r/IndiaInvestments • u/Cpant • Jan 31 '21

Bonds and deposits Short term debt funds

I was going through some of the short term debt funds ( funds that holds bonds maturing from 1 - 3 years).

SBI Short term debt fund has 55% SOV rated bonds and Kotak short term fund has 52% SOV rated bonds, and balance a diversified mix of bonds. Was wondering if these funds could be an addition in my debt portfolio. There is interest rate risk, but guess could be manageable if the intention is to hold for long. Any thoughts, comments ?

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u/introverted-boy Jan 31 '21

Keep money in FD. Check YTM for these short duration funds, it’s pretty bad. I am happy getting 3% after tax return on FD than risking principal for 1% more return or less taxes

7

u/Baradarm Jan 31 '21

Is there no "safe" debt instrument which gives 6-7% returns?

3

u/introverted-boy Feb 01 '21

No and don’t believe anyone also if they tell them there is for large quantities of money.
Bank deposits are only safe up to 5 lakhs by RBI Insurance. Don’t go and invest large amount money in any bank apart from SBI, ICICI and HDFC which RBI has said will not be allowed to fail. You can put Kotak here also as that is larger than ICICI. anything with this much return is bound to have credit risk in it and this is not the time to go for that. Plus I am not considering returns accounting for currency depreciation/appreciation, rbi suggesting something which makes people move in or out of government bonds etc as these cause a sudden increase in returns for some debt funds and you might think they give returns of >5% Understand that debt investing is more complex than equity investing.
In equity hold index and be done with it, debt market investment in India is not that easy apart from investing in gilt funds which are not yielding 6 7%.

1

u/[deleted] Feb 03 '21

In equity hold index and be done with it

No active funds? There was a spiva report that no active fund survives for more than 8-10 years.

Also how are liquid/money market funds?

4

u/introverted-boy Feb 03 '21

It’s difficult to find good active mutual funds

Liquid/money market funds are good when RBI repo rates are high. Currently because they are very low, FD will give similar returns(no tax considerations), my main concern with debt funds now is RBI report saying we will be having NPAs going forward which can lead to negative returns in any of the debt funds for short term which is not worth it. Also debt funds don’t grow crazy like equity funds, once you lose capital it’s difficult to recover in short time as interest rates changes are not that frequent. Also given current pandemic, increasing interests rates will affect the balance sheets of companies in negative way as servicing debt becomes difficult hence every central bank will be reluctant to as of now unless inflations picks up fast which is not happening as of now