DEBT MUTUAL FUNDS Explained: Beat FD Returns EASILY! | Ankur Warikoo Hindi

0:00 When we hear the name of mutual fund, two things often come to mind. SIP and Equity Markets. But mutual funds can be a great way to grow your money safely. I am not talking about FD. I am talking about day mutual funds. And in this video we will try to understand how you can generate a regular income from day or fixed income mutual funds. First of all, there are two types of mutual funds. One are those who invest in equity or stock market. So which company should the mutual fund managers invest in? What is their classification? Large cap means we will invest in big companies. Mid cap can mean medium size company, small cap can mean small sectoral mutual funds. Will we just invest in pharma or will we invest in IT or will we invest in financial services?

0:45 But buy and large equity mutual funds invest in the stock market. Exactly its opposite is debt mutual funds. Day mutual funds invest in fixed income assets. What are fixed income assets ? We believe that only fixed deposit is a fixed income asset. Meaning a fixed rate of return or a very tight small range of rates of return. But that is not right. There are many types of fixed income assets. There can be fixed deposits. Fixed deposits also have a range. If you take a fixed deposit from a big bank, SBI , HDFC, ICICI , the rate of return will be low. If you take a fixed deposit of any random option bank, the fixed deposit may be higher. Now how is this too much? Because there

1:32 is greater risk in this. So as the risk increases, the returns may also increase. Similarly, fixed income also has different types of risk assets. It could be a fixed deposit. Like I said, there are many ways to do this too. Meaning there are a lot of options. There could be government bonds. These are fixed deposits issued by the government. These also have different fixed rates of returns. Depends on how long the tenure of the bond you are buying. But you don't need to buy it. He will handle all the debt mutual funds. There could be corporate bonds where companies issue their own fixed deposits and the rates of returns are typically higher. There is a range in that too. Corporate bonds of very large companies have a slightly lower rate of return. Slightly riskier or smaller sized companies that issue corporate bonds may have a higher rate of return.

2:17 But the risk is also high. So it is the responsibility of a debt mutual fund to manage all these fixed assets and buy some and sell some to give you a rate of return which is a very tight range almost fixed but with a certain risk built into it. So recently a single mother came on Money Matters and she has two grown up daughters. Both are studying. She had a ₹20 lakh balance in each bank in which she had made FDs. Now she knows that the money in the FD is rusting. Whatever 6% she is earning after tax cuts, even inflation is not beaten. So her goal was not to grow this money in the stock market. Because this Rs lakh was for the education of his daughters.

3:03 It is to secure it but at least have it grow faster than inflation so that the money does not rust every year and that means you will be happy with 7-8% instead of 6% or 6.5%. You don't even need 10, much less 12, because that comes with the risk of the stock market. And I gave her a proposal of day mutual funds and a mix of it is the same thing that I want to share with all of you as well as which are the mutual funds in which you can do lump sum or SIP and grow your money safely gradually while insuring that some of your capital is in the stock market. Now

3:48 how much capital should be there in dept. How much capital is in the stock market? That is a function of how important is this money to you ? And what is your age? If you are very young, let's say in your 20s or your 30s, I would say 20 to 30% of your wealth can be in fixed income assets or debt mutual funds. The rest in the stock market because you are still young. You can take risks. So you should take that risk. But suppose you are looking for an investment strategy for your parents or you are 40, 50 or 60 years old, then nearly half of your money should be in fixed income because it is your duty to protect your earned money and then half of it could be in the stock market and that too not too risky, meaning not small cap, not mid cap, but largely large cap, so that

4:33 that also remains safe. Now with this 20, 30 or 50% debt investment that you have to make. What types of mutual funds can you see in the day category. To explore these mutual funds we will use coins by Zerodha is not a paid promotion. I will also name a lot of day mutual funds. None of them have given me any money. Nor do I have any affiliation. I could be a consumer of those. But I will not disclose that either. Because I don't want you to be influenced. Please take this decision after doing your homework. But I'm just going to share absolute facts, no preferences. So as you can see, mutual funds are of different categories. Equity like I mentioned, those who invest in the stock market. Dept. about which we will talk. Hybrid,

