Thanks for visiting Capital Advisor. I frequently update this blog to cover various topics on personal finance such as investment strategies, financial products that you should buy and ones that you really should stay away from, financial calculators, emerging themes such as early retirement and financial independence, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.
I had more or less settled upon how I’d go about investing in debt funds (as part of one or more of my goal-oriented portfolios) in 2011 when I happened to read this insightful article on the outlook for debt mutual funds in 2011. Coincidentally, my own research and strategy happens to be a close match.
Excerpts from the interview with my comments outside the colored boxes.
From a mutual fund investor’s perspective, I recommend the following:
For the investors who seek liquidity and want to optimize returns, we recommend the dynamic bond fund, which promises to navigate through various stages of business and rate cycles by apt and swift repositioning of its investment strategies. It is well suited for investors with a one-year investment horizon.
I probably won’t be investing in such bond funds this year since I’m going for the other two options below. This, however, seems to be a good strategy given the interest rate and liquidity scenario.
Investors with a fixed term horizon, who seek certainty of returns, should look to invest in FMPs. The current short term rates are at elevated levels and are likely to compensate for inflation in the coming months. Both short term funds and FMPs will help you beat inflation in the coming months. Investors must avoid Income funds to stay away from corporate bond spreads.
I’d already started my research on Fixed Maturity Plans (FMP) even before I read this article since I wanted them to be a core part of D’s portfolio this year. In fact, by the time this post appears, I’ll already have made the first investment in a 90-day FMP. I want to watch the interest rate scenario for some more time before committing to a longer tenure.
Temporary cash must find its way to cash funds, as the return profile for such funds have improved dramatically over the last few months. These funds deliver substantially higher returns than the other passive form of investing i.e. savings account.
Quite true. I’ve been accumulating my passive income in a cash fund over the past few months and the returns have been significantly high — way higher than what I’d have made if the funds were in my savings account. I’ll continue this strategy since I expect this good situation to continue for some more time. As I read elsewhere, being invested in cash is also a position.
How about you? Are you investing in debt funds in 2011?
Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.