Tuesday, September 23, 2008

advise for short term debt funds

From: shalini
To: kentshershare@gmail.com
Sent: Sun, 17 Aug 2008 19:08:24 +0530 (IST)
Subject: Advice for short term debt funds

Hi Mr. Shrikanth,

First of all, I would like to praise you for your noble service to investors. Its great to see that still we have some people who work for others benefit without any crease.

Now my query,

1. I want to invest 50k in some short term debt mutual fund. My time horizon is 3-6 months. While researching, I came to know of some funds like Canara Robeco Income (G), ABN Amro Flexi Debt - RP (G), HDFC High Interest - STP (G) etc. But I can not figure out which fund to choose. Canara's fund has a very low asset size and HDFC's fund is having very large assets. Though return wise Canara's non ranked fund is best in last 6 months.

If you can suggest any other avenue, I'm open to that also.

For your information, i would like to tell you, we plan to buy a car in next year and this money is for that purpose.

2. I want to start an investment of Rs. 20000 per annum in ICICI prudential life stage regular premium plan (not for insurance) for long term. Is it a good decision or I should defer it.

Thanks in advance.


At the outset, I must thank you for your kind words.
You have done a good job by doing some research before investing, which is a sign of a mature investor.

Canara Rebocco have given very good returns for the last year or so. The rising interest rates have been obviously helping them. The main reason for this could be that they have been deploying their money more in Call Markets and Money Markets rather than investing in Fixed Debt Instruments. This could be because of their low AUM. So, when the interest rates start reversing, they will underperform the Average Benchmark returns. So, I would rather avoid investing in the fund. And, as you have rightly pointed out, their low AUM also does not inspire confidence.

I would go for HDFC High Interest STP, as they have a pretty decent track record for a long time. Their AUM is not too large. In fact, some funds have 5 times to 10 times the AUM which HDFC has right now. Do consider investing in HDFC High Interest.

About your planned investment in ICICI Prudential Life Stage Regular Premium Plan.
My advise is a firm "NO". Because this investment is an ULIP. and an ULIP is strict "NO-NO" for me. ULIPs are very costly affair, they are forcefully sold by agents because the agents get Maximum Commission from these ULIPs. Either way you are not investing for Insurance, which obviously means that you are investing for "Returns". Then why do you want to go for ULIP when the charges are very high, not only the first time you invest but also on annual premium.
Another drawback, withdrawal charges are very high and also you are struck for 3 years.

You are better off investing in Good Diversified Mutual Funds. They are cheap, transparent, easy and offer good diversification.

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