Liquid funds are safe investments: Jayant R. Pai

By Jayant R. Pai

I am planning to invest in liquid fund every month. Are they safe?
-Sanjay Kumar
Liquid funds are relatively safe investment vehicles for money which you may require at short notice (say, for periods not exceeding two years). Money which can be set aside for the long-term (say, over five years) could be invested in equity mutual funds, as they have the potential to offer higher returns, compared to liquid funds. In general, though, ‘safety’ depends on the quality of the constituents within a scheme’s portfolio. You could inspect that aspect either through a scheme’s factsheet or through mutual fund research websites.

How would I be able to calculate the rate of return for my equity SIP investments?
-Arpit Sharma
SIPs involve investing the same amount of money at regular intervals (usually on the same date every month), over several months. It is advisable to use the Extended Internal Rate of Return Function in Excel while calculating the return. Other measures such as compound annual growth rate or point-to-point return will not yield the right number. These are useful to measure returns earned on lumpsum investments.

If I invest in equity funds for 10 years through SIPs can I expect to get good returns?
-D K Jha
In general, the answer is Yes. Indian equities (as measured by i-cap stock market indices) have provided returns exceeding inflation and many other investable assets, over any rolling 10-year period. The volatility inherent in equities, is also tempered with the passage of time. A couple of caveats, though: Past performance, while indicative, cannot be the sole basis for any investment decision. Secondly; besides asset allocation (equities, in this case), scheme selection matters too. Hence, choose with care.

How is the Bharat Bond ETF going to be different from other debt funds?
-Ashwini Ohja
The Bharat Bond ETF will comprise of securities issued by companies (in this case, bonds issued by select Public Sector Undertakings). It will be traded on the stock exchanges. It will be taxed like any other debt mutual fund. Unlike an open-ended fund which has no maturity date, this ETF will have two fixed maturities (3 years and 10 years). Investors can lock-in their returns by holding the ETF till the maturity date. Returns fluctuate in the case of open-ended funds. Most debt funds in India are ‘actively managed’. However, this ETF is ‘passively’ managed.

The writer is Head, Products, PPFAS Mutual Fund. Send your queries to [email protected]

Source: Financial Express