I am a retired person with an investment horizon of 5-6 years. I want to invest in some debt funds to maximize my expected returns. Can you please suggest different types of debt instruments?
-Name withheld on request
Debt funds work well for low-risk investors. So yes, debt funds are a good option for you at this stage of your life. Rising interest rates have positively impacted portfolio returns for debt mutual funds (MFs) across categories. Investors may look into short-term debt even though periods of rising interest rates are not considered the best for debt investors, especially for longer-term debt instruments. Considering the global economic instability caused by war and its cascading effects on commodities and economies at large, ultra-short and floating-rate debt funds are a good investment at this juncture.
In the last one-and-a-half years, we have seen attractive returns in the 4-6 year tenor segment. During this period, the 10-year G-Sec has hardened to ~7.3+%. If you have medium term horizon then you can look at these tools for restructuring your portfolio. Your corpus can be invested in debt mutual funds (MFs) with a portfolio tenure of one to three years, such as corporate bond funds, PSUs, or banking funds, where the impact of rising interest rates on overall returns is minimal. Target maturity funds investing in GILT (government securities) and SDL (state development loans), maturing in 2027-2028, can be looked at by investors as they offer attractive returns in the range of 7.2-7.4%. Due to indexation benefits, their post-tax returns can be more efficient as compared to 5-year FDs.
Currently, investing in debt funds with low maturity debt securities carries low interest rate risk, if risk-adjusted returns are the desired outcome.
Tarun Birani, Founder and CEO TBNG Capital Advisors. Questions and thoughts at mintmoney@livemint.com
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