Short Term Bond Funds - Attractive Opportunity

Indian Economy has slowed down in the last few years. A big impact of this has been on Interest   rates of deposit and debt funds. Last year at this time, Fixed Deposits and FMP were offering 10% but the current yield on same has come down to approx 9%. Going forward, Interest Rates are expected to further come down in next 1 year as economy further slows. 

One instrument which does really well in falling interest rate scenario is Short Term Bond Fund. The strategy of the fund is to hold good quality Corporate Bonds of 2-3 years time horizon when interest rates are good and sell the bonds at premium when interest rates in economy goes down. These funds have done really well in the last 1 year with average return being greater than 10%. These category of funds are expected to do well in coming 1 year as well. 

Mywealthclub.com recommends following funds in this category for investment: 

 

Scheme	Corpus (In cr.)	1Y	2Y	3Y	MWC Rating
UTI - ST Income Fund (G)	2050	11.37	11.48	9.65	*****
Birla SL - DBF (G)	14481	10.12	10.21	8.6	*****
Templeton - India ST Income Plan (G)	6035	9.99	9.76	8.34	*****
Average		10.49	10.48	8.86

                          *As on 25/2/13   **Returns for more than 1 year are annualized. 

 The above funds have been shortlisted on the basis of consistency of performance, quality of fund management team, quality of underlying investments etc.

 Points for consideration: 

• Allocation - Investor can look at deploying a maximum of 40% of his Debt/ Fixed Income Portfolio in the above funds.
•  Diversification – Investors are recommended to invest equally in all the above 3 funds to diversify the portfolio.
• Expected Return – Investors may expect a return of 9% to 11% in next 1 Year.
• Time horizon – Minimum recommended time horizon for the above funds is 1 Year.
• Liquidity – The above funds are liquid and investor can withdraw the funds when required. An exit load of 0.5% to 0.75% may be applicable if withdrawal is made before 6 or 9 months depending upon the fund.
•  Taxation – The capital gain from investment will get taxed at 10% or 20% with indexation whichever is lower. If an investor invests in the above funds before 31^st March’13 and sells after 1^st April 2014 then he will be eligible for double indexation which may bring down his tax liability to 0%.
• Expense Ratio – The above funds have an inbuilt expense ratio of approx 1% - 1.5%. The above performance shown is net of expense ratio.
• Advisor commission – Advisor gets paid 0.2% to 0.9% depending upon the fund. 

If you want any additional information or invest in the above funds then please contact us at support@mywealthclub.com or call us at 90156 15190.