December 21, 2017

Top and Best Debt Mutual Funds to invest in 2018

Which are Top and Best Debt Mutual Funds to invest in 2018 to invest? How to shortlist among the many categories and again within same categories many funds? Let us shortlist the funds based on our requirement.

Note:-Refer our latest post related to recent changes in types of debt funds “Types of Debt Funds in India -After SEBI Categorization“.

Before proceeding further, let us recap the returns of last year funds which I recommended in 2017.

Performance of Top and Best Debt Mutual Funds in India for 2017

Have you noticed one thing?? Returns of Income Funds, Dynamic Funds, and Credit Opp Funds are around same of Ultra Short Term Debt Funds and Short Term Debt Funds since a year. Also, the Long Term Gilt Funds returns since a year tumbling to 4.60% and 1.31%.

The reason is slowly higher inflation and RBI’s monetary policy halted slashing of interest rate. Hence, the effect is high on long-term debt funds rather than short-term debt funds.

Hence, I always advocate for Ultra Short Term, Short Term or Short Term Gilt in debt fund category.

Why I have to invest?

Before proceeding further, let us understand the basics of investment. I am repeating this again and again for the benefits of all investors. I repeated this in my earlier post of “Top 10 Best SIP Mutual Funds to invest in India in 2018“.

Before a BLIND investment, it is always best that you must know the reason for your investment. Hence, before jumping into investment read what I am sharing below.

You must have a proper Financial Goal

I noticed that many of investors simply invest in mutual funds just they have some surplus money. The second reason may be someone guided that mutual funds are best in long run compared to Bank FDs, PPF, RDs, or even LIC endowment product.

If you have clarity like why you are investing, when you need money and how much you need money at that time, then you will get the better clarity in selecting the product. Hence, first identify your financial goals.

You must know the current cost of that particular goal. Along with that, you must also know the inflation rate associated with that particular goal. Remember that each financial goal to have it’s own inflation rate. For example, education or marriage cost of your kid’s is different inflation that the inflation rate of household expenses.

By identifying the current cost, time horizon and inflation rate of that particular goal, you can easily find out the future cost of that goal. This future cost of the goal is your target amount.

I have written a separate post on how to set your financial goals. Read the same at “Financial Goals – How to set before jumping into investing?

Asset Allocation is MUST

Next step is to identify the asset allocation. Whether it is short-term goal or long-term goal, the proper asset allocation between debt and equity is a must. I personally prefer the below asset allocation. Remember that it may differ from individual to individual. However, the basic idea of asset allocation is to protect your money and smoothly sail to reach the financial goals.

If the goal is below 5 years-Don’t touch equity product. Use the debt products of your choice like FDs, RDs or Debt Funds.

If the goal is 5 years to 10 years-Allocate debt:equity in the ratio of 40:60.

If the goal is more than 10 years-Allocate debt:equity in the ratio of 30:70.

While choosing debt product, make sure that the maturity period of the product must match your financial goals. For example, PPF is best debt product. However, it must match your financial goals. If the PPF maturity period is 13 years and your goal is 10 years, then you will fall short of meeting your financial goals.

Return Expectation

Next and the biggest step is the return expectation from each asset class. For equity, you can expect around 10% to 12% return. For debt, you can expect around 7% return expectation.

When your expectations are defined, then there is less probability of deviating or taking knee-jerk reactions to the volatility.

Portfolio Return Expectation

Once you understand how much is your return expectation from each asset class, then the next step is to identify the return expectation from the portfolio.

Let us say you defined the asset allocation of debt:equity as 30:70. Return expectation from debt is 7% and equity is 10%, then the overall portfolio return expectation is as below.

(70% x 10%) + (30% x 7%)=9.1%.

How much to invest?

Once the goals are defined with target amount, asset allocations is done, return expectation from each asset class is defined, then the final step is to identify the amount to invest each month.

There are two ways to do. One is constant monthly SIP throughout the goal period. Second is increasing some fixed % each year up to the goal period. Decide which suits best to you.

Hope the above information will give you clarity before jumping into equity mutual fund products.

How many mutual funds are enough?

How many mutual funds do we have? Is it 1, 3, 5 or more than 5? The answer is simple…you don’t need more than 3-4 funds for investing in mutual funds. Whether your investment is Rs.1,000 a month or Rs.1 lakh a month. With the maximum of 3-4 funds, you can easily create a diversified equity portfolio.

Having more fund does not give you enough diversification. Instead, in many cases, it may create you portfolio overlapping and leads to underperformance.

Why we invest in Debt Mutual Funds?

There are basically two reasons to it. The first one is that your goal is too short in nature (like less than 5 years). Hence, you can’t enter into equity mutual funds.

The second important reason for investing is to diversify your investment in other asset class as per the time horizon of your goal. Hence, you invest part of your investment in debt funds as a diversification and also to make sure that the volatility in equity market be subdued in debt.

Hence, I always go for Short-Term, Ultra Short Term or Short Term Gilt rather than Income Funds, Dynamic Funds or Long Term Gilt Funds.

Points to understand before investing in Debt Mutual Funds

Credit Risk-

Debt Mutual Funds invest in treasury bills, government securities, Certificate of Deposits (CDs), Commercial Papers (CPs), bonds, money market instruments and many more. The credit quality of these underlying instruments are measured in terms of ratings.

Usually higher the ratings leads to lower the return or risk. It is a misconception among many that credit risk refers to risk of default by the bond issuing entity. However, the truth is something different.

There is a possibility that the credit rating of a bond or instrument the fund is holding may change at any point of time. Let us say ABC Debt Fund holding the bond of XYZ which is rated as AAA by credit rating agencies (highest rating).

It does not mean that this rating is permanent. It may change at any point of time if the company XYZ’s finance changes.

Hence, never be in a misconception that credit rating refers to default risk and also credit rating of bond will NEVER CHANGE.

Modified Duration-

It is a measurement of a bond’s sensitivity to movements in interest rates. It is usually measured in years. For example, if debt mutual fund with the modified duration of 3.1% means if there is a 1% interest rate movement then the fund will undergo the movement of 3.1%.

Hence, higher the modified duration means higher the interest rate risk.

Average Maturity-

A debt fund portfolio usually consists of a number of bonds where each could have a different maturity date. Maturity is the time period remaining before which a bond comes up for repayment by the issuer. Average maturity is simply the weighted average time left up to the maturity of the various bonds in a portfolio.

Higher the average maturity greater the interest rate risk of a debt fund.

Exit Load-

Some category of funds will charge you exit load. Hence, you have to be careful while selecting the funds and the conditions apply regarding the load structure.

Taxation-

Remember that Equity Funds and Debt funds are taxed differently. Hence, you must understand the taxation part as well before jumping into investment. I tried to explain the same in below image.

Mutual Fund Taxation FY 2018-19

The rate of taxation is as below for the current FY.

Also, the current DDT rates for Mutual Funds is explained in below chart.

Mutual Fund Taxation FY 2018-19 - DDT or Dividend Distribution Tax

 

Hope taxation part is clear to all of you. If you still have doubt, then refer my latest post “Budget 2018 – Mutual Fund Taxation FY 2018-19“.

How I selected Top and Best Debt Mutual Funds to invest in 2018?

My first priority should be safety and less volatility. As I said above, we look for debt funds first to diversify our asset and second to have sufficient non-volatile asset class.

Hence, considering these two points I am going to select. The main criteria in my mind are lower the credit risk, modified duration, and average maturity.

Those who want to time the interest rate movements or taking advantage of RISK by investing in corporate debt funds or other volatile risk funds can do so. I selected few funds for them too.

Again I am pointing here that the funds I selected are not final and BEST. These funds are selected based on my own assumptions. It does not mean that they must be BEST for you also.

Top and Best Debt Mutual Funds to invest in 2018

Excluding Liquid Funds (for which I usually write a separate post), I will cover all other types of debt funds categories in this post.

Top and Best Debt Mutual Funds to invest in 2018 -Ultra Short Term Debt Funds

ltra Short Term Debt Funds are safest after liquid funds. Usually, these funds invest in instruments which mature from 3 months to the maximum of 3 years. But I found that many Ultra Short Term Debt Funds invest in less than a year average maturity instruments.

Below are my top and best Ultra Short Term Debt Mutual Funds.

Top and Best Debt Mutual Funds to invest in 2018 -Ultra Short Term Debt Fund

You notice that this year I discontinued Birla Sunlife Floating Rate Fund-Long Term Plan but moved to Franklin India Savings Plus Fund. The reason is I found Frankin India Savings Plus Fund little bit attractive in terms of low modified duration and low average maturity but best return generated since a year.

However, those who invested already in Birla Sunlife Floating Rate Fund-Long Term Plan can continue the fund without any worry.

Top and Best Debt Mutual Funds to invest in 2018 -Short-Term Debt Funds

These are the next level of debt funds. Usually, short-term debt funds invest in the instruments which mature from 6 months to 6 years. Hence, they are riskier than liquid and ultra short-term debt funds.

Below is the list of my short-term debt funds.

