Many articles in the media sound like PR handouts of the BFSI space, and it makes for amusing reading.

Let us take articles saying ‘an income fund or a liquid fund is better than a bank deposit because it is tax efficient….etc.

I do agree with that logic, and I do think that income funds have a big role to play in the portfolio of a common man. The fact that 70%+ of the Aum of the mutual fund industry is debt is also some kind of a proof that people do know about this.

However i just visited to see the performance of Income funds (this may appear later, but I am writing this on 11th Feb, 7pm).

The best performing fund has given a superb return of 11.70% p.a. (Canara) and the worst performing fund has given a return of 2.6% p.a. (J M). The fund in the middle (24th rank out of 48) is Hdfc which has given a return of 7.83%. The normal suspects like Reliance, Icici, Templeton…are all below the Hdfc fund.

Now if you had kept the money in national savings certificate, you would have got 8+%, without any standard deviation. If you had kept in a bank, yes you would have paid tax, so the amount of IRR would have been lower for sure.

So should you invest in debt funds? Frankly selecting debt funds is far, far more difficult than selecting equity funds. You need to time the market (SIP will not work dude), asset class (when the interest rates are really low be in liquid funds), and when the interest rate is high (therefore high current yield) you invest in gilt and longer duration funds.

Sure you can allow your fund manager to take the call – but some fund managers have been ROTTEN. Down right stupid.

So what do you really do? Invest in a dynamic fund. Eeeekkkss this space is screaming for good performance..

So what is the choice, really? Not sure, but surely be careful….

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  1. Same here. I invest in a gilt fund n rest in ppf. Also I always keep 5000 cash with me. U never know when there will be a “run” on the bank and you have to wait hours-days for cash.

    Even warren buffet mentioned the importance of having cash in his annual letter (2010) to Berkshire shareholders.

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