Gilt Funds: A Comprehensive 101 Guide

In the ever-changing world of money-making opportunities, where finding the right balance between risk and reward can be quite tricky, Gilt funds stand out as an interesting and unique choice. Gilt funds mainly put their money into government bonds, offering investors a mix of safety and potential profits. In this article, we’ll take a close look at gilt funds, exploring what they are, their benefits, possible problems, and how they can be a good fit for various types of investors.

Understanding Gilt Funds

Gilt funds constitute a category of debt mutual funds that predominantly funnel their resources into government securities or treasury bonds issued either by the central government or state governments. These securities bear the distinction of being among the most secure investment avenues, backed by the unswerving creditworthiness of the government, and typically represent a category of low-risk financial instruments.

The Merits of Investing 

  1. Safety: Government securities are among the safest investments because they are supported by the government’s strong financial power. The government can collect taxes and create money, which makes these investments almost risk-free. This makes them a good option for careful investors who want to protect their initial investment.
  2. Steadiness: These funds exhibit a propensity for diminished volatility when compared to their counterparts in the realm of equities or corporate bond funds. They extend a steadfast stream of income, characterized by relatively stable returns across the temporal spectrum.
  3. Diversification: These funds usher in the concept of diversification within the fixed-income asset class. This strategy assuages risk by allocating investments across a mosaic of government bonds, each featuring distinct maturities.
  4. Liquidity: The way these funds are set up allows investors to buy or sell their shares at the current value on any regular business day. This flexibility is especially beneficial for investors who have short-term financial goals or need quick access to their money.
  5. Tax Efficiency: Gilt funds adhere to the 2023 tax amendments related to debt investments. These amendments dictate that capital gains from such investments are incorporated into your applicable tax bracket. We delved into the intricate aspects of debt mutual fund taxation during our podcast episode, stream here.

Risk Profile of the Fund 

While these funds harbor a bevy of advantages, they do not elude exposure to potential risks:

  1. Interest Rate Risk: The value of these funds depends a lot on how interest rates change. When interest rates go up, the prices of bonds usually go down, and the opposite happens when interest rates fall. If interest rates increase a lot, investors could end up losing some of their invested money. We looked into how changes in interest rates affect the debt market thoroughly in one of our podcast episodes.
  2. Inflation Risk: The steady increase in prices, called inflation, can make the value of fixed-income investments, like bonds, decrease in terms of what they can buy. When inflation grows faster than the interest you get from government bonds, the actual returns you earn might turn negative, meaning your money won’t buy as much as it used to.
  3. Reinvestment Risk: As bonds within the portfolio reach maturity, the fund manager must diligently reinvest the resultant proceeds at contemporary interest rates. This presents the peril of lower yields in comparison to the original bond’s offering.
  4. Credit Risk: Although government securities are bedrocked on the premise of minimal risk, a tinge of credit risk persists in terms of the issuer’s capacity to honor its commitments.

Is it for You?

Gilt funds are a suitable investment option for various types of investors:

  1. Cautious Investors: These funds are an excellent choice for people who value safety and preserving their initial investment over trying to make a lot of money.
  2. Income-Oriented Investors: If you prefer a regular and predictable income, you’ll appreciate gilt funds because they provide interest payments from your investments.
  3. Diversification Enthusiasts: For those who like to spread their investments across different types of assets, gilt funds can be an essential part of their strategy. They help reduce risk when mixed with other investments.
  4. Short-Term Aims: Investors harboring short-term financial objectives—be it for the purpose of assembling a down payment for a residence or funding a child’s educational odyssey—can capitalize on the liquidity and constancy proffered by these funds.


Gilt funds offer a unique blend of safety, stability, and moderate profits, making them an important part of an investor’s overall financial plan. While they might not make as much money as riskier investments, they are crucial for safeguarding your initial investment and ensuring you receive a dependable income over time. As with any financial commitment, it is incumbent upon individuals to scrutinize their financial goals, risk tolerance, and investment horizon before venturing into gilt funds. Seeking the counsel of a financial advisor can help facilitate informed investment decisions that harmonize with one’s overarching financial strategy.


Q1: What are gilt funds, and how do they work?

Gilt funds are mutual funds that primarily invest in government securities or treasury bonds issued by central or state governments. These funds pool investors’ money to purchase a diversified portfolio of these low-risk government bonds. these funds generate returns primarily through interest income and capital appreciation from changes in bond prices.

Q2: What makes gilt funds a safe investment option?

These funds are considered safe because they invest in government securities, which are backed by the government’s ability to raise funds through taxation and currency issuance. Government bonds are typically considered low-risk, providing a high level of safety for investors’ principal.

Q3: What are the potential risks associated with these funds?

While these funds are relatively safe, they are not entirely risk-free. The primary risks include:

  • Interest Rate Risk: these fund prices are sensitive to changes in interest rates. Rising rates can lead to capital losses.
  • Inflation Risk: If inflation exceeds the yield on government bonds, real returns may be diminished.
  • Reinvestment Risk: When bonds in the portfolio mature, reinvesting at lower prevailing rates may reduce returns.
  • Credit Risk: Though minimal, there is some credit risk associated with the government’s ability to meet its obligations.

Q4: How do these funds generate returns for investors?

