Equity Vs Debt and fund switching

POSTED BY Yogi ON July 22, 2011 2:22 pm COMMENTS (4)

Hi,

I have 2 basic questions of which I dont have much knowledge about. (Illiterate in Financial terms one might say).

1. What is difference between Equity fund and Debt fund in ULIPs?

2. If Insurance company gives me list of funds, what to look for in it to decide whether its equity or debt fund?

Thoug it may sound very basic question, please help me by answering them.

Yogi

 

4 replies on this article “Equity Vs Debt and fund switching”

  1. Yogi says:

    Hi Manish,

    After getting couple of feedback from bank, I still have one more term which I could not understand clearly.

    What does ‘Risk return rating’ mean? Does it mean evaluation of risk on getting returns from this fund ?

    Regards,

    Yogi

    1. Yogi

      Its means risk adjusted return , I will give you an analogy , if you are getting 1 crore by successfully doing skydiving , and 90 lacs by successfully doing swimming in swimming pool , then which is more profitable, on absolute level skydiving is profitable, but if you see the return by taking the risk , then swimming pool option is very good .

      In the same way , if there are two funds A and B where A gives 25% return and has very high risk (say downfall of -50%) , and Fund B which gives 20% ?(where downfall risk is just -10%) , then you see RISK ADJUSTED Return , B looks better

      Got it ?

      Manish

    2. Ramesh says:

      Risk return rating does not mean anything. You can safely pass it to trash.

      Explanation: Risk is measured by the volatility of an instrument based upon past data against a benchmark. There is no correlation, direct or indirect, positive or negative, with what is there in future for the same instrument against the same benchmark. No future value of that risk.

      So, seeing only risk adjusted returns is not going to help you in any manner. A simple case in point, all 5 star funds (in any rating agency/website) change over a period of time. The best return providing fund, whether absolute or whether risk-adjusted, go down in future. While those of lesser stars come up.

  2. Yogi

    1) Equity and debt funds in ULIP are two categories of funds , you can invest in any of them depending on your choice . .If you choose equity , then most of your money will go in shares , if you choose debt , then it will go in bonds and otehr debt instruments .

    2) They will not give you the exact details like this , the only criteria you should choose if how much risk you can take for higher returns , if you want high returns with high risk , choose equity else choose debt , dont make it complicated for yourself .

    Manish

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