I am a retiree and I want to invest in loan funds. What are my options?

I am a retiree with an investment horizon of 5-6 years. I want to invest in a few debt funds to maximize my expected returns. Could you please suggest a variety of debt instruments?

-Name masked on request

Debt funds work well for investors with low risk appetite. So yes, loan funds are a good choice for you at this stage of your life. Rising interest rates had a positive impact on the returns of debt mutual fund (MF) portfolios across all categories. Investors can look into short-term debt, although the period of rising interest rates is not considered the best for debt investors, especially for long-term debt instruments. Ultra-short, floating-rate debt funds are a good investment right now, given the global economic instability caused by the war and its cascading effects on commodities and economies in general.

Over the past year and a half, we have seen attractive returns in the 4-6 year duration segment. Over this period, 10-year G-Sec hardened to approximately 7.3+%. You could turn to these instruments to restructure your portfolio if you have a medium-term horizon. Your corpus could be invested in debt mutual funds (MF) with a portfolio duration of one to three years, such as corporate bond funds, PSUs or bank funds, where the effect of rising interest rates on overall returns is minimal. Target maturity funds that invest in GILTs (government securities) and SDLs (government development loans), which mature in 2027-2028, may be considered by investors as they offer attractive returns around 7.2 to 7.4%. Due to the benefits of indexing, their after-tax returns may be more efficient than those of 5-year DFs.

Currently, investing in debt funds that hold debt securities with shorter maturities carries low interest rate risk if risk-adjusted returns are the desired outcome.

Tarun Birani, Founder and CEO of TBNG Capital Advisors. Queries and views to [email protected]

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