Short-Term Income and Dynamic Bond Funds are better Investments now

 

Short-Term Income and Dynamic Bond Funds are better Investments now





Liquid funds, ultra-short term funds and income funds have seen outflows in the month of September, while gilt funds and some dynamic bond funds have attracted inflows.

Advance tax payments, along with worries about Amtek Auto's default on its loan repayment to JP Morgan and worries about the presence of stressed companies in fixed income portfolios triggered outflow from these funds.

Fixed income funds have seen outflows to the tune of `87,500 crore in September--the highest in six months. Liquid or money market funds saw an outflow of `60,861 crore, while income funds saw redemption of `26,700 crore.

As per distributors, investors allocated money to gilt funds and dynamic bond funds on expectations of rate cuts. As interest rates move down, these funds with a longer duration, benefit due to capital appreciation. In a dynamic bond fund, a fund manager can increase or reduce duration funds based on his view on interest rates.

At this juncture, investors should not compromise on the quality for higher returns. They should stick to funds which have a `AAA' rated or `AA' rated portfolio. Retail investors should clearly avoid credit opportunity funds, funds with low quality paper or funds with exposure to stressed sectors like steel, metals and textiles. Given the sharp rate cuts of 125 basis points this calendar year, distributors believe there may be an extended pause or another 25 basis points till March 2016. Hence it may make sense to invest in a mix of short-term income funds and dynamic bond funds and avoid long duration gilt funds.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. IDFC Tax Advantage (ELSS) Fund

4. ICICI Prudential Long Term Equity Fund

5. Religare Tax Plan

6. Franklin India TaxShield

7. DSP BlackRock Tax Saver Fund

8. Birla Sun Life Tax Relief 96

9. Reliance Tax Saver (ELSS) Fund

10. HDFC TaxSaver

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