Top and Best Debt Mutual Funds to invest in 2018 -Short Term Debt Funds

You notice that I removed both the earlier funds which are Birla Sunlife Short Term Fund and Escorts Short Term Debt Funds. The reason to move from Birla fund is that I found IDFC best in terms of bit risk-taking (higher modified duration and higher average maturity to Birla Fund. But the portfolio is equally safe like Birla Fund.

It does not mean Birla Short Term Fund is not good and immediately switch to IDFC. I still support that fund.

Regarding choosing UTI Banking and PSU Debt Fund rather than Escorts Short Term Debt Fund is that the UTI Fund constitute safe bet (high-quality underlying portfolio) and less risk with a high return than the Escorts Funds.

Top and Best Debt Mutual Funds to invest in 2018 -Gilt Short-Term Debt Funds

These are the funds which invest in Government of India Bonds which mature from 2 years to 5 years. There are very fewer funds in this category. But I prefer these are best funds over the Short Term Debt Mutual Funds. Because the credit risk and credit ranking risk is not there in such funds.

Top and Best Debt Mutual Funds to invest in 2018 -Gilt Short Term Debt Funds

You noticed that I retained the same old funds in this category. Hence, you can continue who are already investing in these funds.

Top and Best Debt Mutual Funds to invest in 2018 -Income Funds

Income funds invest in corporate bonds, government bonds, and money market instruments. However, they carry the highest risk to the changes in interest rates and are suitable for investors who have the higher risk-taking ability.

Usually, those who track interest rate movements will try to invest in such funds. Personally, I avoid such funds as I want peace of mind not interested in tracking news items. The CORRECT time to invest in these funds is when the market view is that interest rates have touched their peak and are poised to reduce. I am neither aware of those who time the interest rate movements CORRECTLY nor bother to such time-based investment.

The average maturity of such funds ranges from few months to around 17 years. Hence, be cautious while selecting such funds.

Still, I am listing the funds by scrutinizing the minimal risk basis.

Top and Best Debt Mutual Funds to invest in 2018 -Income Funds

In this category also, I retained the same old funds. If you compare the average maturity of the funds from last years to today, you notice that it reduced. This shows that Fund Manager is of view that holding short-term debt papers in slightly higher inflation and PAUSE stance by RBI is best.

Top and Best Debt Mutual Funds to invest in 2018 – Gilt Medium Term to Long Term

These funds primarily invest in medium to long-term Government Bonds. Hence, default risk and credit rating risk is minimal. However, considering their longest average maturity values, these funds prone to highest interest rate volatility.

Top and Best Debt Mutual Funds to invest in 2018 -Gilt Medium and Long Term

In this category, I have added UTI Gilt Fund and removed the last year recommendation of L&T Gilt Fund. Because I found UTI Fund performing well than L&T Fund consistently.

Top and Best Debt Mutual Funds to invest in 2018 -Dynamic Bond Funds

Dynamic Bond Funds invest in debt securities of different maturity profiles. These funds are actively managed and the portfolio varies dynamically according to the interest rate view of the fund managers. These funds invest across all classes of debt and money market instruments with no cap or floor on maturity, duration or instrument type concentration.

Considering the nature of the fund, it is hard for an individual to track which debt securities the fund is holding. However, as the fund is actively managed, you may assume the next interest rate trend.

As currently, the trend is that interest rate is as of now PAUSED, hence these funds may move to short-term debt papers.

Top and Best Debt Mutual Funds to invest in 2018 -Dynamic Bond Funds

Have you noticed one thing? The expense ratio of dynamic bond funds to other types of bonds? It is high because they have to churn the portfolio frequently based on the interest rate movement.

I have retained the same funds which I recommended last year.

Top and Best Debt Mutual Funds to invest in 2018 -Credit Opportunities Fund

They are Debt Mutual Funds. Credit opportunities funds adopt the accrual strategy to provide the better return. They take the credit risk for the sake of generating high yield. Usually, they invest in low credit rated funds like less than or equal to “AA” rated. Lower the credit rate leads to higher the return.

Refer the full details about such funds in my earlier post at “What are Credit Opportunities Funds?“.

Top and Best Debt Mutual Funds to invest in 2018 -Credit Opportunities Funds

In this category also, I retained the same funds. If you look at other types of funds, you noticed that they have given handsome returns, but at the cost of quality of papers. Hence, I restricted myself to the same funds.

Myths about Debt Mutual Funds-

# Debt Mutual Funds are SAFE

It is the misconception among many of us that Debt Mutual Funds are safe and we treat these products like Bank FDs or PPF. But in reality, you check above fund categories and notice how the modified duration and average maturity change from Ultra Short Term Debt Fund to Long Term Gilt Fund or Credit Opportunities Funds.

Along with interest rate volatility, the risk of credit rate downgrade or default is always there. Hence, I purpose selected AAA rated funds for my selection.

# We must match our goal with average maturity of the fund

This is one more myth. Because the experts who recommend it feel debt funds are SAFE. However, these funds also carry the variety of risks. Hence, if your goal is 5 years, then the average maturity must be around 1-2 years of a fund.

Reson behind this is if the NAV falls due to any risk involved in the fund it may get time to bounce back.

# Timing the interest rate movements

It is hard for common man to track the interest rate movements and investing based on the call. Hence, never do such things. Instead, the priority should be to reach your financial goal safely.

# Credit Rating is constant

Few believe that if currently the bond instrument is rated as AAA, it will remain same forever. It is not like that. Based on the financial health of bond, the rating may change. Hence, never be in wrong belief that ratings are constant.

Hope this much information is enough to understand how debt mutual fund works. My main intention is to educate about debt funds rather than providing you readymade tips of funds.I purposely avoided FMP as they are closed ended in nature. I also avoided debt-oriented balanced fund as I felt they are not necessary when we can actively manage debt and equity separately.

This is the list of my Top and Best Debt Mutual Funds to invest in 2018. It does not mean they are the funds which are ONLY BEST in industry. But as per me, they are best.

Refer my earlier posts related to Mutual Fund Investment in 2018-19

275 Comments

  1. Considering the current market scenario, what are the debt funds worth investing in a lumpsum considering the following:
    1) timeframe = 10 years
    2) Medium risk appetite

    Reply
  2. Basu Sir,

    I am 33 M and currently have 30L as FD matured. I am planning to purchase an Flat within an year or two. So, I need to park this amount and need to have handy when required. So, planning to go with Franklin Ultra Short Bond Growth. Do you think this bond is safer for short term investment of 1 – 2 years ?

    Your advice is very much appreciated. Thank you.

    Reply
    • Dear Balaji,
      Stay away from these and either keep in Bank FDs or invest in Liquid Funds like Quantum Liquid Fund.

      Reply
      • Thanks for your valuable feedback Basu sir.

        Reply
  3. Eagerly waiting for your current recommendations on debt funds and FMP’s

    Reply
    • Dear SB,
      I am more comfortable with Liquid Funds and that too who invest in Government Securities than any other categories of debt funds. Huge risk and that too we may say more than equity.

      Reply
  4. UTI Banking and PSU Debt Fund has not been performing good for last one year. should we switch to other safer fund ( if yes then which one ?) or not. What is your advice ?
    It would be good if you write a blog on the current situation of some debt funds (like credit risk funds) and what should investors do in this situation.

    Reply
    • Dear Laxmikant,
      Yes, surely I will come up with an article on the Debt crisis. Yes, UTI fund is not performing well. Better to switch to Liquid Funds.

      Reply
  5. Dear Basu sir,

    We are eagerly waiting for your post Top and Best Debt Mutual Funds to invest in 2019.

    Reply
    • Dear Rajneesh,
      I will soon write on this 🙂 May before the new year itself.

      Reply
  6. Hi Basu,

    For debt allocation, which one would be better: Liquid Funds or Ultra Short-term Debt Funds?

    Thanks in advance.

    Reply
  7. Dear Basu Sir – I have come across a couple of Mutual funds as NFO.

    2 Questions. What is the difference between Open Ended & Close Ended?
    Will these funds perform well with return at least 10% PA if I hold for 5+ years with initial investment of a Lakh in each.

    1) ICICI Prudential Manufacture in India Fund (Open Ended)
    2) Reliance India Opportunities Fund – Series A (Close Ended)

    Reply
    • Dear Balaji,
      Close eneded funds are open for investment only for a certain period and after that you can’t invest. Whereas the open eneded funds can be invested at any point of time. Stay away from NFOs.

      Reply
      • Thank you sir. I will probably keep out of NFO’s then.

        1) So, can I invest the lump sum amount of 2 Lakh into any of these funds as a one-time? If yes, kindly suggest the split for one time investment in these funds.

        2) Planning to invest 15K per month in Equity-based SIPs and 5K in FD / PPF / NCDs. For the 15K kindly pick the best funds from below and how much I can split into them. Planned to continue the SIP investment for 10 to 20 years from now.

