Month: June 2021

Bond yields and equities – it takes two to tango

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In recent months inflation expectations have been on the rise both in India and the developed markets and its impact has been felt on bond yields globally, central bank QE (quantitative easing) notwithstanding. Since then a new narrative has been taking hold amongst some market bulls. This new narrative is that the long-term correlation between bond yields and equities is positive, and hence is not a cause for alarm among equity investors. If expectations of better growth is driving inflation upwards and results in a rise in yields, then it reflects optimism on the economy and equities are likely to do well in such a scenario, is their argument. Is there data to support these claims? Is increase in bond yield actually good or bad for equities?

Inconsistent narratives

When movement of bond yields in any direction is used as a justification for equities to go up, then you must become circumspect. Since the launch of monetary stimulus last year globally by central banks and the crash in bond yields and deposit rates, the narrative that was used to justify a bull case for equities (which played out since the lows of March 2020) was that there is no alternative to equities. Hence, when bond yields actually start moving up as they have since early part of this year, an alternative for equities is actually emerging. So, market bulls have now shifted the narrative to why increase in bond yields this time is positive for equities as in their view bond yields are rising in anticipation of better economic growth. Well actually by this logic, last year bond yields fell in anticipation of a recession, so ideally it should have been negative for equities, right? Logic is the casualty when goal posts are changed.

Economic theory vs reality

Theoretically, increase in bond yields is negative for equities. This is for four reasons.

One, increase in yields will make borrowing costs more expensive and will negatively impact the profits of corporates and the savings of individuals who have taken debt.

Two, increase in bond yields is on expectations of inflation and inflation erodes the value of savings. Lower value of savings, implies lower purchasing power, which will affect demand for companies.

Three, increase in bond yields makes them relatively more attractive as an investment option; and four, higher yields reduce the value of the net present value of future expected earnings of companies. The NPV is used to discount estimates of future corporate profits to determine the fundamental value of a stock. The discounting rate increases when bond yields increase, and this lowers the NPV and the fundamental value of the stock.

What does reality and data indicate to us? Well, it depends on the period to which you restrict or expand the analysis (see table). For example if you restrict the analysis to the time when India had its best bull market and rising bond yields (2004-07), the correlation between the 10-year G-Sec yield and Nifty 50 (based on quarterly data from Bloomberg) was 0.78. However if you extend your horizon and compare for the 20 year period from beginning of 2001 till now, the correlation is negative 0.15. The correlation for the last 10 years is also negative 0.75.

In the table, we have taken 4 year periods since 2000 and analysed the correlation, on the assumption that investors have a 3-5 year horizon. The correlation is not strong across any time period except 2004-07 . It appears unlikely we will see the kind of economic boom of that period right now. That was one of the best periods in global economy since World War 2, driven by Chinese spending and US housing boom as compared to current growth driven by monetary and fiscal stimulus, the sustainability of which is in doubt in the absence of stimuli. This apart, Nifty 50 was trading at the lower end of its historical valuation range then versus at around its highest levels ever now. Inflationary pressures too are higher now. In this backdrop, the case for a strong positive correlation between equities and bond yields is weak.

What it means to you

What this implies is that the data is not conclusive and claims that bond yields and equities are positively correlated cannot be used as basis for investment decisions. At best, one can analyse sectors and stocks and invest in those that may have a clear path to better profitability when interest rates increase for specific reasons. For example, a company having a stronger balance sheet can gain market share versus debt-laden competitors; market leaders with good pricing power can gain even when inflation is on the rise.

A final point to ponder upon is whether a market rally that has been built on the premise that there is no alternative to equities in ultra-low interest rate environment, can make a transition without tantrums to a new paradigm of higher interest rates even if that is driven by optimism around growth. An increase in Fed expectations for the first interest rate increase a full two years from now, caused temporary sell-offs across equites, bonds and emerging market currencies, till comments from Fed Governor calmed the markets. These may be indications of how fragile markets are to US interest rates and yields.

