August 19, 2019

Best Debt Mutual Funds to invest in 2019 India

Usually every year I write a post related to my choices of equity and debt funds. However, I was delayed this time to write a post on my choices of Best Debt Mutual Funds to invest in 2019.

As you may be aware of now that there were a lot of issues happening in Debt market of India and Globe. Recommending debt funds turn to be riskier than recommending the equity funds.

It is mainly because we all feel debt funds are safer than equity funds. However, if you did not analyze the risk properly, the debt funds may be riskier than the equity funds.

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 2019“.

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 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 the 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 the money and how much you need money at that time, then you will get 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 its 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 a 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 60:40.

If the goal is more than 10 years-Allocate debt:equity in the ratio of 40:60

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 (pre tax).

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 the 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 a 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 for 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 diversification and also to make sure that the volatility in the equity market is 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 is measured in terms of ratings.

Usually higher the ratings lead to lower the return or risk. It is a misconception among many that credit risk refers to the 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 a bond will NEVER CHANGE.

The classic example is the downgrade of DHFL.

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 the below image.

Mutual Fund Taxation FY 2019-20 -Based on holding period

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

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

Mutual Fund Taxation FY 2019-20 -Capital Gain Tax Rates

Mutual Fund Taxation FY 2019-20 - DDT Rates

For a detailed taxation rule of Mutual Fund, refer my post “Mutual Fund Taxation FY 2019-20“.

Best Debt Mutual Funds to invest in 2019

A lot of things changed from the article I wrote in 2018 to today. SEBI came up with Recategorization of the Mutual Funds, some default issues like DHFL or Zee.

Because of all these, we have to think twice before we choose funds in the debt category. Hence, I will restrict my suggestion towards the few fund categories only.

Best Debt Mutual Funds to invest in 2019-Overnight Fund

This is the new category of debt fund which came into the picture after the SEBI Recategorization. These funds buy debt papers or instruments for a DAY. Hence, the risk is almost ZERO. These funds are suitable to those who are parking the money for a day and above. As I said, RISK is completely NIL. However, the returns also not so high.

Do keep one thing in mind that if you look at the fund performance of these overnight funds in some star rating companies like valueresearch, the returns of over one year or more are not pure overnight funds but the older version of the funds.

Like L&T Cash Fund turned now L&T Overnight Fund and UTI G-Sec Fund turned to be UTI Overnight Fund. Hence, be cautious in choosing the funds by just looking at the return part.

My choices of two funds in this category are as below.

ICICI Prudential Overnight Fund-Direct-Growth

L&T Cash Fund-Direct-Growth

How much you can expect the returns from these funds? If you are actually looking for returns, then never choose this category. Because these funds are meant for safety rather than returns.

Best Debt Mutual Funds to invest in 2019-Liquid Funds

As I said above, due to debt paper issues and a lot of bad things in the debt fund category, I am suggesting the below funds in Liquid Funds category.

Liquid Funds are suitable to those, who are looking for investment for a few months to more. Even though there is a possibility of credit risk, but it is lower than other categories of debt funds. Returns may be a bit higher than the overnight funds.

My choices of Liquid Funds are as below.

Quantum Liquid Fund-Direct Growth

Parag Parikh Liquid Fund-Direct Growth

The reason behind choosing these two funds is that they predominantly invest in Government securities, where the default risk is NIL.

Best Debt Mutual Funds to invest in 2019-Ultra Short Term Debt Funds

Ultra Short Term Debt Funds are bit riskier than the Liquid Funds. Because they Investment in Debt and Money Market instruments such that the Macaulay duration of the portfolio is between 3 months – 6 months.

Hence, if your holding period is more than a year, then use such category of funds. My choice in this category is as below.

Franklin India Savings Fund-Direct-Growth

Franklin India Ultra Bond Fund-Super Institutional Plan-Direct-Growth

Last year, I have recommended UTI Ultra Short Term Debt Fund. However, the way they played by throwing credit rate risk in air, I stayed away from recommending that product now.

If you are looking for low risk Ultra Short Term Debt Fund, then choose Franklin India Savings Fund.

Best Debt Mutual Funds to invest in 2019-Medium Duration

These are the funds where the investment is in Debt and Money Market instruments such that the Macaulay duration of the portfolio is between 3 years – 4 years.