        ICICI Pru Bluechip Fund – D (G) – LargeCap
        Axis Bluechip Fund – D (G) – LargeCap
        Reliance Large Cap Fund – Direct (G) – LargeCap

        ICICI Pru Technology Fund – D (G) – Sectorial
        Tata Digital India Fund – Direct (G) – Sectorial

        Axis Mid Cap Fund – Direct (G) – MidCap

        HDFC Small Cap Fund – Direct (G) – SmallCap
        Reliance Small Cap – Direct (G) – SmallCap

        Sundaram Equity Hybrid Fund – D (G) – HybridFund

        Reply
        • Dear Balaji,
          First do the asset allocation between debt and equity based on your time horizon, then accordingly choose the funds in different asset classes. Avoid sector funds. Rest left with you.

          Reply
  8. Dear Basavraj,
    Thanks for putting up some really useful information on your blogs.

    I was searching for the SBI Magnum Gilt Fund – Short Term Plan. It has now be renamed to – SBI Magnum Constant Maturity Fund (earlier known as SBI Magnum Gilt Fund – Short Term
    Plan).

    But the average maturity mentioned on the SID (mentioned below) of the fund is different from the one mentioned on your blog.

    Type of Scheme An open-ended Debt Scheme investing in government securities having a constant maturity
    of around 10 years

    Could you please help reassess if this is still a good fund for an investment horizon of 6 years with the intent of keeping risk low to moderately low.

    Thanks,
    Amit

    Reply
    • Dear Amit,
      May be the fund portfolio changed. However, considering the maturity of 10 years, then I suggest to avoid.

      Reply
      • Thanks Basavraj.

        Request you to please suggest an equally good alternative.

        Reply
          • Dear Basavraj,
            Thanks for the response.

            I want to make a lump-sum investment in mutual funds for the time horizon of 6 years. I am targeting 9% to 11% of returns keeping the risk to be moderate.

            Could you please suggest the correct category of mutual funds for such an investment. I can then select the ones you’ve recommended for that category.

            Thanks

            Reply
            • Dear Amit,
              Moderate return expectation 9% to 11%? I consider long term aggressive return expectation of around 10.5% (considering 30:70 in debt for goals more than 10 years). Be realistic with your expectation. Also, if your goal is just 6 years away, then try to avoid equity.

              Reply
  9. Hi Basu,
    Your article is very informative. But since I am very new to mutual fund I do have lot of queries. For now can you please suggest the best mutual funds for –
    1. Lump sum amount of 50k.
    2. SIP amount of 10k.
    Cant say about the duration since I want these amount back hassle free during emergency times.
    Also you once mentioned to stay away from NFO. Any reason for that?

    Thanks in advance.

    Reply
    • Dear Zulfi,
      If this fund is also your part of the emergency fund, then stay away from equity and simply use liquid funds. Regarding NFOs, when we have so many varieties already available in the market, then why NFO?

      Reply
      • Thanks Basu for your advise. I am seeing a lot of liquid funds to invest. I am little skeptical in which to invest since I am very new to these. Can you specify the liquid MFs to go for lumpsum and SIP.
        Thanks

        Reply
  10. I wish to invest 20 Lakhs in Debt Mutual Fund. My time horizon 3 years+. Risk appetite is moderate. Pl suggest.

    Reply
  11. Sir what are the best liquid mutual fund for 2018.
    Should we prefer ultra short term debt fund over liquid fund.
    Purpose is for 1l0 to 25 days horizon, frequent purchase and redemption.

    Reply
      • Sir please suggest one or two liquid funds for 2018.

        Reply
          • Motilal oswal most 35: 10k
            Icici value discovery : 10k
            Sbi emerging business : 5k
            Sbi blue chip : 5k
            All are sip for last 2 years.
            Want to know about some liquid fund to invest for very short durations 1 to 2 months.
            Of above mentioned funds 2 are opted by reading by your expert opinion.

            Reply
              • Thanks a lot sir.

                Reply
  12. Hi Basu,

    As per the new SEBi changes , Franklin India Savings Plus Fund’s Floating rate bonds will no longer be the main components of the fund.

    Is it something a conservative investor should consider now?

    Reply
    • Dear Hari,
      Check the modified duration and average maturity and based on that you have to take a call.

      Reply
      • Hi can u please publish top 2 ultra short term funds (considering recategorisation)

        Reply
          • Hi Basu,
            Can you please tell top 2 ultra short term funds (considering recategorisation)

            Reply
            • Dear Shrinidh,
              You can consider the below funds.
              Franklin India Savings Fund-Direct-Growth (Ultra Short Term Debt Fund)
              UTI Magnum Ultra Short Duration Fund-Direct-Growth (Ultra Short Term Debt Fund)

              Reply
      • Thanks Basu for the swift response!

        The latest values from Franklin Templeton website is below. Both are slightly increased from your value which was posted few days back . I think this wouldn’t be a big issue after re-categorization. However advise whether to continue or to exit from this fund? ( as at least I don’t want unnecessary volatility in my debt component in portfolio)

        Weighted Average Maturity – 0.76 Years
        Modified Duration -0.66 Years

        I am keeping emergency fund in the combination of Savings account + Sweep account. However I am eagerly waiting for your top Liquid funds category to enhance my emergency fund kitty.

        If you are not posting this article immediately, kindly advise the stable liquid fund.

        Reply
        • Dear Hari,
          In that case it is not a big deviation but check the portfolio credit rating also, if it is still AAA, then you no need to worry. Regarding Liquid Funds, Yes I skipped this year as I thought to publish it once the categorization task completes. Let me know if you still have doubts.

          Reply
          • Dear Basu,

            I have gone through the overall portfolio of the fund fact sheet. Other than he below two companies most of them are A+ or AAA or Sovereign .

            Tata Power Renewable Energy Ltd –> CARE AA(SO)
            ATC Telecom Infrastructure Pvt Ltd BWR –> AA-

            Is that okay?

            Can you please advise the stable liquid fund to keep my part of emergency fund?

            Reply
            • Dear Hari,
              Then you can consider if the overall portfolio is AAA rated. Regarding Liquid Funds, let me know in which equity funds you have investments (or folio numbers already generated)?

              Reply
              • Thanks Basu, I have equity investments folios operating with SBI, Birla, ICICI and Franklin Templeton AMCs.

                Reply
                • Dear Hari,
                  In that case use Birla, ICICI or Franklin Liquid Funds.

                  Reply
                  • Thanks Basu, will use Aditya Birla Sun Life Floating Rate ST then!

                    Reply
  13. Hi Basu due to onlgoing issues going on with IDFC did you still stick to IDFC Ultra short term debt fund please advise

    Reply
  14. Hi Basu I hope you are doing well please can you advise about SBI Debt Fund Series C – 16 (1100 Days) NFO will close on 28 May , if this fund is good to park surplus cash and how much some one can expect from such funds

    Reply
  15. Hi Basu,
    I am 37 yrs. I am an avid follower of your post. I thank you immensely for the same.

    My goal is buying a house within 5 yrs. Started SIP in following funds for last 1 yr.

    Debt funds – 25000/month as,
    1. Birla sunlife Floating rate long term (D) (G)- 15000
    2. SBI magnum gilt short term (D) (G)- 10000

    The annualised returns are 6% and 4% respectively. (I anticipated around 6to 7%)

    Please give your opinion on,
    1. Is it OK to continue for this year also? (I am reviewing after a year)
    2. Should I need to stop my SIP in SBI magnum gilt short term? (return is only 4%)

    Thank you in advance

    Reply
  16. Dear Sir

    I would like to thank you for making each one of us richer and wiser through your articles.

    I wish to ask you a query. I am planning to get married in 3-4 years time. Should I invest in GILT short term debt fund for my goal starting today?

    Reply
    • Dear Anubhav,
      Considering the current situation, I suggest you to use Liquid Funds or Ultra Short Term debt Funds.

      Reply
      • Okay Sir, thank you for your valuable advice.

        Reply
  17. I want to invest matured fixed deposit to debt fund on SWP monthly basis.
    I should get return anywhere between 7 to 9 % return.
    Risk capacity is low.
    Are short term debt funds best ?

    Reply
    • Dear Ashish,
      7% to 9% return with LOW RISK? Check your facts and expectations properly. Regarding suggestion on a fund, it is hard for me to guide anything blindly without knowing the reason for such monthly SWP.

      Reply
  18. Hi Basu,

    I changed the My mutual funds, SIP date’s every month 10th .
    Is it effect anything like PF?. I mean any disadvantage.

    Can you please clarify?

    Regards
    Chenadu

    Reply
  19. hi ,
    I have invested in AXIS LONG TERM EQUITY FUND (ELSS) via SIP for long term (15+ years).
    I want to start a fresh SIP for long term . Is investing in DSPBR Equity Opportunities fund will be a good idea.
    I don’t want to have overlap.
    plz suggest for any other good MF also for long term .

    Reply
    • Dear Ashish,
      Without knowing what asset allocation you are following and what are there in your portfolio, it is hard for me to suggest anything blindly.

      Reply
  20. Hi

    I always appreciate your articles, thanks for sharing your views.

    Could you please help me —

    Plan is to invest 5 lacs in debt funds
    ranging from 3-5 years and some I would just not like to touch until mere emergency
    So far I have started SIP in Direct Growth plans
    ICICI Pru Long term
    Franklin India Income Builder Account – Plan A

    Can you provide me feedback on Franklin Income or suggest some thing else.