These funds generate returns through two main sources:

  • Interest Income: these funds earn interest income from the government securities they hold in their portfolio. This income is typically paid periodically to investors.
  • Capital Appreciation: Changes in bond prices can result in capital appreciation or depreciation. When bond prices rise, these funds benefit from capital gains, and when prices fall, they may incur capital losses.

Q5: Who are these funds suitable for?

These funds are suitable for several types of investors, including:

   – Conservative Investors: Those looking for a low-risk investment option to preserve capital.

   – Income-Seeking Investors: Individuals seeking a stable income stream can benefit from the interest payments provided by these funds.

   – Diversification Enthusiasts: these funds can serve as a diversification tool within a broader investment portfolio, helping to balance risk.

   – Short-Term Goal Planners: Investors with short-term financial goals can utilize these funds due to their liquidity and stability.


Navigating the Realm of ESG Funds: A Closer Look at Sustainable Funds 101

In recent times, there has been a notable transformation in the global financial arena, marked by a growing emphasis on investments that embody responsibility and sustainability. Within this landscape, ESG (Environmental, Social, and Governance) funds have gained substantial traction, emerging as a potent instrument for individuals and institutions seeking to harmonize their financial pursuits with their ethical principles. In this blog, we delve into the intriguing realm of ESG funds, unraveling their significance, advantages, and potential influence on both investment portfolios and the world at large.

Unveiling ESG Funds: A Concise Overview

ESG funds, categorized as investment instruments, adopt a unique approach by incorporating environmental, social, and governance aspects alongside conventional financial metrics when assessing potential investment avenues. This distinctive method empowers investors to endorse companies that prioritize sustainable practices, ethical conduct, and responsible leadership. Let’s delve into the three key components:

  1. Environmental: This dimension evaluates a company’s environmental impact, encompassing factors like carbon footprint, resource consumption, waste management, and commitment to renewable energy sources.
  2. Social: Social criteria scrutinize a company’s treatment of its workforce, diversity and inclusivity initiatives, community engagement efforts, and broader societal contributions.
  3. Governance: Governance considerations center on a company’s leadership structure, transparency levels, accountability standards, and adherence to principled business practices.


The Merits of ESG Funds

ESG funds offer potential financial benefits, including risk mitigation through better risk management practices, long-term resilience due to sustainable business models, and the potential for enhanced portfolio performance by identifying companies positioned to capitalize on evolving market trends and consumer preferences.

  1. Harmonizing Values: ESG funds empower investors to channel their investments towards causes that resonate with their personal convictions. This alignment often cultivates a profound sense of purpose and gratification in the realm of investing.
  2. Enduring Resilience: Companies that embed ESG principles into their operations tend to exhibit sustained long-term performance. These companies enjoy enduring prosperity by effectively managing risks tied to environmental and social challenges.
  3. Risk Mitigation: ESG analysis equips investors to identify latent risks that traditional financial assessments might overlook. Steering clear of companies with inadequate ESG practices can significantly mitigate exposure to legal, reputational, and financial hazards.
  4. Catalyst for Innovation: Entities committed to sustainability often lead in innovation, adapting adeptly to evolving market dynamics and consumer preferences. Investing in such companies can offer exposure to groundbreaking solutions and technologies.
  5. Positive Influence: ESG fund investments can prompt companies to adopt more ethical practices. The infusion of capital into sustainable enterprises can catalyze far-reaching positive transformations across industries and society.


ESG Funds and Portfolio Performance

Contrary to common assumptions, ESG investments need not come at the expense of financial returns. An array of studies has demonstrated that integrating ESG considerations into investment strategies can potentially augment portfolio performance. A comprehensive study by Friede, Busch, and Bassen (2015) synthesized findings from over 2,000 empirical studies, with the majority revealing a favorable connection between ESG aspects and corporate financial performance.

Charting the Path Ahead

As ESG investing garners wider acceptance, the financial landscape is undergoing a paradigm shift in how investment prospects are evaluated. The incorporation of ESG elements into decision-making processes is no longer a niche strategy; it’s steadily evolving into a mainstream practice. Nonetheless, challenges like the standardization of ESG metrics, data reliability, and the phenomenon of greenwashing necessitate a resolution for the sustainable investing movement to attain its full potency.

In Conclusion

ESG funds symbolize a momentous departure from conventional investment paradigms. They furnish a platform to synchronize financial pursuits with ethical values, contribute to positive environmental and societal progress, and potentially attain competitive returns. As the world grapples with increasingly intricate challenges, ESG funds provide an avenue for investors to be part of the solution while pursuing their financial ambitions. The surge of ESG funds signifies more than a mere adjustment in investment strategy, it signifies a broader transition toward a more sustainable and conscientious future.


FAQs About ESG Funds

1. What are ESG funds, and how do they differ from traditional investment funds?

ESG funds, also known as Environmental, Social, and Governance funds, are investment vehicles that consider not only traditional financial metrics but also non-financial factors when evaluating potential investments. These non-financial factors include a company’s environmental impact, social practices, and governance policies. Unlike traditional investment funds that solely focus on financial returns, ESG funds integrate these additional criteria to align investments with ethical and sustainable values.

2. How do ESG funds contribute to sustainability and positive change?

ESG funds contribute to sustainability by directing investment capital toward companies that demonstrate responsible practices. By investing in businesses with strong environmental initiatives, positive social impacts, and transparent governance, ESG funds incentivize companies to prioritize sustainability and ethical behavior. This, in turn, encourages positive changes in business operations, promotes innovation in sustainable technologies, and supports community and employee well-being.

