Debt Mutual Funds for Medium Term Horizon

Investing in debt instruments is a difficult job today. The few options available like Bank FD, NSC etc., do not give very good post tax returns. Ones like Corporate FDs do give a better post-tax return, but carry a higher risk. We are here evaluating four medium term debt funds which could prove to be useful. The attractive feature in debt funds is that you can take advantage of indexation for investment beyond 12 months. That makes the returns attractive, post-tax. Read on to know about the magnificent four, that we have short listed. Read – Investing in mutual funds for beginners

Templeton India Income opportunities fund

With an objective of investing across the yield curve, this fund strives to generate higher yields by taking relatively lower to medium term interest rate risk. The fund takes bet on high yield corporate debt instruments (including structured finance products) without compromising on credit risk.

Particularly it invests a small portion in relatively lower credit rated companies, but with a good track record (like Tata Motors), with a view that the lower rating is temporary phenomenon, in way taking a contrarian approach. The fund typically keeps 70% of the portfolio fixed and close to 30% is being churned as per the market outlook every month.

As a fund house, Templeton has expertise in managing corporate debt and structured finance products. Some of their funds like Templeton India short term income fund (Short term debt category), Templeton India floating rate income fund-Long term (liquid/floating rate income fund category) with a good mix of corporate debt are hallmarks in the respective category.

Having started with a meager Rs.350 Crores, the fund has now garnered a whooping Rs.3000 Crores in six months following its scintillating performance year to date. The fund has an exit load till 18 months. This fund will be a good long term bet.

Check – Arbitrage Funds Vs Liquid Funds

IDFC Super Saver Income (SSI) Fund-Medium Term Plan

Among the four funds shortlisted this fund has given impressive returns, with relatively much lower risk, it has assumed. With an objective of generating stable returns with low risk, the fund predominantly invests in high quality AAA rated debentures, A1+ rated CBLO instruments with a marginal (10-15%)exposure in G-Secs. Unlike other top performing funds, the fund has never invested in complex structured finance products, yet managed to give an impressive one year return of 9.31%, even in a rising interest rate scenario where the 10 year G sec yield has gone up by 75 basis points (6.87 in July 2009 to 7.62 in July 2010), in the last one year. The fund is managed by Mr. Anupam Joshi. Being a lower risk and high return fund, This is good candidate for those with a medium turn outlook.

Reliance Regular Savings Fund Debt

With an objective to generate optimal returns with moderate level of risk, the fund invests in corporate debt and money market instruments with zero exposure to G-Sec. Although it is a five year old fund, the fund has recently (in the last one year) revamped its strategy and portfolio allocations. As per that it now invests in corporate debt and structured finance products to enhance the yield. The fund is being jointly managed by Mr. Prashant Pimple, who also manages Reliance Short Term Fund and Mr. Arpit Malviya.

Birla SL Dynamic Bond Fund

With an objective of generating return through active management of debt and money market instruments, this fund performed well in 2008 and  early part of 2009 when the interest rates were very volatile. In a rising interest rate scenario of last one year, the fund has taken a defensive role to stay predominantly with money market instruments (averaging between 30% to 50%) and thus giving returns on par with short term funds. The fund occasionally takes a marginal call on Govt. securities as per the market valuations. The fund is being managed by Mr. Maneesh Dangi,  Birla SL AMC’s fixed income head. This fund can complement a typical, held to maturity, income fund.

These are some funds which could add diversity & better returns to your portfolio.

Birla SL Dynamic Bond Fund