'They are ideal for short-term financial goals like children's education or a down payment for a house.' 'They are also useful for transitional savings, such as during job switches or while starting a business.'
MMFs invest in fixed-income instruments maturing in less than one year, minimising interest-rate risk.
'TMFs trump FMPs and FDs when it comes to investing in a high-duration product.'
These schemes are a good choice for investors contemplating a large investment in equity funds. Instead of investing all the money in one go, they can do so in a staggered manner by parking it in these schemes and then transferring it to equity mutual funds through a systematic transfer plan.
Dwaipayan Bose on how index funds play a key role in the diversification of portfolios and help manage risks
The Covid winter seems to be finally ending for debt-oriented mutual fund (MF) schemes as interest rates peak, especially for those that invest in shorter-maturity papers. In the past two months, shorter-horizon debt schemes - ultra-short, low-duration, and money-market - have together raked in net inflows of Rs 48,000 crore, the highest for two months since April-May 2021. These schemes invest in shorter-maturity papers ranging from three months to a year.
'They can transition from short to long-duration funds when the yield curve normalises.'
Why it is important for investors to select the right product according to their specific investment needs, risk appetite and investment tenure.
While equity savings funds could offer higher returns over three-five years, they would also be more volatile.
'Banks will continue to increase FD rates to attract more deposits and meet the increasing demand for credit.'
Besides high portfolio yield, investors may enjoy capital gains in debt funds in 2023 as bonds rally in anticipation of rate cuts.
Investors not comfortable investing directly may take the mutual fund route, where they get exposure to a diversified portfolio of bonds.
The returns from liquid funds, currently, look better than what savings accounts of leading banks are offering, points out Sarbajeet K Sen.
It is advisable to avoid a fund until it develops a track record.
If you invest for the shorter-term now, you will be able to roll over to higher rates when the interest-rate cycle turns, advises Sarbajeet K Sen.
Invest in liquid funds if you have a horizon of three months, ultra-short-term for six months, and low-duration funds for one year.
Foreign currency convertible bonds (FCCBs) are proving to be a double-edged sword with large premiums simply vanishing on account of bear markets and the ghost of redemption at yield-to-maturity (YTM) hanging on.
For existing investors, it may be prudent to redeem their current investments in gilt or dynamic schemes and invest it in short-term funds, if the exit load is not very high, advises Malhar Majumder.
'Investors should restrict themselves to a few category schemes with high quality portfolios apart from overnight and liquid funds.'
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