I often see heated arguments in support of Income Funds, FMPs, Gilt Funds etc. Or simply discussing the merits demerits of different sorts of debt funds.
Here is a link to a table that computes returns over different time periods, across different types of mutual funds.
This link is a dynamic one and hence should not be dated.
Unless there is a structural change in interest rate structures in India, it makes no sense for any investor to go beyond the simple Liquid Fund. The returns from Liquid funds is similar to those from all other fixed income products. Much lower stress, lower BP and lower volatility. And even if an income fund were to give a percentage extra, I would not mind forgoing it for the safety and convenience of the Liquid Fund. As a retail investor, if I keep ten lakh in a fixed income fund, the annual return difference would not be serious enough to warrant investing in to Income or Gilt funds.
Many folks want to ‘time’ the income or gilt funds, saying that there would be a big kicker when interest rates fall. We have been saying it for three years. Indian economy and inflation plus other unknown factors influence this.
So, why look beyond the Liquid Fund? Sleep well.
Yes, once in a way, the FMPs, are fine, so long as we know the indicative rates in advance. And a good fund house. And do not give me the bull about ‘indicative’ rates. Hold your advisor to the rate if there is a serious divergence, say beyond a percent or so. Every fund house will have planned the investments to a T in any FMP. Often, most of the investment comes from rollover of paper from a FMP that matures. If the FMP chain were broken, many companies would be in the dog house. So be aware of this risk in the FMP.
Treat Mutual Funds as an alternative to Co Fixed Deposits and Savings account. Liquid Funds are ideally positioned today to provide the option.