Possess A Moderate Outlook For The Debt Market To Make Fruitful Investment

While making any investment, you will expect to have the highest returns. For this, you will need to consider all relevant and contributing factors that will influence your decision right from the choice to the amount of investment to make in a particular type.

The performance and return of the debt market are solely dependent on the convoluted interplay of demand and supply equation. Apart from this it also depends on the interest rate and inflation conundrum that you must know, understand and unravel.

It is the continual buoyancy in inflation that remains the key apprehension for the entire domestic economy as well as the participants in the debt market. The value of the currency of your country as compared to the world currency parameters will also influence your investment option and goals.

Apart from that, the supply bottlenecks left unaddressed as well as the high summative demand of the market is also a key contributor in stimulating inflation. As a resultant, there has been a hike in the interest rates that have significantly affected the economy as it has restricted the demand cycle and the industrial investment.

Economic growth outlook

The contributing factors have also weighed down the economic growth outlook that in turn affects the GDP of a country for any given financial year. It is only when there is a moderate inflation rate is expected that the chances of any further rate hike in the interest will be eliminated.

Therefore, look at the credit policies as well as the inflation projected in the future to know whether or not there is a chance of a decline in the rate within a short period before you make any investment.

On the other hand, if you find that the scenario of the money market is not favorable for making an investment, it is prudent to wait and watch as well as expect a moderate growth outlook in the debt market. This will allow the complexities in inflation and current interest rates to play out.

Choice of funds

Depending on the market scenario you must choose the type of debt investment you want to make. There are other factors as well to consider when you want to make your investment fruitful.

• Liquid funds are ultra-short term funds that include call money, T-bills, commercial papers and documents.
• The income funds are usually medium to long-term funds that are invested in a variety of money market securities and corporate or government bonds.
• Gilt funds are those high-quality low-risk government bonds that usually have medium to the long-term period for maturity.

Apart from these, there are FMPs that are usually close-ended funds, and floating rate funds and capital protection funds. You can learn a lot about different types of debt and its management from reliable and reputed sites like nationaldebtreliefprograms.com and others.

Features to consider

The elements that you must consider for making an investment are:

• More liquid – Ideally, most of the debt funds are open-ended meaning that the investors are allowed to make an exit or entry any day they like with the only exception in the FMPs. It is, for this reason, these are the right ones to invest for better liquidity as compared to the corporate and bank fixed deposit schemes.
• A diversified portfolio – This is another feature that the m Mutual funds provide to you in the form of credit quality, maturity, and asset class. If you invest in a debt fund portfolio it will include CPs, CDs, T-bills, call money, corporate and government bonds part from NCDs and bank and corporate fixed deposits. You will usually have a fund manager to rebalance your portfolio according to the different rate of interest and debt market scenarios to help you to obtain a decent return without having to take too much of a risk.
• Post-tax return is another feature which usually investors consider before making an investment. Ideally, the debt funds are more tax-efficient meaning that these will lead you to a lower tax liability as compared with the bank and corporate fixed deposits. The interest earned on your bank and corporate fixed deposits are taxable as it will be your income on your investment. There may be different income tax slabs, long-term capital gains or redemption and indexation. If you fall within a higher tax bracket, you can save a lot of money in tax by investing in debt funds.

Based on the cost-inflation index the benefits on capital gains are usually available only when it is booked after a year or more. Any short-term capital gains earned from debt funds will be considered as taxable as per the prevailing income tax rate.

The maturity matters

It is the fact that the rate of interest constantly fluctuates that confuses the investors to choose the right portfolio to invest on. The rate rise and fall cycle play a significant role in it. Therefore, it is wise that you consider the maturity factor of your investment. Short-term investments will usually range from 6 months to one year, and those that have medium tenure will range from one year to 18 months.

• Look at the interest rates, and if you find that it is rising, then it is judicious to invest in short-term products. This will minimize the risk level and will provide you with the best returns that are risk-adjusted and that too within a year.
• Also, consider your investment objective and make a decision based on that to get the money and return you desire. You as an investor must be reasonable and sensible enough to balance your requirements with the liquidity of the instruments available in the market currently.
• It is general wisdom to invest in short-term products when interest rates are increasing and vice versa to make the most out of capital gains, but make sure that you make your investment based on the credit quality.

Therefore, make sure that you always plan and follow a strategy when you make an investment in this highly volatile yet high yielding money market to make the most out of it.