Published on 15/06/2019 4:46:06 PM | Source: HT Media

Know your equity, debt funds

Posted in Mutual Fund Analysis| #Mutual Fund #DEBT

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What is it?

In a circular dated October 6, 2018, Sebi broadly categorized mutual fund schemes equity schemes, debt schemes, hybrid schemes, solution oriented schemes and other schemes. There are a total 341 open-ended debt schemes in the market and around 1,028 close-ended schemes in total, according to The average one-year returns of close ended schemes are 6.86% and three-year returns are 8.97%. The average one-year return of open-ended debt schemes is 8.06%, three-year returns 7.2% and average five-year returns is 7.85%. The returns are as on June 3, 2019.

Minimum investment levels

“For equity funds, minimum investment in equity and equity-related instruments is 65%, except large cap, sectoral or thematic and ELSS schemes, where it is 80%," said Omkeshwar Singh, head – RANKMF, a mutual fund platform by SAMCO Securities. Debt funds invest in fixed income securities. “Liquid funds invest in money market instruments with maturity of up to 91 days. Ultra-short bond funds invest in those with maturity of 3 to 6 months and short-bond funds invest in those with a maturity of 6 to 12 months," said Harsh Jain, co-founder, Groww, a direct mutual fund platform.

How should you invest?

As equity investments are riskier than debt instruments, most experts advise you to begin investments with your portfolio tilted more towards equity and then slowly move towards debt. “If you are a beginner, you can put 70 to 90% of your money into equity schemes," said Jain. Within equity schemes, you can pick the categories that will suit your risk profile the best. “Beginners can look at ELSS schemes, large-cap or even multi-cap schemes. When you move closer to retirement, you can switch to hybrid equity or debt schemes," said Nisreen Mamaji, CEO, Moneyworks Financial Advisors.