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How to fix your fixed income with new debt investment avenues

Here is how - you will learn about constant and target maturity funds and practical tips on what one should bear in mind while choosing these funds

March 28, 2022 / 11:15 AM IST

Yes, by spending 24 minutes listening to the webinar, titled, ‘How to secure a fixed income from new debt investment avenues’, you are likely to add value to your existing portfolio with an assured fixed income. Here is how - you will learn about constant and target maturity funds and practical tips on what one should bear in mind while choosing these funds. And who better to explain this than the experts - Mr. Mahendra Jajoo – CIO, Fixed Income, Mirae Asset Investment Managers (I) Pvt Ltd and Mr. Harish Menon, Co-Founder, House of Alpha Wealth Management. Host Sumaira ties the webinar neatly together with her knowledge and easy questioning style.

Here are a few more session highlights that will make you click the play button the moment you finish reading this.

Sumaira opened the session by asking the most important and basic question, ‘People are wondering where the income is in the fixed income? And what are debt ETFs and what is the growth in these funds?

Mr. Jajoo explained in his easy-to-understand manner that ETFs follow a passive strategy and the objective is to replicate the returns of the index. He also emphasised that here the investor knows exactly what will be the composition of the portfolio and what kind of returns to expect. He further expanded to explain that there are two types of index funds that are popular in India - the constant maturity fund and the target maturity fund.

In response to Sumaira’s question of whether the guarantee of a return is driving the interest in target maturity funds, Mr Menon answered that there are three distinct advantages of a target maturity fund. First, your fund is not being churned by a fund manager, which means, you hold till the maturity of the fund and thereby, avoid an interest rate risk in your portfolio. Second, credit risk is negligible because most of these funds invest in safe government bonds and triple-A bonds. And third, the expense ratio is 15 basis points compared to 75 basis points of active funds and that renders an easy cost reduction of 50 to 60 basis points - significant savings for the investors.

The discussion also touched upon the fact that investors can align target maturity funds with their goals. For example, if an investor has a 4-year-old goal then he would want a product that would give a return in 4 years without any risk whatsoever.

With regards to taxation too, Mr Jajoo pointed out that if you hold the product for the minimum amount of three years then it benefits from long term capital gains taxation and that makes a huge difference in an environment when the rate of interest is so low.

Sumaira also asked the top-of-mind question, ‘What are the three or four key differentiating factors an investor should bear in mind while choosing a maturity fund?

Mr Jajoo answered this by stressing the diversity of the portfolio so that even if liquidity affects one segment it will not impact the entire portfolio. He also spoke about the tracking error of the fund manager of the fund house for that category. Less the better and finally, the expense ratio. Here too, the lower the cost the better the return for the investor.

Last but not least, Mr Menon added to the above by stating that aligning your goals is a very important criterion for choosing these funds but in case you don’t have a goal then the second criteria is credit quality. One might want to add a little yield enhancement by going into a triple-A target maturity fund over a pure govt security fund.

So, whether you are a risk-averse investor and hence, your obvious choice would be target maturity funds, but even as a regular and evolved trader, this could be part of your core portfolio. These are just the highlights. Listen to the entire webinar to know about other topics such as indexation and its impact, corporate bond funds, number of fixed income indices on the NSE, the reality of floating rate funds in India, staggering 53000 crores AUM in bonds, and much more.

 

 
Tags: #Special
first published: Mar 28, 2022 11:15 am