    Thanks

    Reply
    • Dear KSR,
      Stick to either Liquid Funds or Ultra Short Term Debt Funds but not INCOME funds.

      Reply
  21. Franklin India Savings Plus Fund is in the category of Money Market Fund(as per new guidelines ). This is not an UST. As per your advice, I am using this as my debt portfolio. Should i have to switch to idfc Ust. Kindly advise.

    Reply
    • Dear Alfin,
      I will update the list once I get the clarity from all AMCs. Hence, waiting for the completion of the process of categorization from all AMCs. Regarding said fund, if the fund is not suitable for your goal, then simply switch.

      Reply
      • Thanks a lot

        Reply
  22. Hi. I will be retiring in Jul’18. Apart from savings in Senior citizen saving, Post office MIP, company FDs and PMVVY, I will have around Rs 25 lakhs to invest from which I require Rs 20000-25000 per month. Which Mutual fund is ideal for STP every month? Or if there is other better alternative, Kindly suggest.

    Reply
    • Narayanan-Be realistic with your expectation. Investing Rs.25 lakh and expecting monthly Rs.20,000 means you have to generate returns of around 9% consistently. This consistent return is not possible either from debt or equity.

      Reply
      • Ok, Understood.Revised expectation and facts are as below:

        I will be getting Rs 60 lakhs on retirement in Jul’18, out of which Rs 15 lakhs will be invested in Senior citizen scheme to earn app Rs 10000/- pm. By the way, I will be needing Rs 40000/=per month for our household expenses out of the investments of Rs 60lakh. I am not interested in LIC Pradhan mantri yojna as the lockin period is 10 yrs. I was thinking of investing in Corporate FDs for max 3-5 yrs where the interest rate is between 8.3-9% like Bajaj Finance, DHFL, TN Power finance, Shriram transport, Mahindra& Mahindra etc to earn monthly income.

        I was reading few articles about investing in debt funds wherein you can setup monthly SWP which will be beneficial and tax efficient.

        Can u please give your advise for best investment?

        Reply
        • Dear Narayanan,
          You can use Corporate FDs but do understand the risk involved in such products. Regarding debt funds, SWP works again depends on returns generated by these funds.

          Reply
          • Thanks.
            I need some advice on investing. How can I contact you by private mail? From one of your posts, I mailed at [email protected], but no reply.

            Reply
            • Dear Narayanan,
              I might have missed replying. Please resend the email.

              Reply
              • Mail sent again on 19 Jun. Is there any other emailid?

                Reply
  23. thanks for the detailed explanation of a ratio of money as per goal.It helps for a youngster.

    Reply
  24. Hello sir,
    I am interested in investing for ICICI BHARAT CONSUMPTION FUND 1.
    Can u please suggest whether I should invest or not

    Reply
    • Nidhi-NFOs with such fancy names are meant to garner AUM from investors. I simply avoid this. Rest left with you.

      Reply
      • Thank you sir 4 your advice.Can u please suggest any beneficial SIP or MF which belongs to ICICI pru life

        Reply
  25. Hi Basu, Can these funds be used for Tax saving since there was a proposal to include Debt funds into Tax Saving under Section 80C?

    Reply
    • Sankeerth-Debt Mutual Funds are never be part of Sec.80C tax saving.

      Reply
  26. Hi

    Mr. Bashu,

    I am very impressed with your Bashunivesh portal and its really a worth reading its each and every article.

    A Very Big Thanks to you !

    with warm regards

    Dharam

    Reply
    • I have invested Rs. 30 Lac in bank FD with monthly interest option. could you suggest me a debt fund or suitable Mutual fund where I can put all this whole money in one go and get SWP of Rs. 25 000/- each month.

      regards
      Dharam

      Reply
      • Dharam-Why SWP? Why you want to invest and what is the reason for this investment? Without knowing the details, how can I guide you?

        Reply
        • I need monthly Rs. 25k on 1st date of every month to meet my monthly expense by putting 30 Lac in any MF. So I want to do SWP.
          thanks.

          Reply
          • Dharam-Hard to guide with such limited sharing and also on such public platforms.

            Reply
  27. Dear Basu,
    For meeting defined goals such as Annual Insurance premiums, Annual Children school fees etc; do you recommend investing in a recurring deposit (fixed output) or monthly SIP in Ultra Short term debt fund for a year?
    Please recommend if you have any other alternatives.

    Looking forward to hear from you,
    Navin

    Reply
      • Dear Basu:
        Thanks for your reply.
        Based on your suggestion; Should I go for SIP in Liquid Fund?
        I am eagerly awaiting for your post on the best Liquid Funds for 2018.

        Reply
        • Navin-Yes, I already aired my suggestion. Regarding current Liquid Funds of my choice, I will write the post soon.

          Reply
  28. Hi Basavaraj,

    My target is to invest 2,40,000 per year and cover 73% in equity and 27% in Debt.
    i.e
    2,40,000 * 73% = 1,75,200 in equity per year
    2,40,000 * 27% = 64,800 in debt per year

    Also Consider the Point, in case of equity allocation, it doesn’t matter in which fund or in which market cap (Large Cap/Mid Cap/Small cap) i allocate money.
    But in Debt, I have to allocated only in Ultra Short Term Funds.

    As Sip is Good for Equity. I will start SIP of 14,600 per month i.e (1,75,000 / 12).
    Now the question is, how you will suggest to invest in Debt, in Ultra Short Fund ?

    “64,800” at once in Debt with start of my First Equity Sip.
    “64,800/2” Half yearly.
    “64,800/4” Every Quarter.
    “64,800/12” Every Month With my Equity Sip.

    For equity funds, please ignore the cases, why i want to invest 73% in equity, Which fund category or market cap i will invest in equity, for what time horizon i will invest in equity and what is my goal.

    For Debt Funds, Please ignore why i want to invest only in Ultra short Term. My time horizon is of 3 years.

    Consider, I want to invest only for 1 year. After that i will close sip/investment for both equity and debt.

    Reply
    • Nitin-Why you are asking me and commenting here if I have to IGNORE the basics of investments and questioning your wrong perceptions? You already took your decision and go ahead. Best of luck!! 🙂

      Reply
  29. Hi Basu sir,

    I have yearly needs to pay off car insurance, car service etc. So I thought of accumulating the required sum in Debt funds by monthly SIPs. Which among the following would be the best choice?
    1. Liquid funds
    2. Ultra Short Term Funds
    3. Credit opportunities
    4. Arbitrage funds

    Reply
      • Thank you Basu

        Reply
  30. Hi Sir,

    Three part question for you:
    – Would you suggest parking 1L per month in debt funds – Liquid and Ultra Short Term debt funds for investors who do not want to indulge in equities?
    – If yes, is it better to diversify this amount in to multiple liquid funds or keep in one fund only?
    – Would it be better to invest in some other type of asset class for such investors (Govt bonds, Gold ETF etc)? PPF is already part of the portfolio

    Thanks.

    Reply
    • Karthik-
      -Hard to say without knowing the goal details.
      -Diverfisy in Liquid Funds? What purpose does it serve?
      -Hard to say anything without knowing goal details and complete financial details.

      Reply
      • Sir,

        – The major aim is long term wealth generation but the investor in question is very skeptical about equity investments. Which is why I want to understand if liquid/ultra short term debt funds are the best option in such a case or is there some other asset type you will suggest alongside.
        – Diversification in liquid fund stems from the fact that there were a couple of liquid funds which had some defaulters in their underlying instruments. Is putting money in more than one liquid fund a good idea in such a case?

        Thanks.

        Reply
        • Kartik-If the investor himself skeptical, then let he be satisfied with DEBT products (FDs, PPF, Liquid or Ultra Short Term Debt Funds) and expect NEGATIVE REAL RETURN.
          The defaulters came into the picture when you invest BLINDLY without understanding the credit rating, average maturity and modified duration of bond funds. I assume it is the fault of we the investors.

          Reply
          • Thanks for the response. One more query, can you write more about gold as an investment, ways to invest, current options which are good and your recommendations about whether/when one should buy or not. This is purely from a newbie perspective as I have only invested in mutual funds till date. Looking forward to your thoughts.

            Thanks.

            Reply
            • Kartik-Gold is an asset class which is volatile like stock market but gives you return of debt products. Do you need this?

              Reply
  31. Hi Basu sir,

    I have done my asset allocation and have slowly started SIP
    I have invested in equity and in debts.

    In my Debt portoflio i need to invest 2k more for one my short term goals.
    Based on the goal timeline,i have decided to go with ultra short term bonds.
    I have shortlisted three of them, need your help in suggesting one among them
    1.Franklin India Ultra Short Bond Fund Super Institutional Growth plan
    2.Kotak Low Duration
    3.ICICI Pru Savings Fund
    Please suggest me which one would be good among these three please.

    Reply
      • Hi Basu sir, i went through your blog which is really good. I had shortlisted the below and needed your help in picking one among the below, kindly suggest which one would be best out of below three please.

