Debt-Based Mutual Funds



Mutual Funds refer to the diversification of funds across different asset classes such as Equity, Debt, Gold, Commodities (such as copper and aluminium), and pre-listed shares of companies. They are usually performed by a fund manager/organisation on a large scale to minimise the risks of losses and maximise returns. A manager who has a higher Asset Under Management (AUM) or handles a significantly increased amount of funds is usually well-educated and would have had at least 10-15 years of experience in Stock Markets.

In addition, any ready investor needs to undergo a psychometric test to measure the risk appetite or the financial risk one is willing to take while choosing a suitable mutual fund scheme. Targeting long-term returns is the best way to deal with mutual funds since ‘time’ determines the level of returns for the investor apart from the rate of return. This is usually measured by Compounded Annual Growth Rate (CAGR). It measures the total returns to date from the first day of investment. Moreover, one can invest in Mutual funds through Systematic Investment Plans (SIPs) or lump sums. Usually, middle-class individuals are advised to invest through SIPs. It improves their financial health and encourages the ‘saving habit’ among those who typically have a high Marginal Propensity to Consume (MPC). In contrast, lump-sum investments are higher in value since they are a one-time investment preferred by high-income individuals, particularly High Net-Worth Individuals (HNIs).

Best Stocks to Buy Today

The best stocks to buy today and status of mutual funds can be found on the websites of Capital Institutions and Financial Services Companies. One of the most popular mutual funds managed by a Finance Company itself is the SBI Liquid Growth Direct Plan. The sector-wise split up of assets is illustrated in the following diagram:

The fund mainly focuses on money market instruments (99.63%) and does not consist of equity instruments. The AUM of the scheme is currently recognized in the top 25% of comparable funds and has yielded 6.8% in the past decade, beating the returns generated by Fixed Deposits (0.3%) and Bank Savings by (3.3%). In addition, it offers entry to a humongous population by providing a low minimum SIP amount of just Rs.500 per month. The Fund Manager is Mr. R. Arun, a Credit Analyst who has had 15 years of experience in markets and is currently serving as a Fixed Income Manager at SBI Securities Ltd.

The fund has an AUM of INR 58,511 crores, and the total expense ratio (TER) stands at 0.18%. The returns are always positive, even during emergency periods such as lockdown and insolvency, classified as a low-to-moderate risk fund.

Thus, this fund is for an investor who has already invested in many mutual funds and is looking forward to another investment that would give them a safe fixed income with good returns. In addition, this fund can be withdrawn upon maturity in multiples of 91 days since the T-Bills included in this fund have the same maturity period. The Net Asset Value (NAV) of the fund presently stands above its 200 days moving average, making it a reliable fund for low-risk investors.

One can allocate approximately 9-15% of their investments towards this mutual fund. The remaining assets are efficiently distributed between high/medium and low-risk Mutual Funds, Equity, Debt, and Gold. If the investment is sold after three years from the date of purchase, the long-term capital gain tax would be charged on the earnings. The prevailing tax rate is the minimum value between 10% of the profit or 20% of the profit adjusted after indexation benefits. However, if it is sold within three years from the date of purchase, the short-term capital gain tax would be applicable.

One of the strengths of the fund is its investments in Government Bonds (such as 364 DTB 05052022) and Commercial Paper of Listed Companies (such as Bharti Airtel Ltd.). These financial instruments give high returns in a short period and also require the associated institutions to return the investment amounts plus interest upon maturity, even if they encounter bankruptcy/insolvency or any other financial hurdles such as negative financial returns in a particular year, improper maintenance of financial accounts, etc.

Looking at the data of the last four months, there has been tremendous Foreign Institutional Investors (FII) selling, thus indicating a remarkable reduction in the Equity indices such as BSE Sensex and the NSE Nifty. Compared to October 2021, the Sensex index has dropped by 12-15%. However, in such cases, debt instruments are the best investment through this Mutual Fund Scheme. Hence, an investor who has had this scheme in their portfolio should have minimised the losses by compensating for the losses in investments made in the Equity Market.