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Debt funds fancied as bank rates head for slide

india Updated: Dec 16, 2008 21:43 IST
Sandeep Singh
Sandeep Singh
Hindustan Times
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Debt funds schemes offered by mutual funds could turn out to be the investors' favourite as deposit rates of banks are set to fall in the coming weeks.

Within debt funds, bonds that carry sovereign guarantee of the government such as the Reserve Bank of India bonds and infrastructure bonds, score over other such schemes, including income funds that largely invest in bonds issued by private corporations.

“Government securities ( G-Sec) is best placed for medium to long-term considering safety and view on interest rate,” said Amar Pandit, a Mumbai based financial planner.

Over the past one-year the G-Secs, also referred to as gilt funds, have generated an average return of 19 per cent while the income funds have generated 10.8 per cent.

Income funds invest mostly in corporate bonds. As banks reduce deposit rates, the returns on corporate bond also follow a similar pattern.

“G-sec yields have come down from 9.5 per cent to 6 per cent over the past six months and it is expected to go down further in the view of global volatility,” said Nilesh Shah, deputy managing director, ICICI Prudential AMC.

Experts said investors should check the portfolio before investing. “The only concern is on the credibility front and it should be above AA rated bonds,” said Surya Bhatia, delhi based financial planner.

The debt funds when invested for over a year get the indexation benefit and are liable for tax at the rate of 10 per cent and there is no exit load.