Hence, you prefer such funds if you are ready to take a risk and your time horizon of holding is beyond 5 years or so.

My choice in this category is as below.

Franklin India Income Opportunities Fund-Direct-Growth.

Best Debt Mutual Funds to invest in 2019- Debt-Corporate Bond

These categories of bond funds invest their portfolio of a minimum investment in corporate bonds- 80% of total assets (only in highest rated instruments).

These are meant for high risk-taker. However, the definition is in generic, I suggest you to relook into the portfolio of the fund before you choose this fund category. Always stick to top-rated instruments. Do remember again that ratings may change at any point of time. Hence, you have to be very cautious in dealing with portfolio ratings.

My choice of fund in this category is as below.

Franklin India Corporate Debt Fund-Direct Growth.

Best Debt Mutual Funds to invest in 2019- Debt-Credit Risk

As the fund category itself suggest the risk, I personally avoid such play by investing in these categories of the funds. Fund definition as per SEBI Recategorization is “Minimum investment in corporate bonds- 65% of total assets (investment in below highest rated instruments)”.

However, if your holding period is more than 5 years or so and ready to take the high risk (the meaning of high risk differ from person to person), then you can experiment with this fund category.

My choice of fund in this category are as below.

Franklin India Credit Risk Fund-Direct-Growth.

Do remember that your risk-taking ability by investing in such funds may go for a toss if the credit risk issue happens in a series of the holdings of the fund.

Best Debt Mutual Funds to invest in 2019- 10 Yrs Gilt

These are the funds which invest the minimum investment in Gsecs- 80% of total assets such that the
Macaulay duration of the portfolio is equal to 10 years.

Hence, touch these funds only if your holding period is more than 15 years or so. The only advantage of these categories of funds is that there is no default risk. However, they are highly sensitive to the interest rate movements. Hence, be cautious while investing in such categories of the funds.

My choice in this category is as below.

SBI Magnum Constant Maturity Fund-Direct-Growth

ICICI Prudential Constant Maturity Gilt Fund-Direct-Growth.

You notice that the one-year returns of such category of funds is around more than 15%. The reason is the falling interest rate. But it does not mean they are safe and will generate the same fantastic returns for the future.

Best Debt Mutual Funds to invest in 2019- Arbitrage Funds.

Arbitrage Funds are the type of funds where the fund manager uses the arbitrage opportunity available in cash and derivative market to generate the returns. For taxation purpose, these categories of funds are treated as equity funds. Hence, many use arbitrage funds over debt funds.

However, after the recent SEBI Recategorization, the definition of Arbitrage Funds changed a lot and SEBI defined Arbitrage Funds as “Scheme following arbitrage strategy. The minimum investment in
equity & equity related instruments65% of total assets”. Hence, these funds may hold the 35% in debt format, which may be riskier if you are unable to identify where the fund invested remaining 35%.

My choices of the funds in this category are as below.

ICICI Arbitrage Fund-Direct-Growth

UTI Arbitrage Fund-Direct-Growth

There are other categories of the funds also in debt fund categories of mutual funds. However, they are meant for AMCs and advisers to garner the AUM. Hence, I am not looking into those categories of the funds.

I personally suggest sticking to Bank FDs, RDs, PPF, EPF, Overnight Funds, and Liquid Funds in debt part of your portfolio.

The complete list of my choice of funds is as below.

Best Debt Mutual Funds to invest in 2019 India

Disclosure:- Do remember that these days credit risk or default risk may hamper on any type of fund category. Hence, before jumping into an investment, make sure that you understood the risk involved in the above-recommended funds.

Also, if there are any changes in fund style of the portfolio or the holdings of the fund, then you can to take a watch on the portfolio.

I preferably suggest using Bank RDs, FDs, PPF, EPF, VPF, Overnight Funds, and Liquid Funds to all my clients to manage their complete debt portfolio. In fact, from last few months, I stopped suggesting any Ultra Short Term Debt Funds also. Hence, be cautious with your decision before choosing the above funds.

Refer my other posts related to Mutual Funds 2019:-

67 Comments

  1. Sir please provide your opinion on Franklin Ultra short Mf in current stage

    Reply
    • Dear Jai,
      Stay away and however if you invested then no option but to continue.

