How can I unfold my funding throughout debt funds to attain medium-term objectives?

I’m a retired particular person. With a medium-term objective of 5-6 years, I’d wish to put money into a debt fund. Please suggest just a few funds to unfold the funding for the best-expected return

– Name withheld on request

While selecting debt funds, it turns into necessary for traders to know the danger related to them. Generally, most debt funds carry two sorts of dangers: credit score danger and rate of interest danger. One shouldn’t take a look at the upper returns (abnormally excessive) in fixed-income merchandise as there could also be a danger of shedding invested capital as a result of increased credit score danger. On the opposite hand, the danger related to rates of interest is excessive within the prevailing financial situation of excessive inflation. Hence, investing in merchandise that mitigate the danger related to an funding in debt and enable you to get respectable returns is prudent.

If your funding horizon is 5-6 years, Target Maturity Funds (TMFs) could be a good selection as they’ve numerous benefits over the opposite classes of debt funds. The first and most promising benefit of TMFs is their relative immunity to rate of interest danger. Since their portfolios have a decreased length, they’re much less delicate to rate of interest change. Secondly, TMFs have higher return visibility than the remainder of the debt funds for the reason that portfolio of bonds is held until maturity. Thirdly, being passive in nature, goal maturity bond funds deploy their funds primarily based on the composition of the underlying bond index. Hence the portfolio of those funds tends to be closely invested in authorities securities, SDL and PSU Bonds, which lowers the default and credit score danger of TMFs. Currently, the web YTM of many TMFs with maturity dates between 5-6 years is hovering within the vary of seven.10%-7.40% and appears engaging within the present scenario. So, you might take into account investing in these funds with the maturity that fits your funding horizon. Some urged funds are ICICI Prudential Nifty PSU Bond plus SDL September 2027 40:60 Index Fund, Kotak Nifty SDL Apr 2027 Top 12 Equal Weight Index Fund, SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund, IDFC CRISIL GILT 2028 Index Fund.

Query answered by Rajiv Bajaj, Chairman & MD, Bajaj Capital Ltd. If you have got any private finance queries, write to mintmoney@livemint.com to get them answered by consultants.

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