Liquid
It is a category of mutual fund which invests primarily in money market instruments like certificate of deposits, treasury bills and term deposits. Lower maturity period of these underlying assets helps a fund manager in meeting the redemption demand from investors.
Investment for a Single Day can also be Possible.
Income
It is a category of mutual fund which actively trades primarily in government securities, certificate of deposits, commercial papers, and term deposits. Higher maturity period of these underlying assets helps a fund manager to generate the leverage power for getting absolute alpha on the paper yield.
Generating Alpha over Yield
FMP
It is a category of mutual fund which invests primarily in money market instruments like certificate of deposits, commercial papers and term deposits. Maturity period of these underlying assets are as equal to investment objective tenure.
Having better return compare to Bank Deposits with Taxation Benefit.
Concept of Debt Investments Products
Debt instruments are contracts in which one party lends money to another on pre-determined terms with regard to rate of interest to be paid by the borrower to the lender, the periodicity of such interest payment, and the repayment of principal amount borrowed (either in installments or bullet).
What is "Debt Fund" ?
An investment pool, such as a mutual fund or exchange-traded fund, in which core holdings are fixed income investments. A debt fund may invest in Central or State Govt. or Public Sector issued short-term or long-term bonds, securitized products, money market instruments or floating rate debt. The fee ratios on debt funds are lower, on average, than equity funds because the overall management costs are lower. Based on the fund philosophy, the fund manager will choose the instruments with different risks.
The main investing objectives of a debt fund will usually be preservation of capital and generation of income. Performance against a benchmark is considered to be a secondary consideration to absolute return when investing in a debt fund.
Maturity
Maturity of a bond refers to the date on which the borrower has agreed to pay (redeem) the principal amount to the lender, the borrowing is extinguished with redemption, and the bond ceases to exist after that date. Term to maturity, on the other hand, refers to the number of years remaining for the bond to mature. Term to maturity of a bond changes every day from the date of issue of a bond until its maturity. Coupon rate refers to the periodic interest payments that are made by the borrower (who is also the issuer of the bond) to the lender (the subscriber of the bond) and coupons are stated upfront either directly specifying then number (e.g. 8%) or indirectly tying with a benchmark rate (e.g. MIBOR+0.5%). Coupon rate is the rate at which interest is paid, and is usually represented as a percentage of the par value of a bond. Principal is the amount that has been borrowed, and is also called the par value or face value of the bond. The coupon is the product of the principal and coupon rate.
Current income
The debt mutual fund is primarily focused on getting a regular return. The investments of the fund are in deposits/bonds with different maturing tenures and different interest rates. We need to take care to match our time frame for investment to the time frame of these. The current income from these funds will be in the range of 8 to 10 per cent. Generally, the current income is received from the debt mutual funds in the form of dividend. Hence, this cash flow is tax free in our (investors") hands.
Capital appreciation
Through investing in debt instruments only, there is a possibility for capital appreciation in debt funds. This is a major advantage that we get from investing in mutual funds rather than directly in a bank deposit. This capital appreciation is possible because debt instruments that mutual funds invest in market tradable. Thus, when the market interest rates come down as in the current scenario, the debt mutual funds get much higher bond yield.
Risk
When the interest rates go up in the general market, the bond yield comes down, leading to capital erosion when debt instruments are traded. This can lead to very low or even negative returns from debt instruments. So no financial tool can be said to be risk free. However in the short term, debt instruments are a good place to preserve capital.
Benefits
Debt investment is usually a very safe form of investing, because the bond is backed by the issuing organization. Even if the issuing organization defaults, you may be able to get your money back by seizing the organization's assets. There are many different types of bonds from which to choose, so you can pick bonds that speak to your interests, as well as your financial needs. The debt investments can serve as leverage for the higher risk investments in your portfolio. Additionally, the backing by the issuing organization means you can predict your cash flow. For example, if you buy a Rs. 100 bond that matures in three years at 18 percent interest, you know that you will get back Rs. 118 at the end of the three years. If you wait to cash in the bond, you may continue to earn interest for as long as you have the bond. This isn't really possible with other forms of investment like stocks, which are subject to market fluctuations. Lastly, debt investment is no-fuss. Once you buy the bond, you don't have to do much aside from cash it.
