Two Financial Advisers Suggest Mutual Fund Options That Can Better Fixed Deposits
Mutual funds can offer better yields than savings accounts or fixed deposits over the short term, say financial advisers.
Investors looking to park money for up to six months can consider mutual fund debt schemes instead of leaving funds in savings bank accounts or fixed deposits, according to investment advisers.
Those with a horizon as short as three months can opt for liquid or ultra-short-term funds, said certified financial planner Poonam Rungta in The Mutual Fund Show.
These funds are protected against rate fluctuations, and are flexible with redemption timelines, she said. "In the liquid category, you can go for ICICI Liquid Fund, Reliance-Nippon Liquid Fund or Aditya Birla Liquid Fund. In ultra-short-term category too I would recommend all these three funds, and also DSP Mutual Fund and Axis Mutual Fund."
Even if the returns are 1–1.5 percenrage points higher than those from savings accounts or fixed deposits, "it makes some sense," Rungta said.
For investors with a time horizon of six months, Anant Ladha of InvestAajForKal also recommends ultra-short-term funds, considering their higher yields to maturity. He prefers ICICI Prudential Short Term Fund as it has a stable fund of over Rs 10,000 crore. Kotak Low Duration Fund is the fund the expert suggests for time horizon of six months to one year.
In the arbitrage fund category, Ladha suggests investors to opt for Tata Arbitrage Fund. The fund has "done really well, and... they have a sizable AUM of Rs 6,000 crore plus stable fund. So, that fund is very good especially because it has low tracking error".
For a short-term horizon, Ladha also favour floating rate funds, "where presently YTM are somewhere between 7.25% and 7.75% modified duration, which is roughly around the 0.50 to 0.70 range." Investors can pick products in this category from ICICI Prudential, HDFC and Kotak, among which "YTMs more or less are the same", Ladha said.
While all mutual fund companies offer liquid or ultra-short-term products in their debt category, investors should pick the ones with higher ratings, advised Rungta. "You have to choose the funds that have a good track record and good papers in hand because we have seen in the past how things went wrong in a good fund house."
While selecting debt funds, Ladha suggests first looking at safety in terms of the track record of the house. The second factor to look at is liquidity, and lastly, returns, Ladha said.