[Hayek]

Originally Posted by SmartCat

Now compare this portfolio with that of Franklin India Income Opportunities Fund:

Note that this fund has just 41 securities. And worse, they have 50% of their assets in 5 companies. And unknown names like "coastal gujarat power" too. We can also look at credit ratings (AAA, AA etc) but they are unreliable.

Don’t hold a brief for Franklin Templeton (have a sizeable sum stuck in one of their funds), but Coastal Gujarat Power is a subsidiary of and guaranteed by Tata Power - don’t think you have to worry about that. You do need to look at ratings - rating agencies can get things wrong but on a relative basis, a AAA or AA+ is a lot safer than lower rated names. Please remember that these are India ratings - so a AA in India would likely be a BB- or B+ if it attempted to get a global rating. Which is why we occasionally see India AAA and AA names defaulting.

[SmartCat]

Originally Posted by R_Gowardhan

Please don't perceive my opinion as a criticism of Hybrid funds. They have a purpose and are right for people belonging to a particular risk appetite group.

It makes more sense to do your own hybrid or multi-asset portfolio. Decide on a percentage for each asset (Indian equities, foreign equities, Gilts, liquid and Gold) and invest in select mutual funds under each category.

Originally Posted by Hayek

Don’t hold a brief for Franklin Templeton (have a sizeable sum stuck in one of their funds), but Coastal Gujarat Power is a subsidiary of and guaranteed by Tata Power - don’t think you have to worry about that.

Yeah, from what I hear in the news, investors are likely to get most of the money back over a period of 2 years. NAV slowly creeping up (blue line) suggests that interest on bonds are accruing and/or individual bond values are recovering

[kshastry]

Great thread! A newbie question.

Is it advisable to start SIP in debt / gilt funds? Or are they meant only for short term lump sum investment with a fixed time horizon?

Is SIP even make sense in case of such funds? If yes, what should be the strategy to managing it. I am confused.

[SmartCat]

Originally Posted by kshastry

Is it advisable to start SIP in debt / gilt funds? Or are they meant only for short term lump sum investment with a fixed time horizon? Is SIP even make sense in case of such funds? If yes, what should be the strategy to managing it. I am confused.

SIP in overnight funds or gilt funds (and to some extent, in Banking & PSU funds) is fine - because there is little or no default risk. For other type of debt funds, one has to be watchful. If you are used to investing in equity funds, you will barely notice the volatility in Gilt funds.

Kotak Gilt fund is the oldest fund (launched in year 2000), and Rs. 10,000 per month SIP in this fund would have looked like this:
https://www.valueresearchonline.com/...p-return-graph



This graph gives you some idea about future volatility of your gilt fund SIP investment, over the long term. Your actual returns and actual volatility, of course, will depend on future interest rates.

[kshastry]

Thanks Smartcat. More questions

When we talk about diversifying investment (basically SIP in case of salaried class) between Equity and other classes depending on age and risk apetite, please consider this and advise.

In case if the split is to 50:50 (of total invested in MF) between Equity and Debt/Gilt (moderate risk type allocation), and SIP duration is say 10 years, then for the debt/gilt part, what should be the basis to chose / shortlist funds?

Looks like it is not 'invest and forget' for debt/gilt funds. What should be the ideal review period for above duration?

[SmartCat]

Originally Posted by kshastry

Looks like it is not 'invest and forget' for debt/gilt funds. What should be the ideal review period for above duration?

No, no. Gilt funds are 'invest and forget' funds. Interest & principal are guaranteed by Govt of India. There is no default risk. It's just that NAVs will go up and down.

In case if the split is to 50:50 (of total invested in MF) between Equity and Debt/Gilt (moderate risk type allocation), and SIP duration is say 10 years, then for the debt/gilt part, what should be the basis to chose / shortlist funds?

Just go for reputed names (Aditya Birla, SBI, HDFC, ICICI etc). We cannot predict which fund will do well in the future.

You can save 0.5% per year in expense ratio by investing in Govt bonds directly
https://www.team-bhp.com/forum/shift...-deposits.html (Government Bonds - Safer than even Fixed Deposits)

[skrao]

I used to be a big fan of these till yesterday. The arbitrariness of the government is a concern. They wrote down the value of LVB Tier 2 bonds ( face value of 10 lacs) to zero! Earlier they wrote down the value of Tier 1 Yes Bank bonds to zero. I know many pensioners including some in family that invested and lost big chunks. The funny fact is these are supposed to be collateralised debt.