      Reply
  2. Sir,

    3 Month Ago i invested Lumsum 2L in Franklin Ultra Short MF but suddenly it show negative return 5200/- what should i do shown i quit from it or hold i am bit worry i never expect this type return in Ultra short mf i just parked money for some time. please suggest

    Reply
    • Dear Jai,
      As of now, hold on. However, in the future, restrict to Liquid or Overnight Funds (that too cautiously).

      Reply
  3. Hi Sir,

    I have a couple of questions.

    1) I have 70:30 on Equity:Debt allocation. In the Equity part I have allocated 50:30:20 for Large:Mid:Small caps. For Large I had ICICI and Nippon funds, for Mid I had Axis for Small I had HDFC. For the past year I notice that Axis has topped in all 3 categories. Is it wise to switch my SIP to Axis or stick to the above MFs? (I know MFs for long term, but still want to know as the performance of these funds are so differing).

    2) Last week Franklin Ultrashort has been dropped almost 5% due to Vodafone defaults. Would that be having a bigger impact going forward or do you foresee any any other drops? Or is it still safe to hold the fund? Or do you advice to withdraw from this fund?

    Your suggestions are much needed. Thank you.

    Reply
    • Dear Balaji,
      1) Rebalance it to 60:40. For equity, one large cap index and one mid cap index is fine.
      2) Future may not be. But better to avoid such categories and restrict to Liquid or Overnight Funds.

      Reply
  4. Dear Mr. Basavaraj,

    I have been following your blog and keep on learning from it. Thanks for sharing your knowledge and guiding us.

    Last year I have stopped all my mutual funds investment as my “Resident” status changed to “NRI” and have opened a new investments with “NRI” status.
    Since its already been one year of investment in below funds so I am seeking your review/advice on these funds invested in three different portfolio below:

    Portfolio#1: Kid Education
    1. SBI BlueChip Fund-Reg(G) – 7000 (monthly)
    2. Mirae Asset India Equity Fund-Reg(G) – 10000 (monthly)
    3. Franklin India Prima Fund(G) – 7000 (monthly)
    4. HDFC Hybrid Equity Fund(G) – 6000 (monthly)

    Portfolio#2: Kid Marriage
    1. Aditya Birla SL Frontline Equity Fund(G) – 5000 (monthly)
    2. SBI Magnum Multicap Fund(G) – 7000 (monthly)
    3. Mirae Asset Emerging Bluechip-Reg(G) – 8000 (monthly)
    4. HDFC Small Cap Fund-Reg(G) – 5000 (monthly)
    5. ICICI Pru Equity & Debt Fund(G) – 5000 (monthly)

    Portfolio#3: Retirement
    1. ICICI Pru Bluechip Fund(G) – 9000 (monthly)
    2. Parag Parikh Long term Equity Fund(G) – 10000 (monthly)
    3. HDFC Mid-Cap Opportunities Fund (G) – 8000 (monthly)
    4. Franklin India Smaller Cos Fund(G) – 5000 (monthly)
    5. Aditya Birla SL FRF-Long Term Plan (G) – 8000 (monthly)

    Note:
    1. All these investments are for long term (more than 8 years)
    2. Apart from this I have few FDs for emergency fund and PPF investment for Debt side.

    Few Questions:
    1. Do you see any change required or any improvement area in my all three portfolio, any switching or reshuffling in fund or SIP amount required?
    2. As I have mentioned above, my previous mutual funds investments with “Resident” status is stopped but I have not redeemed it
    since I am not in a need of money for now. Is it okay to keep it until not required or should I redeem it and re-invest in my new MF portfolio with “NRI” status?

    I shall be grateful for your prompt suggestions/response.

    Thanks in advance,
    Kumar!

    Reply
    • Dear Kumar,
      What asset allocation you are following between debt and equity for all these goals? How you selected these funds?

      Reply
      • Dear Basavaraj,

        Thanks for your response.

        Current asset is around 80:20 (Equity:Debt) including all mutual funds. Debt % is bit less because I have some other debt investment as well (Some FDs and PPF investment).

        I have selected these funds based on my analysis and various blogs/information available in internet.

        Please share your views.

        BR,
        Kumar!