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Why you should opt for a super top-up health policy

Personal Finance

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During a medical emergency, additional sum insured (SI) or health cover always comes in handy. There are multiple ways in which an individual can enhance his/her health cover. One such is top-up plans.

There are two kinds of top-up plans — regular and super top-up. These are sold as separate policies by insurers such as ICICI Lombard, Bajaj Allianz and HDFC Ergo. As a policyholder you can buy this policy anytime over and above your existing health policy. Top-up plans are similar to a regular health cover where you get covered for hospitalisation and other medical expenses. They are different only in terms of coverage initiation. In other words, the policy will be applicable only if the expenses overshoot a certain limit known as deductible. Here is how they work.

How does it work

While both top-up and super top-up plans are usually considered over and above the existing health policy, super top-up plans are a better version. This is because super top-up plans come into effect as soon as the deductible limit is reached irrespective of the number of claims made in a year. Deductible is the limit beyond which the insurer will cover you. On the other hand, top-up plan covers kick in only when the deductible limit is reached for every claim individually. Let’s understand this with an example.

Joe has a health cover for ₹3 lakh. To enhance this, he takes a top-up plan for ₹7 lakh, with a deductible limit of ₹3 lakh. Now, during the policy year, Joe gets hospitalised for an illness and his medical bills come to₹1.5 lakh. Joe’s base policy will cover this and the top-up cover of ₹7 lakh remains intact. During the same year, he gets hospitalised again. This time, his bill comes to ₹2 lakh. His base policy takes care of his expenses up to ₹1.5 lakh (₹1.5 lakh has already been spent) and the balance of ₹50,000 must come from Joe’s pocket. The top-up plan will not come into effect as the deductible limit is ₹3 lakh.

In an alternative scenario, if Joe’s first hospital bill comes up to ₹4 lakh, then both his base policy and his top-up plan can cover his expenses. Upon his second hospitalisation, if the bill works out to ₹2 lakh, it has to be borne by Joe. The top-up plan cannot help him as the deductible limit of ₹3 lakh is not reached.

The super top-up plans also work in a similar fashion. The only difference lies in its applicability. So in Joe’s case, if he had opted for a super top-up plan of ₹7 lakh with the same deductible, then, upon his first medical bill of ₹4 lakh, his base and super top-up policy would have covered him. Now, on his second bill of ₹2 lakh, the super top-up plan will still cover him as the deductible limit on it had been reached upon the first claim itself.

Points to note

Most insurers offer super top-up plans given their advantages. But a few insurers still offer top-up plans as well. Further, it is the ‘deductible’ feature of top-up plans that makes them cheaper than regular health plans. Higher the deductible, lower would be your premium. Top-up plans are a cost-effective way of increasing your health expenses cover.

However, despite the attractiveness of these plans, there are a few points to keep in mind.

One, all the waiting periods — initial, pre-existing disease and disease-specific waiting period — will continue to apply on the top-up plans as well. Two, these plans can also come with conditions including co-pay and sub-limits. And lastly, top-up and super top-up plans are health policies, which means, they have to be renewed every year. In other words, be prepared to shell out premiums for both regular policies as well as your top-up policies.

You can also upgrade your existing health cover with higher SI at the time of renewal, if it works out cheaper than a top-up plan.

All waiting periods apply to top-up and super top-up plans too

The plans can also come with conditions such as co-pay and sub-limits

Being health policies, the plans have to be renewed every year

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Top 7 Best FMCG Company Stocks To Invest in India 2021

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Hindustan Unilever Limited (HUL)

HUL was founded in 1931 as Hindustan Vanaspati Manufacturing Co. and was renamed Hindustan Lever Limited in 1956 after a merger of constituent organizations. In June 2007, the firm was renamed Hindustan Unilever Limited. The stock gained 54.25 percent over three years, compared to 43.81 percent for the Nifty 100 index. Over three years, the stock returned 54.25 percent, while the Nifty FMCG provided investors a 27.06 percent return. It is a large-cap firm in the FMCG industry with a market capitalization of Rs 587,391.95 crore. Surf, Excel, Dove, Lux, Lifebuoy, Clinic Plus, Wheel, Sunsilk, Knorr, Axe, and other well-known brands are among the popular brands.