5:19 which is a mixture of equity and debt, is not our topic today. Because some of this goes into stock and some goes into debt. So that's a different topic. Let's explore in the day. So in the day you will see there are a lot of these options and it can be very confusing. You can be very intimidating like, friend there is so much and I don't know how. But let's start to understand. The most basic is the liquid fund. Liquid funds are the most simple day mutual fund assets. You can use liquid funds for two reasons. One is that you want to invest your money for a very short term. It's been 30 days, it's been 60 days, it's been 90 days, it's been 14 days. And you don't know

6:05 when you will need this money. So, there is no defined timeline when you need or want this money immediately. In both these cases I think a liquid fund is a good option. To give you an example. All the excess money in our company is usefully called treasury. Money that is there in the bank. We cannot invest it because we will need this money. But we don't know when we need it. But whenever needed, it is needed within 24 hours. So we would put it in a liquid fund. Let's click and see. This is a liquid fund of SBI. You will see that it is not a small fund. There are 65,000 crore diploid cells in it. So it is not a small fund by any major. In the last 1 year it has

6:52 given a 7.23% return which is not bad at all. It is better than FD. It's not really big as well. The likes are not even 9.5%. Because the nature of this liquid fund is true. This will give you a stable consistent return. Peacock and lace will be fixed. As you can see from this graph. There was a slight dip but then again it is almost a straight line. So slowly slowly every day it keeps increasing. One very interesting thing that I found about liquid funds is that compared to FD, you get interest every day. So whether you break it after 14 days, break it after 3 months , break it after 3 years, break it. You will keep getting that per day interest

7:37 , you will keep getting it. Unlike an FD where you have to book a predetermined time or if you book an open ended one you get very rubbish rates of returns. 21% This is your expense ratio which is the expense of the mutual fund. You do n't have to pay anything on exit also because if you click on it, it will tell you that it will be charged only if you sell the fund that you have purchased and not your money within a single day. If you do it within 2 days then it is less etc. but mostly this happens. If you sell this fund after 7 days then the exit load will be nil. This means that if you sell the liquid fund 7 days after the day you purchased it, you will not have to pay any exit load.

8:23 And this is true for almost all liquid funds. Ok? So you can see that these are all there. This is all sorted by the size of the fund itself. So there is liquid fund of SBI, HDFC, ICICI Piden etc. We will all understand now and then we will come to what could be a portfolio mix if you want to invest. Then comes the ultra short duration. Now in ultra short duration it's more and less like a liquid fund. But Ultra Shot is meant for a few months if you want to apply. Let's understand Aditya Birla is the biggest 8.38 Oh wow this has increased. And you will see it's almost a straight line again. Now how is it able to give more returns? Because why is the liquid fund not giving? Because you will see that this is a variation, it is more than a liquid fund. So if the interest rates

9:09 move, this will also move. Not that much, but it definitely will. So it's not that, this is your 8.3% guaranteed. This is going to be up 8.3 to 8.4% this year. So it will be a very tight range but it will move. You will always note the expense ratio. As your rate of return increases, the more and less expense ratio also increases. So, because more fight will have to be done to generate these returns. So, this money is going for the team, for research etc. So 0.33% and this is last one year. Whenever you evaluate all these assets, please do it for a longer duration and not just for one year. If we look at these 5 years. It's 6.39%. Now you will say that even FD does

9:57 not break. Why? Because if you see the average of last 5 years' FD, it will be around 5% and so that's why 6.39 okay? So let's move then to short duration. Ok? Now it gets a little confusing. But you will see that it will remain roughly the same. So 9.72% not bad. But you look, can you see it? Now gradually ups and downs are visible. Almost like the stock market looks like this. But the stock market isn't going just like that. It's a very tight range. But it is moving. It is not a fixed rate of return mutual funds. It's a very tight range. So this could be 9.7, 9.5 to 9.8. So a range will be formed. But that is something which you have to be