        Reply
        • Dear Kumar,
          The first thing you have to do is to restructure your equity to debt as per the time horizon. Then think about funds and all.

          Reply
          • Dear Basavaraj,

            Thanks again for your response.

            I will work on asset allocation ratio and correct it.

            Could you please advice on 2 questions which I have asked in earlier post and seeking your advice?

            BR,
            Kumar!

            Reply
              • Dear Basavaraj,

                I will change my asset allocation for Equity : Debt to 70:30 ratio (in addition to FD I have for debt side).

                Please advice further.

                BR,
                Kumar!

                Reply
                  • Thanks, any other comments on selected funds?

                    and on redemption of existing (stopped) mutual funds?

                    Reply
                    • Dear Kumar,
                      Once you do the asset allocation, then in debt, use PPF, EPF, RDs, FDs or Liquid Funds. In case of equity, one large cap and one small cap INDEX FUNDS enough for you.

  5. Dear Mr. Basavaraj,

    I have been following your blog for sometime and it has been really helpful. I am currently investing in the below monthly SIPs (for long term). Please provide your inputs on my current portfolio and also suggest if I can add any more mutual funds to the portfolio for more diversification.

    SBI Magnum Multicap Fund – 5K
    HDFC Hybrid Equity Fund – 4K
    Mirae Asset Large Cap Fund – 6K
    PPF – 5K

    Thanks.

    Reply
    • Dear Basanth,
      Time horizon of the goal? Why you selected these funds?

      Reply
      • Time horizon is for >10 years. Chose these funds based on their performance and wanted to diversify the portfolio by choosing 1 Large Cap fund, 1 Multicap Fund and a Hybrid Fund.

        Reply
        • Dear Basanth,
          Don’t go beyond 60% for your equity. Keep around 40% in debt. You just need one Large Cap Index and one Hybrid Fund or Multi Cap Fund.

          Reply
  6. Arbitrage funds encash on arbitrage opportunities. Is returns from these funds dependent on whether stock market is rising or falling? Eg. if stock market crashes like it did in 2008-09, what will be the impact on arbitrage funds?

    Reply
    • Dear SB,
      The return depends on the volatility of the market. Higher the volatility, the higher the arbitrage opportunity. At the same time, returns depends on which fund manager identifies this arbitrage opportunity.

      Reply
  7. Can you please provide your guidance. Total monthly SIP is 40000 and investment horizon is 15 years. Is the following plan good?
    10K – ICICI Prudential Bluechip
    10K HDFC Balanced / Hybrid Fund
    10K Kotak Arbitrage Fund
    10K (TBD – please recommend a debt fund – medium risk appetite)

    Reply
    • Dear Bhattacharya,
      Asset allocation-60:40 between equity and debt.
      Equity
      Large Cap Index-50%
      Mid Cap-30%
      Hybrid-20%
      Debt
      PPF.

      Reply
      • Thank you sir for your feedback.within debt segment can you suggest an allocation?

        Reply
        • Dear SB,
          Higher priority to EPF, PPF and Arbitrage or Liquid Fund.

          Reply
  8. Hi Mr, Basu,
    I will be travelling in about 6-8 months and want to gather extra cash, hence planning for Parag Parikh Liquid Fund-Direct Growth for 10K SIP. Do you think this is a good idea? or I am prepping for loss because of the taxable income ill incur?
    Thank you for your advice.

    Reply
    • Dear Sowmya,
      As taxation of RDs/FDs and Debt Funds are same (If your holding period is less than 3 years), I suggest you to use simple 6 months RD of your bank rather than experimenting extra.

      Reply
  9. Basu Sir,

    All the Gilt’s are ranged from 6% to 8%. How come a sudden jump in Annualized 1 year return on all Gilt funds which is ranging from 15% to 18%? Is there any background logic on this? Is this return valid for this year only or will this be in 2 digit from upcoming years as well?

    Reply
    • Dear Balaji,
      There is no such surprising part. During the falling interest rate regime, funds which are holding long term gilt give you the best returns.

      Reply
  10. Dear Basavaraj, Please have a detailed look at the portfolio of franklin ultra short fund before recommending to investors at large. This fund has taken significant risk by investing in lower rated papers, and which is characterized by high YTM. Surprised at you selecting PPFAS liquid because it invests in Gsec whereas selecting this fund which takes on significant amount of risk.