ITC Limited

ITC Limited

ITC is India’s leading FMCG marketer, the clear market leader in the Indian Paperboard and Packaging industry, a globally recognized pioneer in farmer empowerment through its substantial Agri-Business, and India’s leading hotel network. ITC Infotech, a wholly-owned subsidiary of ITC, is a global digital solutions specialist. The stock has returned -23.08 percent over the last three years, while the Nifty 100 has returned 43.81 percent. With a market value of Rs 250,423.44 crore, it is a Tobacco-related Large Cap company.

Nestlé India

Nestlé India

The margin improvement was assisted by lower raw material costs, particularly milk. Recent price hikes in several other basic commodities, such as sugar and palm oil, may, however, restore some pressure in the second quarter. Sales through the e-commerce sector are rapidly expanding. Nestle India Ltd., formed in 1959, is a large-cap company in the FMCG industry with a market valuation of Rs 167,715.14 crore.

Britannia Industries

Britannia Industries

Biscuits are the company’s most well-known product. Biscuits, breads, and dairy products under the Britannia and Tiger brands are sold in India and over 60 countries across the world. The company with a 100-year history and yearly revenues of over Rs. 9000 crore. Britannia is one of India’s most trusted food companies, producing popular brands like Good Day, Tiger, NutriChoice, Milk Bikis, and Marie Gold, which are household names in the country. In March 21, Britannia Industries reported a flat financial result. In the last three months, the score has dropped from 7 to -5. It is traded on the BSE under the symbol 500825, the NSE under the symbol BRITANNIA, and the ISIN is INE216A01030. Over three years, the stock returned 22.8 percent, compared to the Nifty FMCG, which returned 27.19 percent.

Marico

Marico

Marico had revenue of Rs 73 billion (USD 1 billion) in 2019-20 from sales in India and other selected rising Asian and African regions. In the sectors of hair care, skincare, edible oils, health foods, male grooming, fabric care, and hygiene, Marico has cultivated over 25 brands. Over the last three years, the company has maintained a respectable ROE of 29.28 percent. The company’s promoters own 59.61 percent of the corporation. Over three years, the stock yielded 54.48 percent, while the Nifty FMCG yielded 27.19 percent.

Tata Consumer Products,

Tata Consumer Products,

Tata Consumer Products, a subsidiary of the Tata Group, is a fast-moving consumer products corporation located in Mumbai, Maharashtra, India. It is the world’s second-largest tea producer and distributor, as well as a major coffee grower. Tata Consumer Products Limited, formerly Tata Global Beverages Limited (TGBL), is a subsidiary of the Tata Group. Tata Consumer Products was founded in February 2020 when Tata Chemicals consumer products division joined with Tata Global Beverages Ltd. For the past three years, the company has grown its sales by 30.52 percent. Over three years, the stock returned 186.43 percent, while the Nifty FMCG provided investors a 27.19 percent return. The company has almost decreased its debt by Rs35 Crore.

Godrej Consumer Products

Godrej Consumer Products

Godrej Consumer Products Limited (GCPL) is a Mumbai-based Indian consumer goods firm. GCPL has seven manufacturing plants in India, divided into four working clusters. Over the last three years, the company has maintained a respectable ROE of 27.50 percent. The company has been able to keep its typical operating margins at a healthy level.