10:44 aware of the 0.45% expense ratio. So definitely something which will be there. Now why is this a short duration? And why don't we invest our money in liquid funds ? Why? As I told you, you will use liquid fund only when you do not know when you will need the money. Now assume that you have invested. You need the money suddenly after 21 days. But in these 21 days, if there has been some interest rate movement or the market has moved somewhere, then it is possible that if you had invested money in the short term, it would have caught you here brother, it is visible that you have got a dip, now you do not want that there should be a dip at that point when I need the money. So you don't want to time the market. Because timing the market is not what a day

11:30 mutual fund should be doing. So that is why instead of investing money here, you will invest it in a liquid fund. But if you know that friend, I need this money after 9 months. It's good. In 9 months, it will keep growing comfortably and there will be an almost consistent rate of return and you will be okay. Then let's do medium duration. So SBI Magnam 9.78 now you are seeing and there is fluctuation. The expense ratio is 71. The exit load is now for 3 months. So in liquid fund you have to pay exit load within 7 days. In this, within 3 months, that is why it is a medium duration month. So clearly, if you need the money after more than 3 months, i.e.

12:17 after 3 months, only then you will invest it in it. Let's see what is its composition? So you will see that there is almost always a fixed rate of return. There are government securities, reverse repo, net receivables and payables. It is a very small amount but it is there. So it can actually very well and you will see that these are the companies. Now these companies are not useful. But you will see that there is also a Godrej Properties. What is this? It's most like a corporate bond. These are the financial securities I want most like a corporate bond. Renew Solar Energy Most Likely a Corporate Bond. Meaning they have mixed different risk profiles of debt instruments. Because of this you are

13:04 getting this rate of return of 9.78 or nearly 10%. If we do it for 5 years 7.3 at all because it is near low risk definitely compared to a stock mutual fund and that is why the higher rate of interest. Then if you want long duration then like this is NPON India let's see its rate is 9.99% and now this is how the stock market will look and I agree this is how the stock market will look, you will see government securities current assets, you will see that most of them are government securities. And you could say yes I want to do it. But these ups and downs are probably too much for you. Because if this is what you have to buy then maybe you will buy Nifty 50 mutual fund. Why would you take this? Of course Nifty 50 will be more volatile than this. Its rate of return will

13:50 also be higher. But it is completely your choice whether you want to take this level of volatility in a debt mutual fund or not. And then let's finally look at corporate bonds. HDFC Corporate Bond Fund. Ok? Look at this. 9.81 Nearly as much as the long duration one. But how much stability does it have? There was n’t the ups and downs that you saw in him. This is why I personally like corporate bond funds if it is long duration i.e. if I have to keep my money for 1-2-3 years. And I know I'll need it after that. Put it in corporate bonds. Even if I see its 5 year future. The return is nearly 7%. Almost

14:37 1-2% more than FD. I wouldn't mind that at all. 36% is only the expense ratio. so it's cheap as well? Exit load is zero. Why won't I do that? And you will then see what its composition is like. So a lot of corporate bonds of Reliance Industries and all that. And you will see that it will be a mix. Corporate bonds of large companies to provide a stable rate of return and reduce credit risk. Meaning if that company closes down then there is a huge risk for Copper Pond because then that money will never come back and then there would also be some low value or high risk companies in it and then finally there are money market funds, debt mutual funds like Tata Money, if we