    Reply
    • Dear Rahul,
      I am aware of the Franklin Fund. But at the same time, I personally not recommend any debt fund beyond overnight and liquid funds. Within a category and yes the BIG AMC, I suggested this fund. I know that this particular fund is like we are sitting on sword edge.

      Reply
  11. Hi Basavaraj,

    Now that your approach in analyzing debt funds is different, some of the funds from 2018 list are no longer showing up in 2019 list. My question is– do one need to re-look into their debt portfolio and shift to your new recommendations? For example, in ‘Liquid Funds’ category–Franklin India Liquid Super Inst-G.

    Please suggest.

    Reply
    • Dear Mahesh,
      As I pointed in the above post, I changed my stance mainly because of SEBI Recatagorization and the issues popped up in debt part. Hence, we have to change the stance.

      Reply
  12. hi,
    Financial planners and advisers nowadays are suggesting to move over to index funds from large cap and to stay away /shift from small cap funds.Are the days of large cap and small cap funds over? Only till recently these funds were part of almost all investment portfolio. I do agree that one has to re balance investments but some trends should be picked up earlier.Also it is not that one invests for a few years — funds not performing up to benchmark, change to another category– wait–shift–repeat the cycle.We just end up accumulating losses.
    Can you advise how to cash in on gains with respect to goals, especially for long term planners when they are about start, midway through the course and near the goal period. I think once you got the desired returns, just get out and put your money in a “safe” option.I mean to say please guide about “returns Protection” or how to secure the returns/gains .

    Reply
    • Dear Suresh,
      Small cap is risky and the quantum of risk you take may not be justifiable with the deviation in returns. Hence, many are avoiding the small cap. But yes, all open eyes about small cap and mid cap and start to stay away only after the market start to crash. When market is booming, all are fans of small and mid cap. Hence, I don’t want to comment on these investors types of investors. Regarding index funds in large cap, yes it is now imperative, especially after SEBIs recategorization. Asset allocation is part and parcel of the investment process. Every time you shift, you end up in LOSS?
      I am not here to suggest a TRICK ON CASH ON GAINS. I never chase the returns. For me the priority is risk aversion, behavior control and money to be ready at the time of goal.

      Reply
  13. Hi Sir,
    Thanks for sharing this post.
    Could you tell me which one is the best debt fund for higher tax bracket investor whether Liquid or arbitrage fund for STP and re-balancing and tax saving purpose?
    I dont want to lose money especially in debt part. So i mainly use FD,VPF and EPF for debt part.

    Reply
    • Dear Ganesh,
      Do you need STP for re-balancing? STP is an idea created by AMCs and advisers. Stay away from this logic. Do you need debt fund for tax saving purpose? No debt fund is eligible for tax saving (like ELSS). If your concern is safety, then stick to Overnight Funds, Liquid Funds or Arbitrage Funds.

      Reply
      • Ok Sir. Thanks for your suggestions.

        Reply
  14. This time, many of your suggestions are from franklin.
    why?

    Reply
    • Dear Santosh,
      I don’t have any specific love. But they managed well the crisis and hope in the future so.

      Reply
  15. I would like to know the basis for selection of Franklin india ultrashort bond super Instt. direct fund as its quality of debt held is average (as per VRI, 40 % in AA, 38%in A & below and 10 % in A1+).

    Reply
    • Dear Swaminathan,
      Yes I know they are taking risky bets, but as being the big AMC, I feel that they handle well in case of crises. If you are uncomfortable with this, then definitely you no need to invest.

      Reply
  16. Hello Sir,
    I’m planning to invest in mutual funds for long term (OK with High Risk). I would like to start STP for following funds:

    Axis Midcap Fund Direct
    Kotak Standard Multicap Fund Direct
    SBI Small Cap Fund Direct
    Mirae Asset Hybrid Equity Fund Direct
    SBI Magnum Constant Maturity Fund Direct

    Could you please let me know whether these funds are OK for me or should I make any change ?

    Are these funds good in term of diversification ?
    Should I invest equal amount to each fund (E.g. 20% each) different % ?
    (I’m planning to invest Rs. 16,000 total, Also I could increase amount if required)

    Looking forward to hear from you.