7 Best FMCG Company Stocks To Invest In India 2021

7 Best FMCG Company Stocks To Invest In India 2021

Company Name Price in Rs MARKET CAP in Rs P/E DIV. YIELD
Hindustan Unilever Limited 2,448.65 5,75,332.07 Cr. 72.33 1.65%
ITC 205.05 2,52,392.85 Cr 19.37 5.27%
Nestle India 17,506.70 1,68,792.10 Cr 78.17 1.14%
Marico 511.65 66,073.80 Cr 59.74 1.32%
Britannia Industries 3,670.05 88,399.87 Cr 50.23 1.69%
Tata Consumer Products 757.60 69,816.76 Cr 112.7 0.53%
Godrej Consumer Products 870.55 89,012.54 Cr 72.7 0.92%

Disclaimer

Disclaimer

Our content is designed for and must be used solely for the purpose of providing information and education. Before making any investment based on your own unique circumstances, it is critical to conduct your own analysis. If you want to rely on any information you see on our Website, whether for the purpose of making an investment choice or otherwise, you should seek independent financial advice from a professional or independently study and verify it.



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Axis Bank Revises Interest Rates On Fixed Deposit, Check New Rates Here

Personal Finance

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Investment

oi-Vipul Das

|

Axis Bank, a leading private sector lender, has adjusted interest rates on fixed deposits (FDs) with effect from June 22, 2021. Axis Bank provides FDs with terms ranging from 7 days to 10 years. Axis Bank is providing a 2.50 per cent interest rate on FDs maturing between 7 and 29 days, a 3 per cent interest rate on FDs maturing between 30 days and less than 3 months, and a 3.5 per cent interest rate on FDs maturing between 3 months and less than 6 months. After the most recent adjustment, Axis Bank offers a 4.40 per cent interest rate on FDs maturing in six months to less than one year. For fixed deposits, maturing in 1 year to less than 1 year 5 days, the bank is now offering an interest rate of 5.10%.

Axis Bank Revises Interest Rates On Fixed Deposit, Check New Rates Here

Whereas, an interest rate of 5.15% is provided by the bank on deposits maturing in 1 year 5 days to less than 1 year 11days. On FDs maturing in 1 year 11days to less than 1 year 25days and 17 months to less than 18 months, the bank is now promising an interest rate of 5.10% after the most recent revision. An interest rate of 5.25% on deposits maturing in 18 months and less than 2 years is currently being provided by the bank. Axis Bank provides a 5.40 per cent interest rate on deposits maturing in 2 to 5 years, and a 5.75 per cent interest rate on deposits maturing in 5 to 10 years, after the recent revision.

Axis Bank FD Rates

Below are the latest fixed deposit interest rates of Axis Bank for a deposit amount of less than Rs 2 Cr:

Tenure Regular FD Rates Senior Citizen FD Rates
7 days to 14 days 2.50% 2.50%
15 days to 29 days 2.50% 2.50%
30 days to 45 days 3.00% 3.00%
46 days to 60 days 3.00% 3.00%
61 days to less than 3 months 3.00% 3.00%
3 months to less than 4 months 3.50% 3.50%
4 months to less than 5 months 3.50% 3.50%
5 months to less than 6 months 3.50% 3.50%
6 months to less than 7 months 4.40% 4.65%
7 months to less than 8 months 4.40% 4.65%
8 months to less than 9 months 4.40% 4.65%
9 months to less than 10 months 4.40% 4.65%
10 months to less than 11 months 4.40% 4.65%
11 months to less than 11 months 25 days 4.40% 4.65%
11 months 25 days to less than 1 year 4.40% 4.65%
1 year to less than 1 year 5 days 5.10% 5.75%
1 year 5 days to less than 1 year 11 days 5.15% 5.80%
1 year 11 days to less than 1 year 25 days 5.10% 5.75%
1 year 25 days to less than 13 months 5.10% 5.75%
13 months to less than 14 months 5.10% 5.75%
14 months to less than 15 months 5.10% 5.75%
15 months to less than 16 months 5.10% 5.75%
16 months to less than 17 months 5.10% 5.75%
17 months to less than 18 months 5.10% 5.75%
18 Months to less than 2 years 5.25% 5.90%
2 years to less than 30 months 5.40% 6.05%
30 months to less than 3 years 5.40% 5.90%
3 years to less than 5 years 5.40% 5.90%
5 years to 10 years 5.75% 6.50%
Source: Axis Bank, W.e.f 22.06.2021

