vertical aggregator for independent financial
advisors, end consumers and mutual fund manufacturers, empathizes on
rethinking if Debt still should be a part of client portfolios in their recent
report. As per a report, Debt securities, which add
stability to the overall portfolio, have shown more volatility than even equity
in recent times – the question is not about return on capital anymore, but
return of capital. Over a longer period, performance of any asset class tends
to smoothen out and there is still merit in having a diversified portfolio. Given
the nature of the Debt asset class, there is still merit in having this asset
class as part of the core portfolio.
have been viewed as a risky investment product. But they do offer dual benefit
of liquidity and lower taxation. Hence, Fintso report recommends advisors to
continue to access various funds for their specific risk-reward requirements
and make appropriate investment recommendations.
a framework for the investment options and their performance to simplify
decision making process for Financial Advisors and investors:
Bank FDs, Government Bonds, PF/ EPF, etc
Indirect Investments – Debt MFs which in turn invest
in these fixed income instruments
products need to be evaluated from three factors: Safety, Liquidity and Return.
return of your capital, Liquidity indicates the flexibility in getting your
money back as and when required, these often get compromised during difficult
times. For eg, Mutual Funds which had at least the assurance of liquidity, had
to suddenly ‘Wind-up’ and stop all redemptions or ‘Side Pocket’ such securities
which were unable to repay their principal on maturity. Following are the
products whose performance have been assessed basis these factors:
a small penalty
exit, Hold till maturity
withdraw after 5th years onwards
with minor penal charges
Funds generally provide a high visibility of returns and also merit a place in
investors’ core Debt portfolio. Therefore, a Debt portfolio must be designed
considering investors tax status, safety, risk appetite and liquidity needs.