        1.Franklin India Ultra Short Bond Fund Super Institutional Growth plan
        2.Kotak Low Duration
        3.ICICI Pru Savings Fund

        Reply
          • I am not an expert but just checked few things like average maturity time lines, their consistency, ratings in different websites, returns in past few years. I also checked what type of bonds they have invested looked good but i was not able to get a good factor to compare among them and then choose, hence dropped into as usual as you had suggest me several time and it had been good so far.

            Reply
  32. Hi Basu,

    I am planning to invest for my emergency funds. There is no time horizon as the name says I want to use it only in the case of emergencies, hence considering that I might use it in a year or 5 year or 15 year, can I go for Liquid funds or Ultra Short Term Debt Funds or Short Term Debt Funds?

    Thanks.

    Reply
  33. Dear sir,
    I want to invest 20,000 rs lumsum amount for a period of 1.5 to 2 year. You may consider it as my emergency fund. Currently i am in 5% tax slab rate. So, where I suppose to invest? In liquid fund or short term debt fund or Bank RD

    Reply
  34. Sir,I want to invest Rs. 2 lac for my child education purpose. I will need money after 7 years. Kindly suggest some mutual fund giving good returns. My risk appetite is average.

    Reply
  35. Hi Nivesh,

    1) I want to invest 2 lack rs for 1 year duration. I might get around 6.5% on FDs. I am looking for any other safe alternatives considering my investment duration. I am in 30% tax slab. Please advice.

    2) Are Registered chit fund companies like margadarshi, sri ram finance etc, safe for investment?

    Thanks,

    Reply
    • Sravan-1) Considering your time horizon, I suggest you either use the same FDs or Liquid Funds.
      2) Mere registration will not turn to be SAFE. You and me also can register right?

      Reply
  36. hi basavaraj,

    Fist of all thank you so much. your post are really simple , you gave me idea about mutual fund , i planned to invest Rs 2000 for 10 years in mutual fund which type of mutual fund best for me , i was chosen first debt mutual fund , because it has low risk and steady income , after reading you post i planned to invest 50:50 on equity and debt , pls give me some suggestions on my financial planing . thanks

    sathish

    Reply
    • Sathish-Go ahead with allocation. For debt, use Ultra Short Term Debt Fund and for equity, use one large cap.

      Reply
  37. Hello Sir,
    this adarsh co-operative soceity offering 9.5 % interest rate on fd. And they have all high interest rates in all offers. Are they safe? And how are they able to give so high percentage of interest.

    Regards,
    Ravi

    Reply
    • Ravi-Cross check with them why they are OFFERING HIGHER interest rate than others. You will get the answer.

      Reply
  38. Out of Ultra Short Term and Short Term debt funds, which would be better choice to park 5L lump sum, for an unknown horizon which is definitely more than 3 yrs to 7-8 yrs..?

    OR would it be wise to divide the amount equally in both these debt funds?

    Reply
      • Thanks for the quick reply, Basu.

        I see Avg Credit Quality of ‘Birla Sunlife Floating Rate Fund-Long Term Plan’ on VR as “AA”. Is that the reason you dropped it from your list?
        However, it’s portfolio still seems to be filled up with AAA, AA+ & A1+ instruments. If you could please throw some insights on how this Avg. Credit Quality is determined would be very helpful.

        Reply
        • Vaibhav-One reason is that also. Yes, they fill with all types of bonds. But concentrate on average.

          Reply
          • Basu,

            Where to find correct Avg.Credit quality of Bond. Because VRO shows AA but Morning star shows AAA for some of the UST bonds. Confusing.

            Where are you referring this Credit quality for your own analysis .

            Reply
            • Kalai-I trust bit more on Morning star than VRO. But cross check the last updated date.

              Reply
              • Hi basu,

                I want to invest for my Contingency fund as Lumpsum. Can i choose Liquid / Ultra short term fund .

                Have you posted Liquid funds for 2018.

                Reply
                • Kalai-Use Liquid Funds. As of now, I have not published 2018 post. But you can refer the 2017 post.

                  Reply
                  • Thanks.

                    Why not Ultra short tern fund.

                    Is there any changes you are planning to update in 2018 List.

                    Reply
                    • Kalai-Not so big change. But considering your requirement I feel Liquid Funds better options.

                    • Basu,
                      Currently i have 7 lacs ear marked for Emergency fund. All the amount is invested in 2 UST funds.
                      Is it good to keep some small % of the amount into balanced fund to meet the inflation in emergency corpus for future.

                    • Kalai-For emergency corpus investment, I suggest Liquid Funds ONLY. Rest is left with you.

  39. Like Mulitcap Equity fund , Is there any Diversified Debt fund existing covering all type of Fixed income instruments starting from Liquid till Long term Gilt.

    Reply
    • Kalai-You can check like Dynamic Bond Funds, where fund managers move the portfolio based on the interest rate cycle and bond market future. But I usually avoid it.

      Reply
      • Currently i am holding 2 Ultra short term debt funds for my Debt part of Portfolio.

        Franklin Ultra short bond fund Super ins Direct
        DSPBR Money manager Fund

        Can i keep single Ultra short term fund instead of 2 funds. I have invested these 2 funds , thought of diversifying the Debt portfolio. Please suggest whether we need to diversify Debt funds also in the overall portfolio.

        Reply
          • I would contradict Basu on this. I have burnt my fingers by investing in Taurus Liquid Fund earlier where just one default by Ballarpur Ind. caused huge dent in the expected return. (~ approx. 5% less than peers over period of 1.5 years). Thankfully I had 3 liquid funds (across AMCs) that made me suffer less. 🙂

            Typically these funds which give relative higher returns are also taking some risk. Even though Franklin Ultra short bond is giving good returns and has established itself, last time when I checked its averaged rating of debt was AA or something but definitely not AAA. And even if AAA, if there is even a single AA or below then it is potentially a time bomb.

            Best to follow the basic principal of finance – don’t put all your eggs in the same basket.

            Reply
              • Thanks Smart and Basu for comments.

                Basu,
                Is AAA rated is main criteria for selecting Ultra short term funds. This Debt funds part of the long term goals. I think we can take little bit risk on Frank Ultra short bond with AA rated papers. What do you say.

                Regarding Single fund / Multiple fund , Its purely based on the quantum of fund size which are parking,,, – Its my view.

                Reply
                • Kalai-Do remember one thing that the CURRENT rating will never be same forever. Rating agencies change their views at any point of time. Hence, constant monitor of the portfolio is a MUST. Along with rating, you must also look at the modified duration and average maturity also. We look for debt funds just to compensate the volatility which is already there in equity and also for diversification. Hence, I restrict myself to ultra short-term debt funds.

                  Reply
                  • Thanks Basu,

                    Comparing Franklin Ultra short bond Vs Frank Savings plus fund ,

                    Savings plus is having lesser Mod.Duration ,Avg Maturity and Higher in Credit Rating AAA. So the return is lesser than Frank Ultra short bond.

                    When you say Constant Monitor – As an investor , How do i monitor Debt fund. Please share me the steps/check list for the same.

                    Reply
                    • Kalai-Lesser volatility does not mean lesser return (exactly like higher volatility or higher risk means higher return). Sometimes, liquid funds may give you better returns than the Equity Funds (during falling market)!!
                      Just track the fact sheet of funds to monitor any changes.

                    • I have selected Ultra short term funds for long term goal portfolio( Debt portion). In that UST funds, Should i focus on Credit quality, Avg Maturity and Mod.duration for selection of funds.

                      For monitoring , Looking at Factsheets its tedious process. Simply i do not know ,what to look in for change in Fact sheet. Sorry Basu I am not clear about this monitoring process for Debt funds.

                    • Kalai-Yes, within the fund category, you have to concentrate on these pointers to finalize the fund. If you are unable to monitor on your own, then go with an adviser of your choice else learn how to review the portfolio. You have to check any deviation from earlier investment portfolio in the fund.

                    • Thanks Basu.

                      I prefer to learn how to review portfolio . Appreciate if you had posted any earlier posts on this review , kindly share me the link.

                    • Kalai-I will do it in detail. Just wait.

  40. Dear Basu,

    I am regular reader of your articles…eagerly awaiting for you best Liquid Fund 2018 post .. When we can expect?

    Thanks in advance.

    Reply
  41. Hello Basavaraj,

    I am planning to invest 3L lumpsum amount in debt funds and debt oriented hybrid funds. Time horizon is 1.5-2 years. I can take low to medium risk for this investment. Based on last 4-5 years performance I have selected following funds.
    Baroda Pioneer Credit Opportunities Fund
    UTI Income Opportunities Fund
    DHFL Pramerica Credit Opportunities

    ICICI Prudential MIP 25
    ABSL MIP II-Wealth 25
    BNP Paribas Monthly Income Plan

    Could you please share your views on the above selection as these funds are relatively new funds and carry more risk with these.

    Reply
    • Shaleen-I suggest you to stick to Liquid or Ultra Short Term Debt Funds.

      Reply
  42. Hi,
    Can one go for SIP in Franklin low duration fund? And what will be expected rate of return? Regards Karn

    Reply
    • Karm-Hard to say without knowing your investment objective. However, you can expect around 6% to 7% from this fund.