Story first published: Saturday, June 26, 2021, 16:57 [IST]



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EPFO Has Asked These Bank A/c Holders To Update Their Bank Details In UAN

Personal Finance

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Personal Finance

oi-Roshni Agarwal

|

EPFO- the provident fund managing body in the country has released a notice wherein it said “It is hereby notified that with effect from 1st April 2021 the IFSC of Andhra Bank, Oriental Bank of Commerce, Allahabad Bank, Syndicate Bank, United Bank of India and Corporation Bank has become invalid.”

How EPF Members Can Update Bank A/c Details In UAN?

EPFO Has Asked These Bank A/c Holders To Update Their Bank Details In UAN

Further it added that “Member needs to get the correct IFSC added through an employer as till then no online claim filing will be facilitated. Kindly get the correct IFSC from your bank and get the details uploaded and approved. This will ensure that member’s claim amount is not returned by banks.”

For the Updation of the UAN in EPF A/c, you need to follow the below specified process:

1. Go to EPF’s unified portal, login to your account using the credentials such as UAN and Password

2. Now you need to click on the manage tab and choose the KYC option from the Drop Down menu

3. Now you need to select the relevant documents, enter bank account number as well as IFSC. Click on save option

4. Now as and when the details are saved successfully, it shall show in the KYC i.e. pending for approval.

5. You need to also submit the documents with the employer. Now as and when the employer approves the same the status for the KYC shall change to Digital Approved KYC

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Slips towards $30,000 as strategists flag Bitcoin’s near-term risks, BFSI News, ET BFSI

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By Joanna Ossinger

Strategists are struggling to see a turnaround ahead for Bitcoin, at least for now, as the digital coin hovers around the $30,000 level.

The near-term setup is “challenging,” a JPMorgan Chase & Co. team including Josh Younger and Veronica Mejia Bustamante wrote in a note Friday, while Fundstrat Global Advisors LLC’s David Grider recommended reducing risk or buying some protection.

The JPMorgan team said blockchain data suggests recent cryptocurrency sales were made to cover losses and that “there is likely still an overhang of underwater positions which need to be cleared through the market.”

Bitcoin has halved from a peak near $65,000 in April, hurt by a cryptocurrency clampdown in China, tightening regulatory scrutiny elsewhere and concerns that the servers underpinning the virtual coin consume too much energy. The prospect of reduced emergency stimulus amid the recovery from the pandemic has also emerged as a possible obstacle for the most speculative investments.

Still, the JPMorgan strategists pointed to stability in the Bitcoin futures market as a positive factor, alongside the possibility of increased production costs as China’s crackdown pushes Bitcoin mining abroad. Some researchers argue the marginal production cost plays an important role in Bitcoin prices.

So while the “cryptocurrency market shows signs that it is not yet healthy, it does also appear to be beginning the process of healing,” they wrote.

The largest cryptocurrency fell as much as 6% to $30,296 on Saturday after dropping almost 8% on Friday. Other coins were also under pressure, with Ether dropping more than 5%. Some chart watchers view the $30,000 level as key for Bitcoin, contending a decline below it could open the way to retreat to $20,000.

Grider, lead digital asset strategist at Fundstrat, noted that a large short position has been building again on the crypto exchange Bitfinex — and said the last time there was a similar situation, negative news out of China took prices lower.



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Top 10 Lenders With The Lowest Interest Rates On Home Loans

Personal Finance

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Investment

oi-Vipul Das

|

When it comes to purchasing your dream house or let’s say the most valuable investment of your life, availing of a home loan can be the first preference of your personal finance. A home loan tenure generally ranges from 10 to 30 years, and you need to repay the amount you borrowed within the preferred tenure. The amount of your home loan is determined by the interest rate imposed by banks and HFCs. So when it comes to paying your home loan EMI (equated monthly instalment), interest rates play an important role. The bulk of home loans were available from lenders with floating interest rates which are linked to the external benchmark. As a result, home loan rates of lenders based on the loan amount may vary from one another. So if you want to add a home loan to your personal finance portfolio to purchase or construct your dream house, then here are the top 10 public sector, private sector banks and housing finance companies (HFCs) providing the cheapest interest rates on home loans for a loan amount of more than Rs 30 lakhs up to Rs 75 lakhs.

