The wait's over! US64 Tax-Free Bonds issued in 2003 are finally up for redemption. For the benefit of those who might have forgotten, US64 Bonds were issued to investors in the erstwhile Unit Scheme 64 as a part of the bailout package.
Over the tenure of US64 Bonds, the investment scenario has changed radically. Mutual funds (equity funds in particular) have come of age and found greater acceptance among investors. So it should come as no surprise, if you find yourself being persuaded from all quarters to invest the redemption proceeds of US64 Bonds in equity funds.
For example, investors in US64 Bonds have received letters urging them to invest the redemption proceeds in equity funds from UTI Mutual Fund. Mutual fund distributors are being offered higher commissions, foreign trips and other prizes as a part of a contest to urge investors to convert the US64 Bonds into funds from UTI Mutual Fund.
Simply put, there's an all out effort to ensure that the maturity proceeds of US64 Bonds find their way into UTI Mutual Fund. However, it must be appreciated that your investment interests are supreme and they should never be compromised at the altar of someone else's business interests.
While the fund house and distributors are doing their bit, what should you as an investor do? Let's find out.
1. Block all the noise and conduct an honest evaluation
This would be a good starting point. Don't let all the noise influence your investment decision. Instead, conduct an honest evaluation of your risk appetite. Should you be investing in equities or is debt more appropriate? For example, if you are a risk-averse investor, then perhaps staying away from equity investments might be a prudent choice. In such a case, you could choose avenues like fixed deposits, fixed maturity plans (FMPs) or even conservatively managed monthly income plans (MIPs), among others.
2. Consider your asset allocation
Now is a good time to revisit your asset allocation. This will serve as a reference point while investing the maturity proceeds from US64 Bonds. For instance, investments in US64 Bonds qualify as fixed income instruments in your portfolio. A critical assessment of your asset allocation will help you arrive at the appropriate asset class for making investments and also determine the right allocation.
3. The mutual funds option
There's a fair chance that your risk profile and asset allocation demand that you get invested in equities; also, mutual funds could be your preferred avenue. Now you need to decide which equity fund to get invested in. The availability of an option to convert redemption proceeds of US64 Bonds into equity funds, doesn't qualify as a good reason to get invested in the latter.
In fact the evaluation of an equity fund should begin with the fund house. First, the fund house needs to make the grade on parameters like investment processes and policies. Furthermore, it should purse a team-driven investment approach and have a track record of adhering to its investment mandate at all times.
Then, the performance of the equity fund across both the risk and return parameters needs to be evaluated. Also, the fund should have a proven track record across longer time frames and market phases.
Most importantly, the fund has to be right for you i.e. it should fit into your portfolio and must be capable of contributing towards your financial goals and objectives.
In conclusion, all you need to do is stick to the elementary (yet important) guidelines while investing and you can make the most of the US64 Bonds maturity proceeds.
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