3. Do ESG funds sacrifice financial returns for ethical considerations?

Contrary to the misconception that ESG funds lead to lower returns, many studies suggest that integrating ESG factors into investment decisions can potentially enhance portfolio performance. Companies with strong ESG practices are often better equipped to manage risks, adapt to market shifts, and capitalize on emerging opportunities. While individual fund performance may vary, the correlation between ESG factors and positive financial outcomes challenges the notion that ethical investing requires financial sacrifice.

4. How do investors evaluate the ESG performance of companies within these funds?

Investors assess the ESG performance of companies within funds by analyzing various data sources and ESG ratings provided by specialized agencies. These ratings evaluate companies based on specific ESG criteria, allowing investors to gauge a company’s sustainability efforts, social impact, and governance practices. Additionally, companies often disclose their ESG initiatives in annual sustainability reports, providing transparency for investors to make informed decisions.

5. Are ESG funds suitable for all types of investors?

ESG funds cater to a wide range of investors, from individuals with a strong ethical focus to institutional investors seeking to integrate sustainability into their portfolios. These funds come in various forms, such as mutual funds, exchange-traded funds (ETFs), and even customized portfolios managed by wealth managers. However, it’s essential for investors to align their investment objectives, risk tolerance, and values with the specific ESG funds they choose, as the degree of focus on environmental, social, and governance factors can vary.

Explained 101: Low Risk Mutual Funds

Selecting a mutual fund for short-term objectives can pose a challenge, particularly when considering less frequently discussed funds like Low Risk Mutual Funds or Arbitrage Funds! Despite mutual funds having been introduced quite some time ago by investment companies, they have not gained as much popularity as one might expect. In this blog, we will explore the concept of these funds and evaluate whether they are a worthy addition to your capital.

What are Low Risk Mutual Funds?

Investing inherently involves risk, and every financial instrument carries a certain level of uncertainty, including banks that also have a chance of default. To mitigate risk exposure, especially for short-term goals, considering investments in ‘low-risk mutual funds’ can be a prudent choice.

Low risk mutual funds are investment funds that prioritize capital preservation and aim to provide stable returns with minimal exposure to market volatility. These funds primarily invest in debt securities, money market instruments, government bonds, and other fixed-income assets, which are considered less risky than equities or high-risk investments. The objective of low-risk mutual funds is to attract risk-averse investors who seek to grow their wealth steadily without taking significant market-related risks.

Features of Low-Risk Mutual Funds

Why Invest in Low-Risk Mutual FUnds Instead of Index Funds? Let’s Explore the Benefits:

  • Asset Allocation: Index funds closely track a benchmark’s Total Return Index (TRI) and invest primarily in equities, offering a pre mature diversified portfolio. However, for short-term investments, a significant portion of the corpus is allocated to debt instruments and money market-related assets. This strategic asset allocation ensures both diversification and adherence to investment guidelines.
  • Capital Preservation: Inflation can erode the value of money over time, making capital preservation a crucial concern for investors. These funds invest in high-quality assets, prioritizing the safety and security of capital.
  • Capital Appreciation: While the primary goal of any investment is capital appreciation, these funds strike a balance by selecting highly-rated debt and money market assets. This approach ensures a secure investment environment and provides moderate and stable low-risk returns.
  • Lower Volatility: These funds veer away from equities and instead opt for more secure assets like Treasury Bills (T-Bills) with pre-defined coupon rates and maturity dates. As a result, these funds exhibit lower volatility and boast favorable Sharpe ratios.
  • Indexation Benefits: An additional advantage of investing in these financial instruments is their eligibility for indexation benefits. This feature enhances tax efficiency and enables investors to reduce their tax burden.

Factors to consider before investing

Apart from its features, check the following factors on tickertape before investing

  • Yield to Maturity (YTM): YTM is a significant measure for debt funds, representing the anticipated total return on a bond if held until maturity, considering coupon payments and the difference between its purchase price and face value. A low-risk mutual fund with a higher YTM may offer the potential for better returns, but it could also indicate higher credit risk.
  • Interest Rate Risk: Even low-risk funds investing in debt securities are exposed to interest rate risk. When interest rates rise, it can negatively impact bond prices and, consequently, the fund’s Net Asset Value (NAV). Assessing the fund’s sensitivity to interest rate changes helps predict its potential impact on returns.
  • Expense Ratio Components: Delving deeper into the expense ratio involves understanding its components, such as management fees, administrative expenses, and any performance-based fees charged by the fund. An itemized breakdown of expenses helps assess the fund’s operational efficiency.
  • Duration Gap and Convexity: For investors concerned about interest rate risk, it’s essential to evaluate the duration gap (difference between fund duration and portfolio duration) and convexity (bond price sensitivity to changes in yield). These factors provide additional insights into the fund’s risk profile.
  • Sharpe Ratio and Standard Deviation: Considering the Sharpe ratio and standard deviation helps assess the fund’s risk-adjusted performance and volatility. A higher Sharpe ratio indicates better risk-adjusted returns, while a lower standard deviation suggests more stable returns, which align with the low-risk nature of the fund.

Who should consider it worth investing in?