Home Loan Rates of Public Sector Banks

Home Loan Rates of Public Sector Banks

Currently, the cheapest home loan interest rate provided by a public sector bank is 6.65 percent by Punjab & Sind Bank, followed by Bank of Baroda and Punjab National Bank. Here are the top ten public sector banks that are currently providing the best home loan rates.

Banks Interest Rates In %
Punjab & Sind Bank 6.65 – 7.60
Bank of Baroda 6.75 – 8.25
Punjab National Bank 6.80 – 7.90
Central Bank of India 6.85 – 7.30
UCO Bank 6.90 – 7.25
Union Bank of India 6.90 – 7.65
State Bank of India 6.95 – 7.65
Bank of Maharashtra 6.90 – 8.40
Canara Bank 6.90 – 8.90
Bank of India 6.85 – 8.35
Source: Bank Websites

Home Loan Rates of Private Sector Banks

Home Loan Rates of Private Sector Banks

Currently, Kotak Mahindra Bank offers the lowest home loan interest rate among private sector banks, at 6.65 percent, followed by ICICI and Axis Bank. Here are the top 10 private sector banks offering the lowest home loan rates now.

Banks Interest Rates In %
Kotak Mahindra Bank 6.65 – 7.30
ICICI Bank 6.75 – 7.45
Axis Bank 6.90 – 12.0
HSBC Bank 7.20 – 7.75
Karur Vysya Bank 7.35 – 9.55
Karnataka Bank 7.50 – 8.75
Federal Bank 7.70
Dhanlaxmi Bank 7.85 to 9.00
South Indian Bank 7.95 to 9.45
Tamilnad Mercantile Bank 8.25
Source: Bank Websites

Home Loan Rates of Housing Finance Companies (HFCs)

Home Loan Rates of Housing Finance Companies (HFCs)

Bajaj Finserv currently provides the cheapest home loan interest rate at 6.75 percent among housing finance companies, followed by LIC Housing Finance and Tata Capital Ltd. Below are the top 10 housing finance companies providing the cheapest rates on home loans.

HFCs Interest Rates In %
Bajaj Finserv Ltd. 6.75 – 9.00
LIC Housing Finance 6.90 – 7.80
Tata Capital 6.90% onwards
HDFC Ltd. 7.00 – 7.55
PNB Housing Finance 7.35 – 9.55
Repco Home Finance 7.75 onwards
Indiabulls Housing 8.65 onwards
Aditya Birla Capital 9.00 – 12.50
GIC Housing Finance 9.10 onwards
Reliance Home Finance 9.75 – 13.00
Source: As per the official websites of HFCs

Story first published: Saturday, June 26, 2021, 15:00 [IST]



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Covid-19 impact: Federal Bank provides about 400 part-time jobs in Kerala

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Federal Bank on Saturday said it has provided 400-odd part-time jobs with a monthly salary of Rs 18,000 at its branches in Kerala so far, in a bid to help those who lost their employment due to the Covid-19 pandemic.

Designated as ‘Covid Wardens’, these people were hired to manage crowds, provide masks and sanitiser to the public visiting the branches in the State, it said.

The livelihood enhancement project was started as part of its corporate social responsibility (CSR) initiative in August 2020 and is continuing even now.

Federal Bank Chief Human Resource Officer Ajith Kumar K K said, “This is a part-time job given to tide over the situation, not a full-time employment.” The bank hired these people at a monthly salary of Rs 18,000 per month. About Rs 6 crore has been spent towards salary in the last 10 months, he said.

