In order to benefit from volatile interest rates and to offset poor returns from equities, experts suggest to go for systematic investment plan (SIP) in debt mutual funds. If you want to invest for short term goals, then SIP in a liquid and ultra-short-term funds can help you. For longer term goals you can go for long-duration or gilt funds, say advisers.
“SIPs in debt mutual funds help you ride interest rate volatility and build long-term wealth. They are affordable as investors can start with small amounts,” the Economic Times quoted DP Singh, executive director, SBI Mutual Fund as saying.
Singh said in the next couple of decades, as the Indian economy matures further, average return expectations would be in line with those in the developed economies. Thus, on a risk-adjusted basis, debt allocation will be an important pivot for long-term investors.
Typically fund houses in India have been focusing on SIP in equity-oriented funds although SIPs in debt mutual funds have been present since long, Inflows through equity SIPs have stayed above Rs 8,000 crore per month for more than 16 months, with cumulative collections crossing Rs 1 lakh crore in last financial year.
Although there is no separate data available on debt and equity SIP every month, estimates show debt SIPs to be around 5% of the total funds generated through SIPs, the business daily mentioned.
Like equities, volatility in interest rates poses market timing risk for lump sum investment in long-tenure debt funds. So advisors believe SIPs starting with Rs 1,000 are better bets.
“Investors are unsure about future cash flows as their business income is affected, some face job loss or salary cuts. In this changed scenario, they are not sure if they can hold on to future equity investments for long term. Hence, these investors can opt for SIPs in liquid and ultrashort-term funds,” S Shankar of Credo Capital told the business daily.
According to data available on Value Research, a five-year SIP in a gilt fund has given 9.34% returns; while for a liquid fund return is at 6.49%.
Many financial planners have been recommending SIPs in liquid and ultra-short-term funds to meet goals over the next three years.
“An SIP in liquid and ultra-shortterm funds is a good tool for nearterm goals like buying a car, paying annual premiums or funding a vacation,” the business daily quoted Harshvardhan Roongta of Roongta Securities as saying.
(With inputs from timesnownews)