Usually, I have a balance of Rs 40,000-50,000 in my savings account. This fetches me annualised returns of only 3.5 per cent. The interest that's credited depends on the balance during the first to tenth day of every month. I plan to withdraw this money after receiving the interest and invest the cash in a liquid fund. How safe are these funds? How much returns can I expect? Also, can you suggest a few funds.
-R Shree Krishnan
Since you want to invest surplus cash from the 10th of every month to the end of the month, this would require frequent investments and withdrawals. The important factor here is that your bank and the mutual fund house should provide online transaction facilities.
Liquid funds are a safe investment option as they invest in short-term debt instruments. To ensure strict adherence to regulations, securities market regulator Sebi has mandated liquid fund managers to rein in their maximum maturities to six months by February 1, and to three months by May 1.
Let us evaluate your gains if you invest your surpluses in a liquid fund. Historically, the category has given an average annualised return of 6.5 per cent over the past five years.This means you may earn 3 per cent more interest on your liquid fund investment than what you get on your balance in a bank account.
If you invest from the 10th day of a month till its last date, then you have invested for two-thirds of a month. Lets assume you have a surplus of Rs 50,000 every month. In this scenario, you will be investing Rs 6 lakh a year. The total investment tenure is two-thirds of the year. Your extra return comes to around Rs 12,000 in one year.
If you are investing Rs 50,000 every quarter and you remain invested for 15 days each quarter, then your additional return would be just Rs 1,000.
Your decision to invest in a liquid fund should be based on the earning potential and frequency of the transaction. Go for a well-rated fund with a good performance history, like Templeton India MMA, HDFC Cash Mgmt Savings or Canara Robeco Liquid.
I want to invest in liquid funds. But I am unable to decide between liquid funds and floating rate funds. Which category gives better returns in a two-year investment horizon?
-Jude Soosai
Liquid funds are likely to have lower yields going forward. Their returns are likely to drop after the Sebi mandate mentioned earlier. Funds in this category will not be able to stretch their maturities any longer. In the past, in the absence of Sebi's norm, liquid funds kept a mix of long-term and short-term paper. This resulted in higher yields.
But a liquid fund is essentially a short-term instrument. Floating rate funds, on the other hand, are an instrument for medium- and long-term investments. Floaters, as they are called, do not invest dominantly in floating rate instruments. Their yield can rise if rates fall further
I want to invest for the medium-term to buy a house. I have selected Canara Robeco Income for this purpose. Evaluate my choice and let me know if there are better funds. -Chirag Naik
Income funds take interest rate calls and invest in short-term as well as long-term securities issued by the government and companies. They have the flexibility to shift between the two whenever interest rate changes. In the past few months, there has been some volatility in the government securities market. In such times, income funds have emerged as a viable option as compared to gilt funds. They are better placed to take advantage of the interest rate movement as they have a diversified portfolio.
Ideally, one must invest in an income fund for more than one year. So, this instrument is apt for your investment horizon.
Canara Robeco Income is a five star-rated fund. In the past, it has gone through some good as well as dismal years. But the fund's performance has improved since a new fund manager took over in June last year. In 2008, it returned an impressive 30 per cent as against its category average return of just 14.3 per cent. You can remain invested in the fund.
I would like to know whether the beta values of a balanced and an equity fund are comparable. For example, the beta values for DSPBR Balanced and DSPBR Top 100 Equity Regular funds are 0.90 and 0.88 respectively. Are these two values different because DSPBR Top 100 Equity invests in large-caps, whereas DSPBR invests in mid- and small-caps? -Subhash Laha
Beta denotes a fund's sensitivity to market movements. It is calculated on the basis of the trailing three-year monthly returns of the fund against the benchmark. The beta value of two funds are comparable if they fall in the same category. So we can compare the beta values of two equity diversified funds or two balanced funds, but we can't compare an equity fund with a balanced fund - the values are not comparable as the benchmark differs from category-to-category.
If I book some short-term capital loss in the current financial year, can I carry it over to future years despite having some short-term gains?
-Vikalp Agrawal
According to tax regulations, a capital loss for a particular year can be carried forward only after setting it off with the gains in that year. You cannot carry forward your losses to the next assessment year when you have gains available to be set off in the current year itself.
You can carry forward your losses for the next eight assessment years, excluding the loss-making year.