      Reply
  43. Hi,
    Can you pls share your views on Franklin low duration fund and Franklin India short term income plan. Which one is better to go for?

    Reply
    • Karn-I prefer Franklin India Low Duration over Franklin India Short Term Income Plan mainly due to its low modified duration and credit quality.

      Reply
  44. Hi Basavaraj,

    I am planning to invest approx 5L lump sum in debt funds/liquid funds from my wife’s account for 2 years. Currently she is not working. Could you please confirm if any tax will be there on returns.

    Reply
    • Gopal-Yes, the returns will be taxed as per her applicable tax slab of her after 2 years (like Bank FDs).

      Reply
      • Thanks Basavaraj for confirming. So no tax if she is not working at that time if I am right.
        I have more query, tax deduction is done by mutual funds only (like banks deduct 10% by default) or is it the other way around i.e. it has to be paid while filing ITR.

        Reply
        • Gopal-I never said NO TAX. If her income from debt funds is less than the basic exemption limit of her at that time, then only she no need to pay tax. Else it purely depends on her taxable income slab.
          There is no concept of TDS in Mutual Funds.

          Reply
          • Okay, Thank you.

            Reply
  45. Hi, I am new to the debt funds. Can you please guide me as to if i should invest whole amount in lump sum or make it a monthly investment. Also please guide, if i should invest all in only one ultra short term debt fund or in 2 or more

    My horizon is 3 years- 5 years and i presently i have an amount of INR 2 lac idle to invest

    Reply
      • Thanks for the advise

        Reply
  46. Hi Basavaraj,

    If ultra short term funds yield almost the same as short-term funds, & within 1% of long term funds over 5yr period, what is the raionale behind investing in long term funds? Are there advantages to investing in longer term debt funds?

    Reply
    • Richitya-I think you are concentrating only on RETURN. However, you are completely neglecting the average maturity of each such types of funds and also the modified duration. Many a times return on bond funds depends on interest rate cycle also.

      Reply
  47. Hi Basu,

    What would be the ideal time one should hold the ICICI prudential long term dynamic fund ?

    Reply
    • Ragesh-I ideally avoid Dynamic Bond Funds. Because there are enough evidence to show that fund managers DYNAMIC theory many times fails to generate alpha.

      Reply
  48. Hi Basu,

    Could you please suggest me some debt funds (for duration of 4-5 years) to invest a lump sum of 3L.

    Regards,
    Ashwini

    Reply
  49. Hi Basu,

    Going through all the articles you have posted on MF, i have decided to invest in Debt MF since i am looking at a lockin period of 3 years. If i am looking at investing 1 Lakh and looking at the 3 years lockin period, do you think icici prudential banking and psu debt fund is a right choice as i looking at funds which can mature in 3 years.

    Kindly suggest

    Thanks,
    Sankeerth

    Reply
    • Sankeerth-Instead of this income fund, I suggest you the Ultra Short Term Debt Fund.

      Reply
  50. I invested significant amount in SBI Magnum Gilt LTP Direct in 2015. Now t is going down day by day. Pl advise if I should redeem or switch now? What about long term capital gains tax?

    Reply
    • Jyoti-Due to raising bond yield, the fund is underperforming. I suggest you to switch to Ultra Short Term Debt Fund.

      Reply
  51. Considering the current hardening inflation scenario and general premise that rates may not fall, how do I invest in debt funds. Would it be wise to invest in ultra short term funds or any other types. Please recommend 2 or 3 funds which can yield 9% for a 3 year horizon.

    Reply
      • Hi Basu, could you recommend 2 or 3 best liquid and ultra short term debt funds pls?w

        Reply
        • Sastry-You can choose the liquid funds where you already have an investment (I mean within same AMC). Other types of debt funds are listed in above post.

          Reply
  52. sir, are liquid MFs and debt MFs meant for short-term (e.g: 1 month or 3 months) goals? how much do they give in returns? could you please suggest few, which are worth investing?

    Reply
    • Pavan-Liquid fund is also a part of debt funds. If your goal is around 1-3 months, then better to stick to liquid funds.

      Reply
  53. I want to invest 20k every month in mutual funds for next 20 years. I am 30 now and planning to retire by 50. Please tell me where to invest. I want to know the name of specific funds. I have read the links, so please tell me the funds name. Thank you sir.

    Reply
  54. Dear Basu sir,
    First of all I want to congratulate u for making awareness about financial decisions among people.Great.
    Coming to the point I want to invest Rs.12000 for month (four funds × 3000).
    Time horizon is 15 years.
    Please suggest me funds names so that I can invest.
    Surely need your support.Thank you.

    Reply
  55. Hi, I want to invest Rupees 10,000 per month keeping 10 years in mind. I am 32 now and living in Mumbai. This 10,000 I want to use for buying a house.

    I want to know what mutual funds would be ideal for my investment?

    I already invest in equity mutual funds. My risk appetite is moderate for the above investment.

    regards,
    kabir

    Reply
  56. Hi, I have started investment recently. Early in my career and looking for long term wealth creation (time horizon ~15 years). I want to juggle a portfolio with 50-50 risk-stable ratio in my equity funds for now. Here are my current choices with equal allocation:

    Risky Bets:
    1) Reliance Small Cap Fund (Small & Midcap)
    2) Aditya Birla Sun Life Small and Midcap Fund (Small & Midcap)
    3) Aditya Birla Sun Life Equity Fund (Diverified)

    Stable Bets:
    1) SBI Magnum Multicap Fund (Diversified)
    2) Mirae Asset India Opportunities Fund (Large Cap)
    3) SBI Blue Chip Fund (Large Cap)

    Please provide feedback on the same (I have avoided overlapping portfolio as much as possible by checking the underlying instruments purchased by these funds). Another question is the usefulness of investing in an ultra-short term debt funds if the current tax slab is 20% vs 30% as any kind of premature withdrawal makes it equally lucrative as a savings bank account with Kotak (6% ROI). Additionally, there’s no risk involved in savings.

    PS – Also maintaining a PPF account on the side.

    Reply
    • Karthik-What prompted you to believe that the funds you have chosen are RISKY BETS and STABLE BETS? Regarding debt funds, you go with debt just to diversify and reduce the volatility which is already in both of your RISKY BETS and STABLE BETS. Rest you have to decide.

      Reply
      • Hi, Thanks for the reply. My criterion to classify risky and stable bets are:
        a) Mid and small cap are more sensitive to market fluctuations.
        b) The age of the fund and if it has been through a previous market downtrend.
        Anyhow, can you suggest the part whether the debt funds are good for someone with 30% tax slab especially if looking for mostly liquid money. If so, is it better to go with liquid funds or ultra short term debt funds. Thanks again.

        Reply
        • Karthik-When we create a portfolio, then we must include all market cap funds like large, mid and small but in different proportion. I agree that fund must be older enough so that we can judge the performance easily. If your goal is more than 15 years, then you can opt for PPF also. In other cases, no option but to stick with debt funds.

          Reply
          • Hi,

            Thanks for the suggestion about proportion. Rethinking in the same terms. How will you rate the following as investment proportion:
            1) Mutual Funds: 62.5%
            2) PPF: 37.5%

            Within mutual funds, my distribution is as follows:
            1) Debt Funds: 30%
            2) Equity Funds: 70%

            Within Equity, my distribution is as follows:
            1) Large Cap: 65%
            2) Mid Cap: 20%
            3) Small Cap: 15%

            Within Debt my distribution is as follows (trying to play relatively safe here):
            1) Ultra Short Term: 50%
            2) Liquid: 50%

            Please let me know your thoughts and whether you will classify this distribution as aggressive, balanced or conservative. Thanks in advance.

            Reply
            • Karthik-Mutual Fund in total is not an asset class. I am not sure why you considered the whole mutual funds (debt and equity) for your asset allocation.

              Reply
              • Ahh…its not a recognised classification scheme. I just wanted to provide an overview of the fund distribution. Can you please advise whether you will classify this distribution as aggressive, balanced or conservative. Thanks again.

                Reply
                • Karthik-Consider PPF and Debt portion of MF as a total DEBT and then separate to equity. Finally, arrive at debt to equity ratio.

                  Reply
  57. Desar basu sir,

    In my portfoli of mutual funds the total exposure to financials sector is 34% should i be worried because of that.

    regards,
    Sagar Desai

    Reply
  58. Hello Basu,

    Thanks for the nice article once again.

    I wanted to as if the Arbitrage with lower Asset-Under-Mgmt(AUM) should be preferred or those with higher AUM ?

    I am asking that because one view is that lower AUM means more flexibility. And contradictory view point is that the higher AUM means manager can have many equity options e.g. different stocks ready in different markets for quick sell to gain profit easily by selling and purchasing the best one amongst them i.e. one with largest difference across the markets?

    Thanks,

    Reply
    • Smart-Our AUM not yet reached that level where we can think of HIGHER AUM. In my view, AUM not an issue.

