Debt funds v/s Fixed Deposits - help

[nikhilfake]

Hello

I am a 24 year old guy looking to diversify my investments to equity , debt and fixed instruments. I have invested about 40% of my savings in equity MFs like HDFC Top 200, Reliance Reg Savings Equity and Sundaram Select Midcap.

For debt instruments, I am caught thinking between MFs like medium-term, short-term and floating rate etc. I planned on investing in FD's which give 6% interest rate and are still taxable. My outlook for 50% of debt funds is 2-3 years and for rest is 1 yr. Can you please suggest differences in rates for Debt MF v/s FD's? Also please suggest 4-5 good debt MFs for both the time periods.

Thanks!
Nikhil

 

[nikrod]

Debt funds fare better in light of taxation than FD’s. The long term capital gains tax on debt funds will be 10% (20% with indexation), while gains on FD’s is taxed at your income slab. So rule of thumb would be to choose debt funds if you fall in 20% or 30% tax bracket.

Note that debt funds do not offer guarantee of returns like FD does. You can choose 4-5 star rated debt funds from short-term & medium-term category. Please refer www.valueresearchonline.com for detailed info.

 

[nikhilfake]

I am wondering how RBI policy is affecting the MF yield since most of them invest in corporate bonds like REC, IOC etc. Also how are they showing 10 per cent annual returns for last 3 years.

I was looking at Canara Robeco Income and HDFC MIP but how do you rank them. What kinds of returns can be expected from them?
Also,What funds do you recommend ? Please recommend some.

Thanks !!

 

[rkkarnani]

Have a look at Larsen Toubro NCD and Tata Capital NCD, the CMP the returns are greater than Bank FD interest , they are easily tradable hence no lock in as is the case of Bank FD's

 

[milind]

Have a look at Larsen Toubro NCD and Tata Capital NCD, the CMP the returns are greater than Bank FD interest , they are easily tradable hence no lock in as is the case of Bank FD's

Are those still available? How does one trade in debt market?

-- Milind

 

[scs_r]

Have a look at Larsen Toubro NCD and Tata Capital NCD, the CMP the returns are greater than Bank FD interest , they are easily tradable hence no lock in as is the case of Bank FD's

Hi rkkarnani,

Thanks for the information. isn't it riskier to invest at CMP ( 114,355.01 - N1 )? I have following calculation in my mind.

There is 2 yrs. remain for options to exercise. So, Calculating interest for 2 Yrs. we will receive 24,000. If for some reason, company exercise their option to buy back after 3 yr., we will get 100,000.00 back. So, Total amount we will receive, would be 100,000 (Principal Amount) + 24,000.00 = 1,24,000 out of which we have invested 1,14,355.01. So, Total return for 2 yrs. would be 9644.99 that is less than current bank rate.

I am sure, I have been missing anything in this calculation. Could you please correct me?

Regards,

Rakesh

 

[magnet]

First what is CMP?

And on similar lines i am planning to invest some amount in companies fd like of Unitech & jp associates where u get yearly 11% return which even after tax cutting in highest bracket gives better return than bank fds

How good or are they more riskier?

Main stuff for me is to better Bank fd rates and not bigger lock in max 1 year

Note::i guess CMP is current market price here right?

 

[scs_r]

Your guess is correct. Regarding companies fd, they are considered as High Return high risk products.

Regards,

Rakesh

 

[magnet]

Your guess is correct. Regarding companies fd, they are considered as High Return high risk products.

Regards,

Rakesh

Agreed but what about companies i have mentioned..i did read in papers that some company is refusing to pay interest to investors but that are not heared one..

I(my family members) already have invested in tata motors one

And i am planning to shift my sisters fund from bank fds to known companies one like Unitech ,Jp associates etc

I know its riskier but without risk reward also is not great.

Thats the reason ill keep minimum 6 months or 12 months for fd thats it

 

[milind]

Agreed but what about companies i have mentioned..i did read in papers that some company is refusing to pay interest to investors but that are not heared one..

I(my family members) already have invested in tata motors one

And i am planning to shift my sisters fund from bank fds to known companies one like Unitech ,Jp associates etc

I know its riskier but without risk reward also is not great.

Thats the reason ill keep minimum 6 months or 12 months for fd thats it

The risk, in my opinion, is too much if someone has to offer more than 2-2.5% interest over what good banks are giving.

Not sure if 6m-12m duration really helps - if you are going to keep the money in one risk FD or the other. Probability of loosing capital will depend upon total duration your money is invested in risk FDs, and not on whether you change companies in the middle. Its similar to probability of getting alternate heads and tails on ten attempts which is same as that of getting 10 consecutive heads.

-- Milind