Are you confused about where to invest in the current interest rate scenario in India?
Should you go for dynamic bond funds, target maturity funds or bank fixed deposits?
It can be hard to decide when you are not sure of the pros and cons of each option.
It is important to explore the features, returns, and risks of each option so that you can choose the best one for yourself.
So, let’s get started and explore the different investment options available to you.
Dynamic Bond Funds: These are the most aggressive of all fixed-income investments.
These are debt mutual funds that invest in debt and money market instruments such as corporate bonds, government securities, and others with varying maturities.
Dynamic bond funds are actively managed funds where the fund manager has the discretion to choose the right mix of debt instruments that will maximize returns while minimizing risk.
These funds can be quite volatile and can generate higher returns in the long term. In the fiscal year ending December 20, 2022, dynamic bond funds generated 2.92 percent returns.
In comparison, short-duration and long-duration funds returned 4 percent and 1.37 percent, respectively.
Target Maturity Funds: They are designed to provide investors with a guaranteed return at maturity.
These funds invest in debt instruments with a predetermined maturity date and the fund manager will adjust the portfolio to ensure that the fund matures on the predetermined date.
The advantage of these funds is that they provide investors with a guaranteed return. TMFs have recently gained popularity.
They surpassed ₹1.2 lakh crore AUM last year to overtake liquid and overnight funds as the largest debt mutual fund category.
Target maturity funds provide average returns of 6.8 percent to 6.9 percent.
Bank FDs: Bank fixed deposits (FDs) are one of the most popular investment options in India. FDs are low-risk investments and provide investors with a guaranteed return.
They are also liquid and can be withdrawn at any time. However, the returns on FDs are relatively low, and the interest rate is usually lower than other fixed-income investments.
For regular depositors with tenures ranging from 7 days to 10 years, scheduled banks offer FD interest rates in the range of 2.10 percent p.a. to around 7.50 percent p.a.
In addition to the applicable FD card rates, senior persons are typically given an extra interest rate of 0.50-0.75 percent per annum.
Where to invest?
Every investment option has advantages and disadvantages of its own.
In the current interest rate scenario in India, dynamic bond funds can be a good option for investors looking for higher returns.
These funds are actively managed and can generate higher returns in the long term.
However, they can also be riskier than other fixed-income investments. Target maturity funds are a good option for those who want a guaranteed return at maturity.
The returns on these funds are relatively low compared to other investments, but they provide investors with a guaranteed return.
Bank FDs are a good option for those who want a low-risk investment with a guaranteed return.
However, the returns on FDs are relatively low and the interest rate is usually lower than other fixed-income investments.
(The author of this article is the Founder and CEO of Caerus3 Advisors, and Think-Tank)
Disclaimer: The views and recommendations given in this article are those of the author. These do not represent the views of MintGenie.