Three funds to invest when your bank interest is low

With the RBI’s package to tackle the current Corona virus pandemic, deposit rates have been going down further.

Consistency 

While you can still seek solace in small savings schemes, these rates have also fallen although they remain better than bank deposit rates.

So what can you do to ensure that you are not losing out much as a result of the steep rate falls? We think select low-risk debt funds can help you with deposit-beating provided you are willing to hold them for at least 2 years. We have therefore crafted a portfolio of 3 funds for you to optimally take exposure to quality credit and gain from a rate fall.

Before we move to the portfolio, we’d like to discuss how we chose these funds.

The choice of funds

When we look at which category of funds to choose to play the 2-5-year space, what we do know is that you cannot have exposure to bonds or instruments where the risk of default will go up. Working capital stress and loan defaults, possibly even on the retail side, could trigger a spate of downgrades post this pandemic. Hence, we decided to stay clear of this space. One noteworthy point is that while medium duration funds will otherwise fit into our thesis, the fact that they can take credit risk means that we had to stay clear of those as well.

This left us with banking &PSU debt funds and corporate bond funds. In the corporate bond fund space too, we’ve tried to ensure that our fund choice has limited NBFCs barring those that are very large, has little to no perpetual bonds, has a bias for PSU bonds and has bonds of very large, established companies. These factors assume significance in the next few quarters as credit quality can rapidly deteriorate and push even AAA-rated companies down the credit risk path.

These funds had to also pass our usual research filters and portfolio quality filters. We then built a portfolio of funds across our stated tenures ensuring the funds held instruments that offer enough liquidity. It is noteworthy that all these 3 funds are already part of our recommended list – Prime funds.

Do you wish to own this portfolio of high quality bond funds that can gain from the low interest rate scenario in the country?

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