Low-risk mutual funds are well-suited for investors displaying the following characteristics:

  • Risk-Averse Investors: These are individuals who prioritize preserving their capital over seeking high returns and are uncomfortable with the significant fluctuations commonly associated with the stock market. For such cautious investors, low-risk mutual funds provide a secure avenue to grow their wealth steadily without subjecting their investments to high market volatility.
  • Short to Medium-Term Financial Goals: Investors with short to medium-term financial objectives, such as saving for a down payment on a house, funding education expenses, or planning a vacation, may find low-risk mutual funds to be the appropriate choice. By focusing on stable, fixed-income assets, these funds offer more consistency and reliability compared to equity funds, making them a practical option for meeting short to medium-term milestones.
  • Conservative Investors: Conservative investors, particularly retirees or those nearing retirement age, have a strong preference for stable income and aim to protect the wealth they have accumulated over the years. Low-risk mutual funds align well with the risk-averse nature of these individuals, providing them with a reliable source of steady income and an opportunity to grow their savings prudently without being exposed to significant market risks.
  • First-Time Investors: For beginners stepping into the world of investments, low-risk mutual funds serve as an excellent starting point. As they embark on their investment journey, first-time investors often seek safer options that offer some degree of predictability. Low-risk funds provide a gradual introduction to the investment landscape while allowing investors to learn about market dynamics without undue anxiety over market fluctuations.

So, what did you decide?
Contact a mutual fund advisor like Daulat, and make an informed decision.

5 reasons why Hybrid Mutual Funds are best for diversification

Diversification is a crucial part of financial planning and, investing in mutual funds provides individuals with an opportunity to grow their wealth while diversifying their investment portfolios. But, building mutual funds portfolio can be a tedious job, finding the right mutual funds for equity and debt investment, tracking them, and bearing other chargers such as expense ratio and exit load simultaneously.

That’s where “Hybrid Mutual Funds” bridge the gap for investors prevailing against the barriers of sorting two funds and bearing their individual charges. Hybrid mutual funds, also known as balanced funds, offer a unique combination of asset classes, combining the benefits of equity and debt instruments. In this blog post, we will delve into the world of hybrid mutual funds, uncovering their advantages, considerations, and why they are worth considering for your investment strategy.

What are Hybrid Mutual Funds?

Mutual fund houses came up with a balanced mutual fund, with the aim of providing investors with diversification options under one fund. These funds aim to provide a balance between capital appreciation and income generation while managing risk through diversification. Here are the key features of hybrid mutual funds:

Hybrid funds, allot their corpus across different asset classes, provident the much-needed balance against the volatile market. One asset class balances out the turmoil of its counterpart. These funds typically, allot around 80% of their corpus in equity, 15% in debt, and the remaining 5% in cash equivalent and other alternative investment options.

  • Capital Appreciation and Stability: 

The equity component of the funds assures capital appreciation, as their underlined stocks appreciate in the market. The debt component of the funds includes corporate bonds, government securities and other debt instruments. The debt component provides stability, and regular income generation, and acts as a cushion during market downturns. The allocation to debt instruments helps manage risk and reduces the overall volatility of the fund.

Hybrid funds offer diversification by investing in a mix of equity and debt instruments. This diversification helps spread risk across multiple asset classes, sectors, and securities. By diversifying the portfolio, hybrid funds aim to reduce the impact of a specific security’s performance or market volatility on the overall fund’s returns.

  • Regular Income: 

Dividends from the equity component and Interest yields from the debt component assure a regular stream of income for the investors. But, generally, these dividends and interest yields are re-invested in the funds, resulting in an overall value increase for the funds.

Points of consideration before investing

There are several points of consideration before investing in any asset class, analyzing and examining across various checkpoints. All these points are to be compared for each point against the industry average. Following are some points of consideration for hybrid mutual funds:

  • Expense Ratio: The expense ratio represents the annual fees and expenses charged by the mutual fund for managing the fund’s assets. A lower expense ratio indicates the fund is comaparitevly cheaper and will have a positive impact on the overall performance of the investment.
  • Sharpe Ratio: The Sharpe ratio measures the risk-adjusted returns of a mutual fund. It’s beneficial to consider the Sharpe ratio when comparing different hybrid funds as it provides insights into how well the fund has performed relative to the level of risk taken. A higher Sharpe ratio indicates better risk-adjusted performance.
  • Exit Load: Exit load refers to the charges, an investor has to bear while redeeming his investment returns if sold before a specific time period generally during the lock-in period. Exit load affects the liquidity and flexibility of the investment. 
  • Minimum Investment: The minimum investment requirement specifies the minimum amount of money that an investor must contribute to purchase shares of a mutual fund. It’s essential to consider the minimum investment required to ensure that it aligns with your investment capacity and financial goals. Some funds may have higher minimum investment amounts, which may only be suitable for some investors.
  • Funds’ Objective and  Asset Allocation: Hybrid funds are divided into three categories based on objective and asset allocation:
    • Conservative: The debt Component is more than that of the equity component.
    • Moderate: Allocation is balanced between equity and debt component.
    • Aggressive: Mojoirty of the corpus is invested in the equity component.

Each category yields different returns and carries its own risk. Aggressive carries the most whereas conservative carries the least. Investors can choose funds based on their goals and risk tolerance. Which can be decided based on the rules of investing.