Since many had lost jobs due to the pandemic in the State there were requests for creating part-time jobs from several agencies and organisations.

“We thought of finding a way to provide livelihood to people who lost jobs due to the pandemic and help them tide over the economic hardship. That’s why we decided to hire such people,” he added.

Kumar further said crowd management at branches had become a big issue during the pandemic as the Kerala government has restricted entry of not more than five people at a particular time.

“Therefore, we thought hiring part-time ‘Covid Wardens’ will be helpful to both. We provided jobs to about 400-odd people in Kerala,” he said.

Hiring was done in Kerala because the State was having many positive cases at that time and moreover the footfall in branches were also high.

Whereas in other states, ‘Covid Wardens’ were not hired as there were security guards managing the crowd at bank branches, Kumar added.

Asked if the initiative will continue, Kumar said the bank will discontinue if the Covid-19 positivity rate falls below five per cent in a particular locality.

“We are keeping a close watch on positivity rate in the state,” he said.

Kumar also mentioned that the needy people were hired irrespective of their education qualification through reputed agencies and organisations, and the salary is being paid through these agencies.

Although there is a jobless situation in many sectors due to the pandemic, the bank however cannot take care of all jobless people, Kumar said. He added, “We are playing our small part under our CSR initiative.”

The Kochi-based Federal Bank said it spent the entire allocated CSR funds of Rs 35 crore during the 2020-21 fiscal. The bank expects the CSR budget for the current year would be around Rs 40 crore.

The bank has been implementing CSR initiatives for the last 10 years through the Federal Bank Hormis Memorial Foundation.

Among other CSR initiatives, the bank has spent Rs 4 crore on setting up a separate 100-bed ward with ICU facility in a hospital in Kochi. It is operating an outreach programme ‘Sanjivini Vehicle’ in five districts to create awareness about vaccination.

Besides, the bank provides scholarships for higher studies to 150 students, supplies to select health institutions, equipment required for treatment of neurological disabilities besides running skill academies to train local youth.

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3 Best Investment Options To Park Short Term Funds

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Investment

oi-Roshni Agarwal

|

If you have some funds and wants to earn good return from this fund that you almost want to redeem after some time i.e. wishes to make a short term investment, here are some good investment options:

3 Best Investment Options To Park Short Term Funds

3 Best Investment Options To Park Short Term Funds

Remember here the point made is these returns may or may not fetch you a higher return but may enable you to balance your total portfolio risk as a whole:

1. Arbitrage funds:

These funds tend to advantage from the price differential in the spot and futures market to generate handsome returns. Here in the fund manager managing the arbitrage fund buys securities from the cash market and simultaneously sells that in the futures or derivatives space, so this gives a profit to the investor.

For the investment, these are hybrid mutual fund products which invest both in debt and equity but primarily in equities and so accordingly are taxed at equity funds. In the last one year, the average return from the category has been to the tune of 3.2% as per Value Research.

2. Low Duration Mutual Funds:

These funds typically invest in money market and other debt instruments but they hold assets of longer maturity or lower credit quality. Hence they have a higher credit as well as interest rate risk.

In the case of low duration mutual funds, if the holding period is up to 3 years then short term capital gains tax at the individual’s tax slab rate are applicable.

And for a holding period of over 3 years, the indexation benefit is allowed for long term capital gains tax. Indexation means that for the purpose of capital gain calculation the purchase price can be increased to make up for the inflation. Long term capital gains are currently taxed at a lower rate of 20%.

3. Corporate Bond funds:

For short term investors can consider corporate bond funds with lower maturity. These are indeed the best funds which lend at least 80% of their corpus to companies to highest credit rating.

Investors with a time horizon of 2-3 years can invest in the scheme for a good return.

These funds offer investors a better return in comparison to fixed deposits of the same maturity.

Further, long term investment into these funds can be highly beneficial as they then offer tax efficient returns due to indexation benefits.

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Story first published: Saturday, June 26, 2021, 11:54 [IST]



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