With the Union Budget making debt fund taxation unattractive -- for tenures between one and three years -- investors feel they are better off betting on these short-term schemes, say fund managers.
Some are taking the systematic investment plan route, recommended for long-term funds or equities.
“Investments in debt funds, especially liquid funds are happening by way of SIPs.
This might also be because there is no exit load and lock-in for these funds,” says Anutosh Bose, chief operating officer, LIC Nomura Mutual Fund.
As in the case of equities, SIP is a way to discipline investment habits.
It is largely advised for equity investments, owing to higher volatility in the asset class.
As this makes cost averaging more prominent in equities than in other asset classes, SIPs are more associated with equities.
“Bond yields can also be volatile, as these are linked to the money market.
"Investors put money when bond yields are rising.
"Sometimes, when bond yields are at 8.5-9 per cent levels, as is the case now, investors hold back investment, thinking it might rise further,” says Murthy Nagarajan, head (fixed income), Quantum Mutual Fund.
R Sivakumar, head (fixed income), Axis Mutual Fund, says systematic investment in any asset class works better if invested through a whole cycle.
“If one had invested in debt funds (through SIP) four to five years ago, he/she would have seen better results.”
Interest rate cycles usually stretch through four-five years.
According to data from mutual fund rating agency Value Research, through the past five years, liquid funds returned 7.5 per cent annually, income funds seven per cent, and short-term and ultra short-term
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