India’s top performing Hybrid Funds**

Fund NameAMCReturns (3 years)Returns (5 years)
ICICI Prudential Equity Savings FundICICI Prudential11.45%8.17%
HDFC Hybrid Equity FundHDFC25.00%12.73%
Kotak Mahindra Focused Equity FundKotak Mahindra25.76%16.88%
SBI Multi Asset Allocation FundSBI13.90%10.75%
Nippon India Growth FundNippon India35.57%16.97%

**It is advisable to conduct thorough research and contact your mutual fund advisor, before investing.

To Sum it UP

Hybrid mutual funds offer a range of benefits, including diversification, balanced risk, and return, risk management, potential income generation, flexibility, and a simplified investment approach. However, investors should carefully consider the risk profile, market volatility, fund management, expense ratio, investment horizon, and tax implications before investing in hybrid funds. By conducting thorough research, consulting with financial advisors, and aligning the funds with their investment strategy and risk tolerance, investors can make informed decisions about incorporating hybrid funds into their investment portfolios.


5 steps to take before you start your financial journey

Most investors face a constant dilemma when they think about investing in equities. One of the primary questions in their minds is – How do I start my financial journey? Am I ready to start investing?

A straightforward answer to this question is that start your financial journey today since there is no ideal time to start investing. As Warren Buffett says, “Investing is about TIME in the market and not TIMING the market.”. But one thing that people can do before starting their investment journey is to prepare well. In this article, we will go over 5 steps one can take before they start investing to make the process much easier.

Draw a personal financial journey roadmap

Before you make any investments of any sort, sit down and take an honest look at your entire financial situation — especially if you’ve never made a financial plan before.

The first step to successful investing and capital gains is figuring out your goals, either on your own or with the help of your family. Once this goal is set, investment plans can be designed to specifically meet these goals as soon as possible. There is no guarantee that you’ll make money from your investments. But if you understand how investing works and follow through with a well-designed plan made by either you or your financial advisor, you should be able to gain financial security over the years and enjoy the benefits of good investing.

Understand your comfort zone

Any form of investment carries risks. In fact, investment risks somewhat tend to be directly proportional to their potential returns. Hence, higher risks imply higher potential returns and vice versa. While every investor desires to earn high returns, taking high risks might not be suitable for all of them. If you invest in an instrument that has a higher risk than what you are comfortable with, then you might make rash decisions and suffer losses.

On the other hand, if you invest in instruments with much lower risks than your tolerance levels, then you might not be satisfied with the return and might not be able to meet your financial goals. Therefore, it is important to understand your risk tolerance levels and tie them with your return expectations to create an investment strategy to meet your financial goals at a suitable time.

Learn, Learn and Learn

The most important thing one needs to do before making an investment of any sort is to learn how it works and gain a deep understanding of it. You must spend some time understanding investments, markets, factors that affect prices, things that you need to know to analyze a company, etc. Insufficient knowledge of investment opportunities can cause a person to make uninformed decisions that can cause huge losses. By learning how investments work, one can make better decisions and stay informed of how their portfolio is doing. You will make mistakes but learn from them and don’t make the same mistake twice.

Staying in touch with the news, reading financial books and understanding yourself and the reason why want to invest are a few ways that can help you make informed decisions.

Understand your time horizon

A very important aspect that you need to identify is the time in which you intend to stay invested. This will depend upon 2 factors: your financial goal and your risk appetite. For example, If you are investing to build a retirement corpus for yourself, then your investment period would be longer than investing in buying a house. This is essential since different types of investments can have different investment period requirements and growth rates. One should ideally stay invested, till their goals are met.

Investments are generally broken down into two main categories: Risky and less risky. The longer the time horizon, the more aggressive, or riskier, a portfolio an investor can build. The shorter the time horizon, the more conservative, or less risky, the portfolio the investor may want to adopt. This is because equity markets are generally volatile in the short term and there is a possibility that you can get caught in a bear market thereby causing interim losses to your portfolio.

Create a well-diversified investment plan

By including asset categories with investment returns that can either move up or down pertaining to different market conditions within a portfolio, an investor can help protect against significant losses.  Historically speaking, the returns of the three major asset categories – stocks, bonds, and cash – have not moved up and down at the same time at any given point.  Market conditions that can cause one asset category to do well often cause another asset category to have average or poor returns.

By investing in more than one asset category, you’ll reduce the risk of losing your money and your portfolio’s overall investment returns will have a smoother and gradual rise.  If one asset category’s investment return falls, you’ll be in a position to counteract your losses in that asset category with better investment returns in another asset category which can help you stay in the green. For e.g. It is often seen that international markets like the U.S., and Europe are lowly correlated with the Indian equity markets and hence a small allocation to overseas investments can greatly help in diversification.

In addition, asset allocation is important because it plays a major role in whether you will meet your financial goal.  If you don’t include enough risk in your portfolio, your investments may not earn a large enough return to meet your financial goal.  For example, if you are saving for a long-term goal, such as retirement, most financial experts agree that you will likely need to include at least some stock or stock mutual funds in your portfolio for a good return on investment.

Bear Markets and investing – 4 things to do to protect your money!

We all worry about our money. It is quite easy to understand why one would be worried about having little or no money. But, we also worry when we do have money. This is especially true if our money is invested in equities and the stock market is in the middle of a bear market. Therefore it is important to follow some basic steps to stay financially fit.