      Reply
      • Thanks

        Reply
  59. Hi Basu,
    I liked your article very much. I m also new to mf like many of ur followers. I want to start investing in mf. I am already investing 5k in ppf every month. In NPS 8k through my employer. I’ve marked some funds need your advice for long term investment 5k per month
    1 Hdfc balanced fund
    2 Mirae asset India opportunities
    3 SBI blue chip
    4 SBI Magnum multicast
    5 L&T midcap fund

    Pls guide where to invest

    Reply
    • Neeraj-How can I guide you without knowing your exact requirement, time horizon and how you shortlisted these funds?

      Reply
      • Time horizon around 10 yrs. I want high returns. I shortlisted just looking their track record. For asset allocation you pls guide

        Reply
          • I m ok with that

            Reply
  60. Basavaraj,

    I have been investing monthly VPF of Rs. 13,200/- over and above the default PF of Rs. 1,800/- for the past 4 years. I am doing this to get good tax rebate since I have not invested much in other tax saving instruments. My purpose of investing in VPF is to get stable returns of 8% yearly, tax savings and build retirement corpus. I am thinking to switch to a ELSS tax saver fund that has better return than VPF. I am not sure about which ELSS tax saver fund to consider based on my requirement? So would like to know if i can I continue to remain investing the additional Rs.13,200/- in VPF or invest this money in a ELSS tax saver mutual fund?

    Reply
    • Vignesh-It is hard to say which is BEST to YOU. But definitely, in long run ELSS have an edge over VPF. However, you have to invest with proper asset allocation.

      Reply
  61. Mahindra Unnati Emerging Business Yojana.

    ICICI Prudential Long Term Wealth Enhancement Fund.

    Can you plz comment on both above MF.

    Reply
  62. I have Rs 25000/- for SIP.SIP may be 2 or 3 nos.I am planning to accumulate fund of 13.5 lac to 14 lac. over 4 years. I think HDFC balanced & ICICI prudential balanced fund should be ok for 4 years SIP.

    Also As per SEBI ,AMC houses has to Re structure – such that ,they will have only one fund of each type.I understand that It is likely to implement during this month only.

    Should I wait till Re structuring take places ? After Re structuring ,it may happen that fund objective/performance may change or affect,

    Reply
    • Manoj-Considering your goal time horizon, I suggest you to stay away from equity.

      Reply
  63. Hi,

    I am an UG now but will start working from June’18. I was planning to invest a part of my income in mutual funds. I’m very new to this and my risk appetite is low to moderate. I’m looking for a MF upto 5 years for my studies and later, marriage. Can you tell me how should I maintain my portfolio keeping in mind that I have 50,000 lumpsum with me right now?

    Thanks.

    Reply
    • Satyam-Refer the above post (before the funds names revealed). If you still have doubt, then we discuss that.

      Reply
  64. Hi i am a bachelor and I want to start investing in sip i dont know how to start which to choose i am a beginner kindly tell me how to go ahead

    Reply
    • Anu-Refer above post. If you still have doubts, then we can discuss.

      Reply
  65. Hello Sir,

    Wish you a very Happy New Year first of all..!!

    I’m 28 Yrs. old guy working in an MNC and drowning ~ 38k monthly (expecting a hike of 12% in Feb’18) & living in a rented Flat (paying 9,000 PM). I have a 4 yrs old daughter. Below are my saving plans running currently:

    1) LIC Policy of Rs. 21,500 Yearly (Will run until 2029)
    2) ICICI Long Term equity Fund (G) of Rs. 2,000 per month (Will run until 2027)
    3) Sukanya Samridhi Yojna – Deposited ~10,000 Till date (Not following restlessly)
    4) Recurring Deposit of Rs. 1,000 (which is not fixed and withdraws whenever in need)

    I would like to have your suggestion on my plannings to have a Long & Short term benefit which should cover my daughter’s education and Marriage and also gives me a good return so that I can plan to buy a flat in 2-3 Yrs.

    Please also suggest if I should modify my portfolio/ saving habit to reach above goals swiftly as I’m OK to invest Rs. 2,000 more.

    Thanks in advance.

    Regards,
    Ravi

    Reply
    • Ravi-Sadly there is no magic stick in my hands also. The first priority is to have Term Life Insurance (around 15-20 times of your yearly income), a health insurance for family (even though it is provided by employer), an accidental insurance and an emergency fund of at least 6 months of your expenses. Once these are in place, then identify your goals (like kids education, marriage or your retirement), then following above post you can do asset allocation and start investing.

      Reply
      • Thanks Sir for your expert advise.

        Can you please suggest some Term Insurance plan as per my income. Also suggest an SIP where I can invest Rs. 2000 per month for short term (i.e. 5 yrs.).

        Regards.

        Reply
        • RAvi-Refer my blog post on term life insurance (in Old Articles tab) and regarding your investment, use ultra short term debt fund form above list.

          Reply
  66. Hello Basavaraj,

    For long term asset allocation needs, isn’t it better to invest in PPF instead of Debt funds since there is no tax for PPF.

    Thanks, Sujith

    Reply
  67. Hello Mr. Basavraj.
    share market is at highest high, will any share market fund be good to buy now, or wait till it comes down then buy till 2021. please help fund and time to buy. i like the article but i treied hard. i am confused after reading the article, help in decision.

    I 60 year old widow, have to invest 25 lakh for my daugter to use in 2021. I want to take risk to make more money, I will take 1lak risk. Please tell me share market mutual fund to try make maximum return in less than 1.5lak risk.

    Thank you writing this website to help people.
    God Bless You.
    Nandita Sundaram

    Reply
    • Nandita-Considering the short nature of your goal, I suggest you to stay away from Equity Funds. Go ahead with Ultra Short Term Debt Funds (listed above).

      Reply
  68. Hello Mr. Basavraj.
    I 60 year old widow, have to invest 25 lakh for my daugter to use in 2021. I want to take risk to make more money, I will take 1lak risk. Please tell me share market mutual fund to try make maximum return in less than 1.5lak risk.

    but share market is at highest high, will any share market fund be good to buy now, or wait till it comes down then buy till 2021. please help fund and time to buy. i like the article but i treied hard. i am confused after reading the article, help in decision.

    Reply
    • Nandita-Considering the short nature of your goal, I suggest you to stay away from Equity Funds. Go ahead with Ultra Short Term Debt Funds (listed above).

      Reply
  69. Basu,

    I am 42 with corpus of 2 crores and expenses of 5 lac/yr all included with paid off house.
    What asset allocation will you suggest me – I want to work only voluntarily henceforth.

    Reply
    • Shrikant-You can easily generate Rs.5 lakh with Rs.2 Cr without taking much risk. Hence, use debt products of your choice and can manage.

      Reply
      • Basu,
        Happy new year !!!
        I wish to get inflation + 2% returns on my corpus which is not possible in debt.

        Reply
        • Shrikant-We look for debt product to avoid volatility and risk. Hence, my expectation from debt is around 6% to 7%.

          Reply
  70. I am planning to invest in Mutual Fund (LS) but I do not have any idea about MF. According to the few articles, it is best to invest in Equity for those who can take risk but for those who cannot take the risk should invest in Balanced Fund. Here, I am bit confused, what would be the risk? Also I would like to know for how long one should continue his/her investment?

    Reply
  71. Dear Sir , I have one query on arbritage funds

    Pl. comment on below, on my planning to invest in Arbritage fund
    I am planing to invest n liquid fund when I have to invest for 1-2 months.
    I am planing to invest in arbritage fund -Dividend option (investment objective – Emergency fund in stead of saving account or FD )& when I have to invest for less than a year.As dividend on arbritage fund are totally tax free ,all my gain are tax free.

    Pl. comment on my total gain is tax free understanding

    I am planing to invest in Arbritage fund -Growth option(investment objective – Emergency fund in stead of saving account or FD ) & when I have to invest for more than a year.As gain on arbritage fund are totally tax free after 1 year ,all my gain are tax free.

    Reply
    • Manoj-If your goal is to accumulate emergency fund creation then why the dividend option from Arbitrage Fund? Do you think Arbitrage Funds are so liquid that you can keep your emergency fund in such funds? Think and decide. The only advantage is that after a year it is tax-free and you can expect around 6% to 7% returns. However, when it comes to an emergency fund, the priority should be to look at how LIQUID the money is rather than TAX or RETURNS from your emergency fund.

      Reply
      • Thanksfor prompt reply

        Reply
  72. Hello Basavaraj,

    Thanks for valuable article.

    I need your suggestion.
    I want to start SIP for contingency fund.
    can I put my money in Balanced fund for the same ?
    I know for contingency we should select Debt fund but here I don’t have specific time horizon So, I thought to go for Balanced fund instead of Debt fund.

    What could be an ideal category for this scenario ?

    Thanks & Regards,
    Kunal

    Reply
    • Kunal-When we say CONTINGENCY FUND, then our priority should be how LIQUID it is rather than HOW MUCH interest I earn. Hence, avoid equity-oriented funds. Start to accumulate it using Liquid Funds. Once it is accumulated, then keep 1/3 in a savings account, 1/3 in a bank FD of a year (using internet banking) and another 1/3 in liquid funds.