15:24 see it is 8.45% not bad at all for one year, if we see it for 5 years, it is 6.34 not bad at all, expense ratio very low 15, exit load zero, I like that. I really like that. Now this money market is a bit complicated so I will not confuse you. But imagine this again to be low risk. So you will see the risk also. Low to moderate. Day mutual funds have a near-fixed rate of return. Sometimes there will be a very severe drop. But that is not something that you should be worried about because it is a bit technical. And again I don't want to over confuse and over complicate. These are the examples of the types of day mutual funds. Now if I give you an approach on how you should create your debt mutual fund portfolio. Share will be

16:10 my approach Let's say you are in your 20s In your 30s In your 40s Allocation Let's say 25% 35% 45% Almost average year I am taking. Now in this there are two and three things that you can do. First is liquid fund. Then comes your short duration, then comes your medium duration, then comes your long duration and then comes your corporate bonds. Correct? This is in increasing order of risk and then an increasing order of return as well. Which one you choose is your wish. But what could be its allocation ?

16:56 To give a rough sense of the current interest rate. So this is around 7.5 this is around 8% this is around 8.5% this is around 9% this is around 9.5% okay? And we will do the average return. So my suggestion is to keep liquid fund around 10% in your 20% so that if you ever need money then it will be returned within roughly 24 hours. Short duration around 15% this around 20 this around 25 and this around 30 ok? So you are doing it in almost increasing order. And if you were to figure out what will be your average it will be 8.75%

17:43 which is not bad at all. That your money is earning 8.75% in almost fixed form. And virtually no risk taken. When I say no risk I mean of course there is a risk. But that risk is almost negligible as compared to the stock market. Because there is up and down in the stock market. Their money can actually go negative. But here it is almost guaranteed that it will not go negative. In your 30s you ca n't take that much risk anymore. So you want 20% allocation in your liquid fund. You can invest 10% in short duration. In medium then according to me we will put the maximum so 30 then 20 20 is it okay? So you will come to an approximate 8.55 for 40 if you don't want

18:30 to take a lot of risk. So I say 30% than 10% 20% 20% 20% 8.45 in any form you will see you are still getting between 8 to 8 and 1/2% which is not bad at all. Now of course in these songs you can now play your own game. If you know that you have a lot of money but don't know when you need it, then invest all of it in liquid fund. You know that you have money and you need it within a month or two, so invest it in short duration. You know that you need it within 3 to 6 months, put the whole amount in medium duration. You know that if you need it in one or two years, then invest it in long duration. You are ready to take a little risk. We

19:16 will wait for two, three or four years, but we do not want FD rates, if we want better rates than that, invest in corporate bonds. So the mix is completely yours. But more or less, if you do not have any such restrictions and there is no visibility as to when and why you will need this money, then you can use this as a starting point to figure out how to think about it. So this is the strategy of debt mutual funds. One thing in this is around taxes. So earlier the taxes on debt mutual funds were on capital gains. Meaning whatever profit you have earned will be either long term or short term capital gain tax. So you will have to pay money or pay tax accordingly. After April 1, 2023 they have now become part of your income tax itself. So whatever your

20:05 interest is, you pay income or tax on the interest of FD as per the income tax slabs. Exactly the same day whatever interest or profit you earn on mutual funds will be applicable to straight income tax slabs. Whatever your slabs are. And that of course is a function of whether you are part of the new tax regime or the old tax regime and so on. So that is the larger play that you have to think. I hope through this approach, whatever SIPs or lump sum investments you have in your stock market mutual funds will continue. But you can also adopt a day mutual fund approach to not only protect your money but also grow it consistently in a slow and steady manner. Please instead of

20:52 investing in FDs, explore debt mutual funds. Is it a much smarter way of earning more interest while still being in complete control of when you need the money? How much do you need it? And there is no penalty to be paid for getting that money in your bank account within 24 hours of selling your mutual fund. This is Ankur Bariku signing off. My fourth book on career is written in a very simple, very relatable and very practical way. I wish someone had given me this book when I was 24 years old and completely confused about what to do about my career. What should I direct my life to ? I have written this book for that same 24 year old guru. It

21:37 is written for you. Hmm.