In this article, we will go over 4 steps one can take to not only safeguard their money from a bear market but also grow their money simultaneously.

Don’t panic sell

During market corrections, selling off your investments and timing the market might seem like a good idea. Negative news such as the Covid-19 pandemic, an asset bubble that’s about to burst, financial scams being revealed, etc., can easily influence any investor.

However, past data shows that the best and worst-performing days of the stock market are often very close to each other. This is the key reason why the strategy of timing the market does not work well for a lot of long-term investors. The key thing to remember is that fear leads to panic, especially among novice investors. This panic often makes investor sell their positions at low prices during a bear market.

But historically, markets have always recovered from these bearish trends and instead of selling in a panic, you should just remain calm and stay invested. If you manage to continue investing irrespective of market conditions, you will reap the rewards when the markets recover at a later date.

Don’t panic buy

Panic buying can be described as a state of mind that pushes you to make investments without much deliberation or research, which can become an obstacle to reaching your current investment goals.

After all, when markets are down, it often seems to be a great time to invest at reasonable valuations. In such cases, investors often part their money in Bluechip stocks or purchase Index Funds. However, many investors forget one key aspect of Equity/stock investing in such cases – their own risk appetite. The buying frenzy when markets tank can lead investors to invest in Equities which are not aligned with their actual risk appetite.

So instead of panic buying, you should plan for these investments well before the bear market actually starts. But to do this, you need to know how high or low your personal risk tolerance is. Only then will you be able to accurately decide how much of your existing portfolio needs to be rebalanced to meet your goals

Periodically rebalance your portfolio

Portfolio rebalancing is a strategy that helps in aligning your risk appetite to your investment portfolio so as to provide better risk-adjusted returns on your investments. This strategy involves buying and selling equities and investments periodically so that the weight of each asset class is maintained as per your targeted allocation.

Some key questions that one needs to ask themselves when assessing their current investments and deciding if their portfolio needs rebalancing :

  • What am I invested in – Mutual Funds, Stocks, Bonds, Gold, etc?
  • What is the value of my investments?
  • What are my financial goals?
  • What do I focus on when building my investment portfolio – consistent returns, growth of capital, etc?

If done right, rebalancing your portfolio will not only help you stay on course to reach your financial goals but also help you manage overall portfolio risk and safeguard your money when markets are highly volatile. That said, it might not be a good idea to rebalance your portfolio in the middle of a bear market. You should instead consider letting markets settle down a bit before rebalancing your investment portfolio.

Choose your equities carefully

An ongoing bear market provides you with the perfect opportunity to increase your Equity allocation at a very reasonable cost and allows you to switch to a more aggressively approached asset allocation portfolio from a comparatively conservative allocation. This is because Equity investments, especially when purchased at low valuations, have an unmatched ability to boost your investment returns, which can help you meet long-term goals such as retirement.

So, if you plan to make Equity investments during a market correction, make sure you do adequate research on the equities you look to invest in. But, if you do not know how to correctly value stocks or don’t have the time to conduct a deep dive into possible investment options, it might be a better idea to invest in professionally managed diversified Equity Mutual Funds as compared to investing in individual stocks on your own.

Bottom Line

An ongoing bear market offers investors a unique opportunity to grow their wealth. But to take advantage of this crash, you must have a contingency plan in place before the crash actually happens. The 4 strategies discussed above are designed to help you not only weather a market crash better but also make sure that you can grow your wealth significantly when markets recover at a later date.

7 timeless lessons for novice investors

Understanding where to invest and earning considerable profits can be daunting and also requires a learning curve. In this article, we go over 7 lessons that will help novice investors to not only invest better and maximize profits, but also help you minimize your losses.

Lesson 1 : Diversification is key

One major mistake that novice investors make when they start their journey is that they concentrate their assets in a single form of investment. Diversification not only means investing in different stocks or investing in a single industry but also the allocation of assets in different asset classes such as, equities, mutual funds, bonds, real estate, etc. But it is also important to understand that too much diversification is also a problem because investing in multiple assets with a limited asset pool will not allow you too reap significant rewards.

Diversification for novice investors

Lesson 2 : Keep your emotions in check

Investing your hard earned money is a rather stressful process for not only novice investors but all investors which can lead to you trusting your emotions rather than your mind and emotionally invest. Emotional investing is an investing strategy where you make decisions based on markets’ daily gyrations and what you think of them rather than fundamentals. It constitutes of letting fear, greed, anxiety, and optimism get the better of you. This type of investment is based on an investor’s behavioural and emotional impulses and is influenced by market trends. It is more of a cycle where investors react to market volatility and swings.

Lesson 3 : Consult a financial advisor

Engage with a financial advisor to better understand your situation and help you invest better. Expert advice can do wonders to a novice investor’s portfolio and help them see the big pictures. Financial advisors, who have years of experience, can help you navigate choppy waters and bullish markets with ease and ensure you do not indulge in impulsive trading or overestimate your risk tolerance.

It gives you the chance to re-evaluate your investment approach and better assess your risk appetite. It helps you be logical and make rational investment decisions to help your money grow.

