Yes , interest rate have been falling and they’ll continue to fall not because of any economic impact rather it inevitable just like in developed economics.
It is also interesting to note that Indian Investor are not so much exposed to markets. They are confined to Banks or safer but low return products like Bank Interest , FD etc.
In India most of trading happens in AAA rated securities as compared to other economics where even a notch below debts securities are frequently traded.
However with falling interest rates at bank , return on AAA rated securities will also fall and eventually less secured securities will give higher return.
Hence, it is better not to lose opportunity of investing in highly rated debt securities as these will provide decent return over 3-5 years.
Why to Invests in Debt Funds ?
It is not the return alone which favors the debt funds rather it is coupled with tax efficiency .
It is not important to invest in complex debt funds for a retail investor . He can choose to invests in Low Duration Funds, Ultra short duration funds , Money market funds with Top 3 AMC’s.
Now let’s assume if you’ve invested Rs. 100000 in a fixed deposit of 3 years which gives 5% return P.A.
Then you would earn return as given in coloumn in A .
However if you invest in a debt fund which gives 6% return in a year , 5.5% CAGR in two year & 5% CAGR in three year .
You can get more than 100% return as compared to fixed deposits.
Without taking any risk an investor can make better return .
However, there are some banks which provide savings interest rate of upto 7%.
But such banks can be risky in similar case to yes bank hence savings/fixed deposit in such banks should be limited to Rs. 5 Lakh as the same is secured by way of insurance.
In case of 7% interest , it could provide better return this can additionally be boosted by deduction available under section 80TTA.
Thus, it is important to have combination in savings account (if earn 7%) & in debt fund. Else have funds in Debt fund.
To effectively use debt invests for more than 3 years however for more than 5 years go for equity funds.
How to choose Debt Fund ?
Don’t go for high returns rather go for quality .i.e. debts fund which have invested in AAA rated or A1 rated securities.
However, don’t go for mid term or long term or credit risk fund rather invests in Ultra Short term , money market , low duration or banking & PSU bank debt fund.
You can choose 4 star or 5 star rated debt funds as given in Value research funds.
Choose your AMC well too , go for Top 3-5 AUM based Mutual Funds.
- Go for Quality (AAA rated , A1 rated )
- Ultra Short term , money market , low duration or banking & PSU bank Debt fund
- 4/5 Star rated fund
- Top 3-5 Mutual Funds based on AUM.
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Debt Funds For Investment
Ultrashort Term Debt Funds
Money Market Funds
Low Duration Funds
Banking & PSU Debt Fund
The above funds are either 4 or 5 star rated based on Valueresearchonline .
Read more on stockinfopoint.
The above is for education only and not is a recommendation of buy/sell.