      Reply
  73. Dear Basava,
    IN ADVANCE, I WISH YOU HAPPY NEW YEAR – 2018

    Kindly advice on the following please.

    (i) I AM PLANNING TO INVEST 1 – 2 LAKHS IN MUTUAL FUND FOR 5-7 YEARS, IN WHICH MF I SHOULD INVEST? – PLEASE, INFORM ME THE NAMES OF THE FUNDS
    (Ii) SHALL I INVEST IN STP OR SWP?

    REGARDS,
    SAI

    Reply
    • Sai-Wishing you the same 🙂
      1) Use allocation at 70:30 for debt and equity. For debt, use ultra short term debt funds or short term gilt funds (listed above). For equity, use one large cap fund like Franklin India Bluechip Fund.

      Reply
  74. Hi Basu,

    I had put 30 lacs in Birla sun life dynamic bond fund last year and the result is pretty bad. The investment is for 3-5 years and needs to be in debt only. Should I remove and put in short term funds or accrual funds. Taxation on removal is not an issue.

    Reply
    • Sandeep-Use Liquid Funds, Ultra Short Term Funds or Arbitrage Funds.

      Reply
  75. Hi Basavaraj,

    Given that the Govt. now slashing down the interest rates of most of the debt products, such as PPF, Sukanya scheme, is it wise to continue with them as part of your debt allocation, or would you recommend to allocate some debt portion in debt MFs as well?

    Reply
    • Mahesh-I still bet on PPF even at current rate considering it’s tax efficient.

      Reply
      • Yeah, fair enough. But what I meant was instead of allocating entire debt portion (30-40%) to PPF alone how about distributing the debt portion to both PPF and debt MFs (say, 15-20% to PPF and the rest to debt MFs)?

        Reply
        • Mahesh-You can do so. But considering the interest rate and taxation, I prefer PPF as best if goal is more than 15 years.

          Reply
          • Hi Basavaraj,

            Got it. Thanks for the clarity 🙂

            Reply
  76. Tell 4-5 funds for 67 yr old without goals for investing 10-15 lacs for 5-7 years .
    It will be better if some regular monthly income I can get for day to day expenses.
    Tax free return of around 10% enough.
    Already invested….
    Icici Pru balanced
    Sbi mag balanced
    Kotak mip with s t p to select focus, Bal, emerging equity
    Icici long term plan
    UTI dynamic fund
    Reliance mip with s t p to MD and small caps
    Hdfc prudence dividend
    Sbi blue chip
    All investments 3-12 month old of 4-5 lacs

    Reply
  77. Hi Basu,

    I have invested yearly 30k in below ulip funds
    Kotak Classic Opportunities Fund
    Kotak Bond Fund

    Apart from this im thinking to invest in Gilt medium and long term Dept MF.
    duration is 5 to 10 years?
    is that ok or do you suggest any other funds?

    Reply
    • Shrinidhi-I am against ULIP products. Hence, without knowing the details, I can’t suggest anything. Regarding your MF investment, be specific with your goal, then we can discuss.

      Reply
  78. Hi Basavaraj,
    As per SEBI guidelines, AMC’s are supposed to close /merge multiple MF’s within same category. If i remember correctly, by dec end they should have come up the updated list. When will the updated/consolidated list of MF’s be given by each of the AMC’s. Or is the list already out there?

    With Regards
    Ullas
    Bengaluru

    Reply
    • Ullas-As of now, no AMCs came up with the consolidated list. Once it is out, I will update the same.

      Reply
  79. Thanks for a wonderful post. I have been doing equity+PPF . However I am in some dilemma now to invest some Rs 5-6 lakh. Market seems to high to enter. Not sure how to move forward. Any expert advice will be great.

    Reply
      • I can invest for around 5 years but not very convinced with debt funds. I have read your article but not confident about the fund rating etc. I am inclined to invest in Equity based MF. Infact been doing SIP since 2011, the equity MF are giving good returns. But at this moment market seems very high. Please advice.

        Reply
        • Gautam-So for your 5-year goal, you are not confident of debt funds but confident of EQUITY. Go ahead 🙂

          Reply
          • I understand what you are saying and you are correct. I will start my affair with the debt fund then.

            Reply
  80. sir do you have any knowledge about NJ India Demat account

    Reply
  81. Sir I’m investing in 7SIP mutual fund . Should I go for more. All those are mid-cap plans. What else investment I should do for my 10 years goal.

    Reply
  82. Can you pls let me know the performance of SBI ultra short term debt fund – direct growth..Should one continue with it?

    Reply
  83. The credit rating of debt funds is a joke. Remember Amtek Auto debacle? Franklin is the best fund house but still had problems due to credit risk defaults.

    You do not need to invest in debt funds at all. My allocation is Equity + Equity MF + PPF + EPF + FD. Debt funds are riskier than equity – nobody know how the underlying securities are rated and the investor foolishly believes the ratings which are susceptible to changes.

    Reply
    • Shrikant-Rightly pointed and many investors never understand the risks involved in such debt funds.

      Reply
  84. Dear Sir,
    Firstly, thanks for the informative article. I have two questions.

    1. You have mentioned the gap in yearly returns between short term debt funds and long term funds has dropped. So given a choice between short term and long term gilt funds, would you go for short term in 2018?

    2. Many mutual funds have both a regular plan and a direct plan. My understanding is the regular plans will cost a bit higher because of fee for the intermediary (broker) – is that correct? If yes, then is there any advantage to going in for regular plan even if one has the option to easily invest in direct plan?

    Reply
    • Jalakrut-1) I still go with short term gilt and ultra short term gilt funds.

      Reply
      • Thanks sir for the prompt reply. Truly appreciate it!

        Reply
  85. Dear Basu,
    The returns that you have mentioned above for the various MFs, is it a XIRR values?

    Thanks
    Vinod.

    Reply
      • Dear Basu,
        I have started a SIP mode of investment in Mutual fund, and no lump sum amount is invested.
        I had made the setup to invest the amount every 15th of each month.
        If this is the case, should I use IRR or XIRR function to check the return?

        Thanks
        Vinod.

        Reply
        • Vinod-If the date of investment is same and frequency also, then use IRR otherwise XIRR. But I suggest you always use XIRR for better results and clarity.

          Reply
  86. Moneycontrol

    Mutual funds see more inflows, show signs of risks: RBI report
    MoneyControl • Dec 22, 2017 02:58 PM IST

    Moneycontrol News

    In a high liquidity market post demonetisation, both equity and debt mutual funds witnessed unprecedented inflows, showing signs of risks increasing from banks to mutual funds, according to a report by the Reserve Bank of India.

    “Given the significant increase in the mutual funds’ (MFs) corpus and an excess monthly return of almost 250 bps (annualised) from a representative money market fund over the Clearing Corporation of India Ltd.(CCIL) liquid T-bill benchmark, there seems to be some risk migration from the banks to the mutual funds,” the financial stability report released on Thursday said.

    Mutual funds as an asset class seem to be entering the maturity phase in India with broad- basing of investors and geographical spread. Assets under management (AUM) increased from Rs 17.55 trillion in March 2017 to Rs 20.40 trillion in September 2017, the report highlighted.

    After banks, asset management companies managing mutual funds (AMC-MFs) were the second largest players at around 15 percent of bilateral exposure in the financial system.

    The top-5 fund houses contributed approximately 50 percent of the aggregate corpus of liquid and money market mutual funds (MMMFs).

    The report also added that diversity in terms of the investor base will provide resilience against redemption pressures in case the markets see corrections in their valuations.

    “AUM of B-15 cities grew 230 percent in 2016-17 of what it was in 2012-13. Further, the share of individual holdings in mutual funds’ AUM has increased from 46 percent in April 2016 to 51 percent by September 2017, while the share of holdings by institutions (corporates and banks) went down from 54 percent to 49 percent during the same period.

    Contributions to mutual funds through systematic investment plans (SIPs) has added further stability to this sector. While the number of outstanding SIPs has continuously increased from 6 million in 2013-14 to 16.5 million in July 2017, the number of premature terminations came down from 1.9 million to 0.6 million during the same period.

    Another manifestation of the swelling MF corpus and consequent investment in corporate bonds is a gradual contraction in higher rated corporate bond spreads.

    According to the report, the risk appetite in foreign portfolio investors for unhedged government and corporate bond exposure has increased. The recent upgrade in India’s sovereign rating by Moody’s implies that Indian corporates’ dollar borrowing cost is likely to remain benign, it said.

    However, the offshore market could be pushing down risk towards the local markets, it observed.

    “The significant build up in offshore index futures relative to onshore can have spillover effects to related onshore markets during times of stress,” the report added.

    Reply
    • Rajan-If more inflows without knowing the RISK means it is those investors risk who are investing BLINDLY, but not my risk 🙂 I am not sure what you want to say!!
      BLIND chase of any asset is dangerous and if few are doing, then why I have to worry? I know what are the RISKS and I know how to play with RISK. At the end, investing is nothing but how well you manage money. If you don’t know, then it is your fault but not MINE.

      Reply
  87. Thanks Basavaraj.

    Reply

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