Lesson 4 : Educate yourself financially

Financial literacy is a crucial life skill to possess, because it boosts your financial capability. Savings, budgeting, and financial planning should be taught to people at a young age. Without financial literacy, one’s actions and decisions about savings and investments would be quite weak and unsupported. One can manage their finances effectively by learning basic financial principles. Additionally, it facilitates good financial decision-making, financial management, and stability.

Lesson 5 : Avoid trying to time the market

The time you spend in the market is much more important than timing the market. Moreover, it is important for novice investors not to develop a trader or speculator’s mentality right of the bat. After all, this entire practice of timing the market based on news, opinions, tweets, interest rates, liquidity, and so on often does a lot more harm than simple rules based investments focusing fundamentals.

If you have not reached your long-term financial goal then canceling your SIPs and liquidating your assets is certainly not going to help you reach there any faster. Stay invested for the long game, as stock markets and individual stocks have reliable businesses behind them that are continually earning more and more profits over the long run.

Lesson 6 : Have a goal in mind

Goal based investing involves keeping a specific personal goal in mind while choosing the method to invest. Goals help investors stay on the course and keep investors disciplined as they can monitor and track their progress at regular intervals. A set of clear goals helps strategize and dramatically improve budgeting. As a result, investors deal with poor market movements better. Focusing on long-term goals, allows us to be less distracted by short-term volatility and noise.

This is a crucial advantage because not only do novice investors sometimes lose hope, but emotions can also drive them towards poor decisions. It will help us refrain from selling down our positions or changing our investment strategy to one that reduces our chances of reaching our financial goals, and instead focus on sticking to our designed investment plans.

Lesson 7 : Invest in companies with good fundamentals

Fundamentals of a company are usually its indexes, which are used to determine its financials and whether the investment price is able to justify itself through earnings and profit. Investments that are able to justify their price are called value investments.

Value investing involves a process through which investors unearth possible investment opportunities that are available at a lower price of what they’re actually worth. These investments are known as undervalued investments and they generally tend to possess a significantly high growth potential in the future. Value investments have very little downsides to them, a good example to explain this is stocks. With value stocks, the downside, if any, also tends to be lower since they’re already trading at a lower price point than their actual worth.

Side-pocketing and segregation

In recent times, the Mutual Fund industry has witnessed a series of downgrades and defaults. Starting from the IL&FS, Essel, DHFL to Franklin, Birla and nippon. These downgrades or defaults can cause huge losses for investors who have parked their life-savings into these funds. Thus to protect investors from these defaults, SEBI announced the launch of the side-pocketing or segregation framework.

Many beginner to intermediate investors are unfamiliar of the concept of side-pocketing and how it can affect them, which makes it even more important for them to understand this very concept.

What is Side-Pocketing in Mutual Funds or Segregation of the Portfolio?

Simply put, side-pocketing is a framework that grants mutual funds the power to segregate the bad assets in a separate portfolio within their debt schemes. The Securities and Exchange Board of India (SEBI) introduced this very framework in December 2018 — primarily triggered by the IL&FS fiasco. The side pocketing framework was launched by SEBI so that the existing investor in the scheme may get the benefit whenever the money recovers. This is also to discourage the new investors from entering the scheme after the event, so as to not take undue advantages of the situation.

When does side-pocketing occur?

As per SEBI regulations, side-pocketing in mutual funds can be done only when there is an actual default of either the interest or principal amount of investment or if a debt instrument is downgraded to below investment grade or BBB rating by credit rating agencies, then the fund house has the option to create a side pocket and segregate their funds.

When side pocketing in mutual funds is done, the fund house is not sure whether the security would be realizing something later or not, but the net asset value of the fund is reduced with immediate effect.


So, in this scenario, the existing investors of the fund are allotted an equal number of shares in the segregated portfolio as held in the main portfolio and no redemption or purchase is allowed in the segregated portfolio. These shares are then listed on the stock market within 10 days and investors can sell them within a 30 day window, without any exit load/fee.

How does side-pocketing benefit the retail investor?

Once the shares of the segregated fund are listed on to the stock market and are ready to be sold, it gives full autonomy to the investor and lets them do whatever seems fit to them. Effectively, this process makes the price discovery of the bad assets a transparent procedure with investors having the freedom of either selling it at prevailing price or holding it if they expect the value to recover in future.

Can side-pocketing be misused?

When side pocketing was introduced, a good chunk of market participants felt that it could be misused by fund houses to hide their bad investment decisions. SEBI, however, has put in place checks and balances to minimize any such malpractice by the fund houses. The regulator has said that trustees or higher echelon of all fund houses will have to put in place a framework that would negatively impact the performance incentives of fund managers or chief investment officers (CIOs) or any stakeholders involved in the investment process of securities under the segregated portfolio.

So, fund managers know that any creation of such side pocket in the future would also affect their own appraisals and incentives. Further, SEBI has also said that side pocket should not be looked upon as a sign of encouraging unwanted credit risks as any misuse of this option would be considered serious and stringent action can be taken.

In Conclusion

Side-pocketing in mutual funds or Segregation of the Portfolio is a quite beneficial approach for the retail investors who lose their hard-earned money due to unwanted defaults in the debt funds. And it is quite logical that those who actually lose should only get the benefit of recovery too, and no other person should be allowed to make use of the situation as it used to happen earlier.

Credit Risk Funds – Higher risk associated with higher rewards!