[carboy]

Originally Posted by skrao

I know many pensioners including some in family that invested and lost big chunks.

Pensioner shouldn't be investing AT1 & AT2 bonds.

Originally Posted by skrao

The funny fact is these are supposed to be collateralised debt.

Collaterised debt was the cause of the 2007 collapse. Collaterised debt is risky. It's not for retirees/pensioners.

[SmartCat]

If anybody has invested in AT1 & AT2 bonds, it is time to fire your "investment advisor" or "wealth manager". These products are not for retail investors (forget pensioners). These bonds are institutional products (for banks, mutual funds, insurance companies etc) - those who have the ability to understand risk.

Next time a relationship manager calls up regarding an investment opportunity, refuse all offers and stick to bank FDs and debt mutual funds. Even corporate FDs should be avoided.

[adithya.kp]

Well, Its true that valuation multiples are inversely proportional to the interest rate. But then, it some point earnings /fundamentals have to make some sense. Also, I dont think the retail ( directly or indirectly through domestic mutual funds) can move the needle. The new 3 trillions created by FED, definitely has something to do with it.
Anyways, lets see how this goes. Since its a debt related thread, I will not dilute this thread.

Originally Posted by SmartCat

It basically boils down to interest rates. If interest rates are zero or close to zero, money starts going elsewhere looking for returns - primarily into stocks. Atleast, stocks generate 2% to 6% dividend yields. Think about it - what do you think everybody in India will do if India's bank interest rates is close to zero? People (including retired individuals) have to pull out money from fixed deposits and invest in stocks.

So markets/investors are not THAT irrational, eh?

[jkrishnakj]

Need guidance / views pls.

I have approx 10L that I want to put away for about 5-6 years. The FD rates are quite low. I am not into the equity and have perhaps missed out on SIP / Mutual funds etc..
Prefer something that is very low risk. I was exploring an FD with HDFC Ltd. Any other views will be highly appreciated.

[Sree]

[ I have approx 10L that I want to put away for about 5-6 years. The FD rates are quite low.
Prefer something that is very low risk. I was exploring an FD with HDFC Ltd. Any other views will be highly appreciated.[/quote]


RBI GOI floating rate bonds. Secure as issued by govt of India and offer higher rate. However, cannot withdraw for 7 years.

[penpavan]

Dear Smartcat,
What is your view on the NPS Tier 2 schemes that invest fully in Govt bonds.
This one for example https://economictimes.indiatimes.com...emecode-55.cms

I see the major asset allocated is Govt Of India Securities and Central Govt Loans. What is your sense of risks involved here. Thanks in advance.

[SmartCat]

Originally Posted by jkrishnakj

I have approx 10L that I want to put away for about 5-6 years. The FD rates are quite low. I am not into the equity and have perhaps missed out on SIP / Mutual funds etc. Prefer something that is very low risk. I was exploring an FD with HDFC Ltd. Any other views will be highly appreciated.

Corporate deposits from HDFC & Bajaj Finance are almost as safe as that of banks because of their strong risk management systems. However, the interest rates are not at all attractive.

As Sree says, it makes more sense to invest in RBI floating rate bonds. The interest rates are set at 7.1% as of now, which is higher than HDFC deposit. So yes, we are living in a strange world - risk free returns are higher than corporate deposits. As a bonus, if interest rates rise, you will get higher returns since these are floating rate bonds. Conversely however, if interest rates fall further, you will get lower returns.

To invest in floating rate RBI bonds, you need to visit bank branch. Type "Your Bank Name RBI Floating Rate Bonds" in Google.

Originally Posted by penpavan

Dear Smartcat, What is your view on the NPS Tier 2 schemes that invest fully in Govt bonds. I see the major asset allocated is Govt Of India Securities and Central Govt Loans. What is your sense of risks involved here. Thanks in advance.

There is no risk - it is a risk free investment. It is like wondering if there is any risk in PPF. Government will literally print more money to pay back your interest and principal.

[lapis_lazuli]

Most debt funds have done well in the last few quarters of falling interest regime. Rates seem to be at minimum possible lows. What's the outlook over the next 3/6/12 months for the following:

1) Short term funds
2) liquid funds
3) Dynamic bond funds
4) corporate bond funds

Thanks 😊