The dust has settled for the moment on the question of whether retail investors should exit debt funds. The answer is no, they should not because in terms of flexibility and post-tax returns they do better than fixed deposits. But, both the regulator and mutual funds need to make changes that identify clearly risks investors may not know they carry. Debt funds are far more difficult to understand than equity, and unless the risk in these funds is clearly marked out, retail investors will hesitate to cross over from fixed deposits to debt funds. Debt funds are used more by firms than retail investors. Firms own two-thirds of the debt funds, while retail investors less than a tenth. Compare this with equity, where retail investors own almost half the assets. Corporate treasuries are constantly looking for that extra return from debt funds and choose those AMCs that bargain down costs and offer an extra return kicker. But higher return comes with higher risk.
“The longer your time horizon, the more equity you can put in your mutual fund portfolio and the shorter your time horizon, the more debt funds you should have,” says personal finance expert Monika Halan in this episode of Money With Monika. “You need to break up your needs according to the distance of your goal,” she explains. Monika Halan is consulting editor, Mint, and author of ‘Let’s Talk Money’. Watch the full video for more.
Indian retail stock and bond investors may not have heard the name, but John C. Bogle (called Jack) impacted the way mutual funds are constructed, cost and sold all over the world. The founder of the $4.9 trillion Vanguard Group died on 16 January, a little over three months short of his 90th birthday. Bogle straddles the fund management world like a colossus, having turned an industry on its head more than 30 years ago by thinking of and acting in the interest of the retail investor. He did this by focusing on whittling down costs in two ways. One, to cut out the star fund manager and introduce index-based investing with wafer-thin costs. Two, to cut out the distributor and go “no-load”—where shares are sold without a commission or charge.
“A systematic investment plan, or SIP, is a route to a mutual fund and not the mutual fund itself,” explains personal finance expert Monika Halan in this episode of Money With Monika.“An SIP is similar to a recurring deposit (RD) in a way that it cultivates a savings habit, but they differ in returns. RDs result in fixed returns but SIPs are market-linked. Choose an SIP over lump sum investment to reduce market risks as it gives you the benefit of rupee-cost averaging,” she says. Monika Halan is consulting editor, Mint, and author of ‘Let’s Talk Money’. Watch the full video for more.
In this episode of Money With Monika, personal finance expert Monika Halan delves into the importance of having debt mutual funds in your investment portfolio. Debt funds are flexible, she says, and are good for various shorter term goals but can be difficult to understand. ‘You can choose to invest in a conservative balanced fund if you want the safety of bonds with a flavour of equity,’ she adds. Monika Halan is consulting editor of Mint and author of ‘Let’s Talk Money’
The year 2018 taught us that buying last year’s winner is not a good idea. Several years of good returns, a successful ‘mutual funds sahi hai’ campaign and the spread of the SIP culture brought plenty of first-time investors into equity mutual funds. The SIP book grew 50% over calendar year 2017 and another 20% in 2018 despite choppy markets. New investors rushed in and some of them went straight to the winners of 2017—the mid- and small-cap mutual funds. Some of these funds had given returns of over 40% in 2017 inducing investors to throw caution to the winds and rush to the risky part of the equity market. Investors made two errors. One, bought last year’s winner in 2018. Two, allocated all their equity investment to the past winner.