A switch from liquid funds to ‘short-term’ plans may fetch more: Experts
A switch from liquid funds to 'short-term' plans may fetch more: Experts

Many financial advisors are asking their clients to redeem their investments in liquid and ultra-short term bond (USTB) funds, and invest the proceeds in short-term bond funds to pocket better risk-adjusted returns in the next year.
"If you have one-year time horizon and if you can take moderate risk, it is time to shift to short-term bond funds," says Lakshmi Iyer, chief investment officer (debt) and head of products, Kotak Asset Management Company. These schemes will benefit from the prevailing high short-term rates, and they may also provide capital gains when the rates starts coming down sometime next year, say experts.
Many investors typically use liquid and USTB funds to park their contingency funds. However, they have started investing most of their fixed income portfolio in these funds in the last couple of years due to poor returns and volatility in long-term debt funds. "Due to rising interest rates, most long-term gilt funds and income funds have delivered poor performance in the last two years. Most investors have shunned them and embraced almost risk-free products like liquid and USTB funds," says Feroze Azeez, director — private wealth management, Anand Rathi Financial Services. Such investors should now consider moving their money back to shortterm bond funds, he adds.
Future Perfect
According to Value Research, a mutual fund tracking entity, ultra short-term bond funds and liquid funds categories have given returns of 9.06% and 9.02%, respectively, in the year-ended April 22. In fact, they outperformed every category in the debt mutual fund space. However, a possible fall in short-term rates in the near future may bring down the returns offered by liquid and USTB funds, as these funds invest in instruments that mature in less than a year. "We have seen dollar-rupee exchange rate improving.

A stable government at the Centre means more inflows to India and gradual improvement in liquidity, which may ease short-term rates," says Iyer.
The scenario is the opposite for short-term bond funds. "Most short-term bond funds invest in instruments that mature in one to three-year timeframe," points out Abhishek Gupta, CEO OF Moat Wealth Advisors. While one-year certificate of deposits offers 9.25% rate of interest, threeyear bonds offer as high as 11% rate of interest.
Such high yields assure good accrual income to the investors. In addition to this, investors can also look forward to capital appreciation when short-term rates start falling. "If the macro-economic scenario improves, bond issuers may see upgrade in their credit rating, which could lead to appreciation in bond prices," says Gupta.
Have Patience
Investment experts warn investors against hoping for double-digit returns overnight. "Shortterm interest rates may remain stable in the next three months. However, the rates may fall by 50-75 basis points during the next year," says Azeez. He asks investors to select short-term funds with modified duration between one to two years, and recommends Kotak Bond — Short Term Plan, Reliance Floating Rate Fund — Short-term Plan and Axis Short-term Bond Fund.
Experts also want investors to take a close look at the exit load charged by these funds. For example, all three funds recommended by Azeez charge an exit load for investments redeemed within 90 days. Some short-term schemes charge exit loads for redemption within 18 months from the date of allotment.
Economics Times
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
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Many financial advisors are asking their clients to redeem their investments in liquid and ultra-short term bond (USTB) funds, and invest the proceeds in short-term bond funds to pocket better risk-adjusted returns in the next year.
"If you have one-year time horizon and if you can take moderate risk, it is time to shift to short-term bond funds," says Lakshmi Iyer, chief investment officer (debt) and head of products, Kotak Asset Management Company. These schemes will benefit from the prevailing high short-term rates, and they may also provide capital gains when the rates starts coming down sometime next year, say experts.
Many investors typically use liquid and USTB funds to park their contingency funds. However, they have started investing most of their fixed income portfolio in these funds in the last couple of years due to poor returns and volatility in long-term debt funds. "Due to rising interest rates, most long-term gilt funds and income funds have delivered poor performance in the last two years. Most investors have shunned them and embraced almost risk-free products like liquid and USTB funds," says Feroze Azeez, director — private wealth management, Anand Rathi Financial Services. Such investors should now consider moving their money back to shortterm bond funds, he adds.
Future Perfect
According to Value Research, a mutual fund tracking entity, ultra short-term bond funds and liquid funds categories have given returns of 9.06% and 9.02%, respectively, in the year-ended April 22. In fact, they outperformed every category in the debt mutual fund space. However, a possible fall in short-term rates in the near future may bring down the returns offered by liquid and USTB funds, as these funds invest in instruments that mature in less than a year. "We have seen dollar-rupee exchange rate improving.

A stable government at the Centre means more inflows to India and gradual improvement in liquidity, which may ease short-term rates," says Iyer.
The scenario is the opposite for short-term bond funds. "Most short-term bond funds invest in instruments that mature in one to three-year timeframe," points out Abhishek Gupta, CEO OF Moat Wealth Advisors. While one-year certificate of deposits offers 9.25% rate of interest, threeyear bonds offer as high as 11% rate of interest.
Such high yields assure good accrual income to the investors. In addition to this, investors can also look forward to capital appreciation when short-term rates start falling. "If the macro-economic scenario improves, bond issuers may see upgrade in their credit rating, which could lead to appreciation in bond prices," says Gupta.
Have Patience
Investment experts warn investors against hoping for double-digit returns overnight. "Shortterm interest rates may remain stable in the next three months. However, the rates may fall by 50-75 basis points during the next year," says Azeez. He asks investors to select short-term funds with modified duration between one to two years, and recommends Kotak Bond — Short Term Plan, Reliance Floating Rate Fund — Short-term Plan and Axis Short-term Bond Fund.
Experts also want investors to take a close look at the exit load charged by these funds. For example, all three funds recommended by Azeez charge an exit load for investments redeemed within 90 days. Some short-term schemes charge exit loads for redemption within 18 months from the date of allotment.
Economics Times
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
--
You received this message because you are subscribed to the Google Groups "Product Updates for AMC" group.
To unsubscribe from this group and stop receiving emails from it, send an email to Productupdatesforamc+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/d/optout.
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