Get ready for debt funds

"Eight-nine months ago, we started investing in debt for some clients. We're now looking at yields of 9.5-10.5 per cent on these investments," says Kartik Jhaveri, director, Transcend India, a financial planning firm.With the Reserve Bank of India (RBI) cutting rates four times - a total of 125 basis points - this calendar year,  Share Market Astrology

When interest rates fall, bond prices go up, improving the returns of especially medium-to-long-term debt funds significantly. In the past year, the category average returns of medium-term and long-term gilt funds have been 10.34 per cent, third highest amid all mutual fund (MF) schemes. Only pharmacautical funds with a 19 per cent return and small-cap funds with 11.1 per cent have done better.        Sensex Astrology 
The top performer has been BNP Paribas Government Securities Fund, which has returned 12.67 per cent annually. A large number of other schemes have returned between 10 per cent and 12 per cent.Obviously, Jhaveri intends to stay invested in debt funds for at least the next two to three years. "We are aggressively looking at schemes that invest in government and corporate bonds because interest rates seem to be on a downtrend for quite some time.    Share Market Astrology

Apart from Jhaveri, a large number of financial planners are advising debt funds aggressively. Even retail investors are getting into them.Nilesh Shah, managing director, Kotak MF, believes that as RBI succeeds in lowering inflationary expectations, there will be more policy rate cuts in calendar year 2016. "In a falling interest rate scenario, it is important to lock into coupons for longer maturities. Duration funds like gilt funds and income funds provide a good opportunity to investors. This investment will require a three year-plus view for availing tax benefits. Another space which is exciting is credit accrual funds," says Shah.     Nifty Trading Tips