Want to maneuver out of fixed deposits? Know how debt mutual funds fare

Archer Robinson/ July 30, 2021/ Mutual Fund/ 0 comments

With the interest rates on fixed deposits (FDs) falling beneath the pace of swelling, financial backers are losing the buying influence of the cash contributed. Large numbers of such financial backers are presently able to branch out of the obvious well being of FDs and need to put resources into other monetary instruments that furnish better yields alongside safety and liquidity.

Apart from Pa safety and liquidity. the securities offered by the public authority and corporate, reserves accessible in the obligation common asset (MF) classification are considered as a suitable option in contrast to FDs.
Prior, fluid assets were the most loved decision among the fixed-return financial backers because of excellent liquidity and good safety records.

However, with the Reserve Bank of India (RBI) keeping the key arrangement rates extremely low and banks and other monetary foundations flush with reserves, the paces of profits on fluid assets have fallen definitely, making them undesirable for retail investors.

The newly rejuvenated for the time being store classification likewise neglected to draw in the retail financial backers because of ultra low pace of return.

Hit by a progression of security defaults, financial backers have likewise lost confidence in numerous other categories of debt funds. So, keeping the safety and liquidity issues on record, following funds may be considered by FD investors as viable alternatives.

Fixed Maturity Plan (FMP)

As FMPs invest in financial instruments with fixed maturity periods and fixed coupon rates, like FDs, investors may predict – with a fair amount of accuracy – how much maturity value they would get and when they will get it.

Disadvantages: The main disadvantage of FMPs are that they are close ended funds and hence, transactions like purchase/additional purchase, redemption can’t be made with the concerned AMCs.

Although such funds are registered in exchanges, transactions are difficult due to lack of participation.

Roll Down Strategy

Funds based on roll down strategy are open ended funds and provide good liquidity.

However, as AMCs continue to do fresh investments and liquidate the old ones as per their investment objectives, investors can’t predict the maturity value and investment duration of the underlying securities.

The easy entry and exit options also affect the valuation of funds.

Target Maturity Gilt Index Fund

The returns on Target Maturity Gilt Index Funds are generally predictable to a fair extent as the investments are done predominantly in government securities and the underlying securities mature within the targeted maturity period.

So, the risk is lesser due to the predictability on where investments are done when the instruments would mature.

Apart from the minimum credit risk and minimum duration risk, Target Maturity Gilt Index Funds offer liquidity as well as they are open ended and transactions with the concerned AMCs are allowed prematurely.


Investments in MFs are capital investments and hence are considered riskier than investments in FDs.

Target Maturity Gilt Index Funds face reinvestment risk as at the time of reinvestment after 6-7 years, coupon rate on new securities after maturity of existing securities could be lower.

Investors may also face volatility on withdrawal before the target maturity date. This may happen if new securities are issued by the government at an interest rate beyond a threshold limit.

Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Finance Shogun journalist was involved in the writing and production of this article.

Share this Post

Leave a Comment

Your email address will not be published. Required fields are marked *