I need to invest in a debt fund which gives me returns equivalent to POST-TAX-fixed deposit rates (assuming 30% tax bracket).
To illustrate, the highest fixed deposit rate from SBI is currently 9.25% which leads to ~6.5% return post-tax. A debt mutual fund will have 10% tax incidence on long term capital gain. If the debt-fund return is ~7.2, the post tax return will be ~6.5%. Hence I am looking for a debt fund with 7.2% return.
Higher returns (than 7.2%) is not my priority but security absolutely is. I want a fund which gives me 7.2+% return in as secure a manner as possible.
I have zeroed in on HDFC-Cash-Mgmt-Savings(HCMS). I will elaborate my thought process below. I will be very thankful if you can share your thoughts regarding the same:
- For a stupid reason, I am tied to HDFC, Templeton, DSP blackrock and quantum AMC only. So that is the first constraint of my choice.
- I started with 4+ star rated funds by value-research, in all-debt category. That led me to HDFC-cash-mgmt-savings(HCMS), Templeton-india-short-term-income-retail(TISTI) and Templeton-India-Income-builder(TIIB).
- The first fund I eliminated was TIIB. It got the highest standard deviation of 1.33. My requirement of maximum stability/security stood most compromised with TIIB among the 3 options.
- Return wise both HCMS and TISTI are neck-to-neck. One year return is ~9.5 for both. This is much higher than my requirement of 7.2. So nothing to differentiate here.
- HCMS has standard-deviation of 0.15 and TISTI has 0.57. This tilts balance in favour of HCMS but I am unsure. Should standard-deviation be the sole measure of volatility? I do not know nor I understand completely.
- HCMS portfolio looked very soothing to me. Mostly public sector banks and corporate names with better corporate-governance-reputation. Average credit rating is AAA. This trumps over TISTI whose average credit rating is AA.
- Further, HCMS average maturity is 0.12 years whereas TISTI average maturity is 0.96 years. For my requirement of stable-returns, lesser maturity is better.
Hence I choose HCMS.
Two niggling doubts remain:
- What is the guarantee that HCMS will stick to AAA instruments with low-average-maturity?
- The fund-objective statements look very ambiguous and high-level to me without clear specifics. HCMS fund-objective says that the plan is suitable for institutional investors and corporate treasurer. I am neither, just a puny retail investor. Shall I steer clear?