Avoid holding all-debt mutual fund portfolio for over 5-7 years

It would not be a good idea to have an all-debt portfolio since your returns could be quite sub-optimal in that situation


Photo: iStockPhoto
Photo: iStockPhoto

I need your advise to invest in debt funds. I already have considerable equity exposure. The aim is to save this money for my daughter’s education (in approximately 10 years from now). I am primarily looking for accrual (something similar to a fixed deposit) with tax efficiency but open to duration (with very low risk). Can you please recommend 3-5 funds where I can put this money, for say 3, 5, 7 and 10 years? I was thinking of the following funds but need your expert advice: ICICI Pru Banking and PSU Fund, Franklin India Income Opportunity Fund, and H DFC Medium-Term Opportunities Fund.

—Shabbir Ali R.V.

Long-term portfolios can have allocation to debt funds as part of an asset allocation strategy. If your investment horizon is longer than, say, 5 or 7 years, then it would not be a good idea to have an all-debt portfolio since your returns could be quite sub-optimal in that situation. In your case, given that your daughter’s education has a 10 year time-frame, I hope some of your considerable equity exposure is allocated towards meeting this goal, and that you are looking to augment that investment with debt fund exposure. With regards to tax efficiency, all debt funds provide indexation benefits for holding periods of greater than 3 years.

When it comes to choosing schemes, it would be better to select those funds where the fund managers have latitude to make strategy choices as they see the market at any given time.

Dynamic bond funds such as Birla Sun life Dynamic bond fund would suit the bill well, as would UTI dynamic bond fund. From your list, HDFC Medium-Term Opportunities Fund is a good low-risk accrual strategy fund.

It would be better to stay away from thematic funds and credit opportunity funds in this category when putting together a regular long-term portfolio. You may also refer to Mint’s curated list of 50 funds here: http://mintne.ws/2ax8SYA.

I am a 21-year-old student doing my masters in business administration (MBA), which I will be completing next year. I earn a stipend of Rs.20,000. I want to invest that money in mutual funds for long term. Suggest some good options.

—Vinay Katyal

Investing an amount such as this is a good way to get started with your investment career. However, in the long run, this sum of money will not make a big difference (regardless of how well the investment does) to your long-term fortunes.

Once you get going with this investment, please remember to monitor it periodically to see how it grows, and more importantly, once you start earning a salary, please start an SIP to make investing a habit.

To start with you can invest Rs.10,000 each in two funds—a large cap fund such as Birla Sun life Frontline Equity Fund and a diversified fund such as ICICI Prudential Value Discovery Fund would be good choices.
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