, and the yields are affected due to some event, they will suffer a loss.
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
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