    Thanks.

    Reply
      • Hello Sir,
        I’m looking for the investment for 10-15 years (long term) and I can take high risk.
        I would like to know whether the funds that I selected are good in terms of diversification and whether I need to make any changes ?
        Funds:
        Axis Midcap Fund Direct
        Kotak Standard Multicap Fund Direct
        SBI Small Cap Fund Direct
        ICICI Prudential Equity and Debt Fund
        SBI Magnum Constant Maturity Fund Direct

        Could you please advise me ?

        Looking forward to hear from you.

        Thanks.

        Reply
          • Hello Sir,

            As far I’m aware, Equity funds (especially, midcap and smallcap funds) are very risk and volatile and it can go badly negative in term of returns (specially in bear market).
            (E.g. for last 2 years, midcap and smallcap funds are giving double digit negative returns).

            However, I think, equity funds have potential to to give good returns for long term (10-15 years).

            Does this make sense ?

            Looking forward to hear from you.

            Thanks.

            Reply
            • Dear Jalpesh,
              You told you can take high risk. I just want to know how much high risk you can take.

              Reply
              • Hello Sir,
                Up to 2 lakh lose…

                Reply
  17. Hi Basu sir,
    I was very much waiting to see this list of Debt funds after SEBI re- categorization when i read the categories i was shocked so why so many and what the purpose of so many types i did not understand and waited for post from you. currently i have kept my debt portfolio in FDs and Franklin India Super institutional plan from more than a year. I will continue the same.
    I have one question running in my mind from the time i heard about this overnight fund. What is the purpose of this how will some one keep money for a day and he is ready to remove it next day. OR is it like maturity is for one day and later we can remove any day because returns wont increase after one day? Can help us in understanding more

    Reply
    • Dear Sat,
      Even though the holding is a day by the fund manager in overnight funds, you can hold the investment as long as you wish for. For example, in the case of liquid funds, the fund manager holds the underlying papers which matures within the maximum of 90 days. It does not mean liquid funds are only for those who are ready to hold the money for 90 days.

      Reply
      • Ok great so, this means after in liquid funds if u invest lumpsum after 90 days what ever time u hold the fund you wont see any change in returns is my understanding correct

        Reply
        • Dear Sat,
          Returns changes as per the underlying papers returns. Here, I am saying that you can hold as many days or years you wish for (whether it is overnight funds or Liquid Funds).

          Reply
  18. Dear Mr.Basavaraj,
    I have been reading your blog for some time and it is very useful and based on the same I started investing in debt funds last year. You are doing a great service. Thanks for the same.
    I have a question now. I had invested in Liquid fund last year and added an equal amount this week(in a hurry and without much thinking). Now I would like to switch from this liquid fund to another Debt fund within the same fund house.While doing the above, I want to switch only the latest amount invested this week instead of from last year investment (LIFO order instead of FIFO) to avoid tax during switch. Is this possible? When I switch , is it the mutual fund house that decides my capital gain or is it me who can calculate based on above logic?

    Reply
    • Dear Basker,
      Mutual Fund companies follow the FIFO process. Hence, whatever you invested at first will be redeemed at first.

      Reply
  19. I was waiting for this post from a long time. Its interesting to see that you haven’t posted the past returns in this post. Any opinions on Aditya Birla floating rate fund?

    Reply
    • Dear Rajnesh,
      Good question about not positing the past returns 🙂 The reason is that, after SEBI Recategorization, many funds changed their style. Hence, there is no value on sharing their past returns as the fundamentals in many funds changed. Hence, choosing the fund based on past returns may not be valid in debt funds categories now. Regarding Birla Fund, I lost the faith in that AMC after certain bad events. If you invested, then I strongly suggest you to keep watch on the portfolio and if possible switch.

      Reply
      • Ok Thank you sir

        Reply
      • Basu Sir,

        IDFC first bank is offering 8.5% for 2 years. Does it make sense to lock the money there? Is it any different from FDs of other banks?

        My mom is 58 years old house wife. Can I open a SCSS for her?

        Reply
  20. why 2 funds in ultra short term category?

    Reply
    • Dear Premanshu,
      No such valid reasons. You can choose anyone between two.

      Reply

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