Novice investors or those with a lower risk appetite look for more risk-free and stable options like a diversified mutual fund. However, seasoned and experienced investors usually look to increase their risk appetite to earn a little more returns. There are numerous investment instruments that are capable of giving higher returns than others but demand a higher risk appetite. One such high-risk, high reward investment instrument is the credit risk fund.

Understanding Credit Risk Funds

When you invest in mutual funds, your invested capital is divided into equity funds, which includes investing in the stock market, while debt funds, which is a fixed-income security that deals mainly with bonds. Bonds are given ratings based on the credit quality, the issuing company’s financial strength, and the company’s ability to pay interest and repay the principal amount of money. These ratings are denoted as AAA, which is the highest, then AA, A, BBB, BB, B and so forth.

Credit Risk Funds are debt funds that mainly invest in bonds that are rated either AA or lower. To be more specific, These invest about 65% of the funds available to them in lower than AA-rated bonds. Since these bonds do not have the financial strength of higher-rated bonds, their interest payments and principal repayment are not stable. Hence the name Credit Risk Funds.

Credit Risk Funds vs Corporate Bond Funds

Most debt funds are not the same in terms of their risks and returns. Let us compare Credit Risk Funds with Corporate Bond Funds for you to get a better understanding :

Credit Risk FundsCorporate Bond Funds
A debt scheme that has to invest a minimum of 65% of its available funds in bonds rate AA or lower.A debt scheme that has to invest a minimum of 80% of its available funds in bonds rate AAA
For high risk appetite investorsFor low risk appetite investors
Higher ReturnsLower Returns

How do Credit Risk Funds Generate Returns?

Credit Risk Funds reward their investors for the extra risk they are ready to take by investing in lower-rated bonds (AA and lower). Because these invest in lower-rated bonds, the bond issuer pays more interest to the Mutual Fund, who pay a higher interest rate to their investors. Secondly, if and when these bonds become better rated, the capital gains achieved can be high, and the investor gets higher than normal returns for their investment.

Are Credit Risk Funds safe and who should invest in them?

Investors with a higher risk appetite are the ones who should be investing in these funds. Despite being a kind of debt fund, Credit Risk Funds have high associated risks. It is entirely possible that instead of the bond ratings improving, they may even go further down. This volatility is part of these funds, and only those investors with a high appetite for risk should invest in credit risk funds. Investors looking for low-risk and stable investments should avoid these funds.

SEBI Measures

In recent times, SEBI has taken multiple measures for the safeguarding of retail investors. SEBI has mandated credit risk fund issuers to invest 10% of their total assets in liquid assets such as Government securities, bonds, cash, etc. The move will help enhance the liquidity of credit risk funds which will help them face pressures if any. This move by SEBI has resulted in 2 outcomes :

  1. A rise in the liquid holding of Credit Risk Funds : The table below can demonstrates that the Credit Risk Funds have increased their liquid holding much higher than the 10% threshold mandated by SEBI.Rise in liquid holdings of Credit Risk Funds
  2. Reduction in Credit Risk Fund issuers : Many credit funds have reduced their issuer concentration. So, now the percentage of net assets held by the top three and top five issuers has gone down. It has made the credit risk portfolios more diversified, thus reducing the risk for investors.Drop in Credit Risk Fund issuer concentration

These measures have resulted in the Credit Risk Funds being much more diversified, making them suitable for even more investor classes.

Understanding Taxation

Since credit risk funds are a type of debt funds, they are taxed as short term capital gains for up to three years and as long term capital gains for periods of more than three years. The short term gains tax is dependent to the income tax slab of the investor. The long-term gains tax for debt funds is fixed at 20%.

To Conclude Things

In conclusion, credit risk funds can be an easy way to earn higher than normal returns by investing in lower-rated bonds. But, as is the case with almost all forms of investments, if the potential for profits is high, the associated risks are high as well. If you are willing to take those risks to get excellent returns, then these credit risk funds might just be your cup of tea. However, it is advised that you do extensive research about the issuing company and the available bond options before investing in Credit Risk Funds.


Sukanya Samriddhi Yojana – An easy way to secure your daughter’s future by the age of 21

Sukanya Samriddhi Yojana is a saving scheme launched by the Government of India aimed at the betterment of girl child in the country. Sukanya Samriddhi Yojana is launched to provide a bright future for the girl child and enables parents to build a fund for the future education and marriage expenses of their girl child from a young age.

What is Sukanya Samriddhi Yojana?

Sukanya Samriddhi Yojana was developed under the government’s ‘Beti Bachao, Beti Padhao’ initiative, it is a welfare scheme designed for the girl child. Investing in this child insurance plan allows their parents or legal guardians to ensure financial security for a girl child aged ten years or below. Under this scheme, an account in the name of the girl can be opened across any private and public sector banks for 21 years. The tenure of investment under the SSY scheme is 21 years, starting from the account’s opening date.

This deposit scheme can help you save regularly for your little girl. By making small to large deposits on a regular bases, you can create a sufficient corpus as the year’s pass. This corpus can be used to meet your girl child’s goals such as education, buying a home or even marriage.

How does Sukanya Samriddhi Yojana Account Work?

As parents, you can invest a minimum amount of Rs 1,000 and up to Rs 1.5 lakhs every year into your daughter’s account under this scheme. These deposits can be made only for the first 15 years after opening the account, after which no deposits can be made and the funds in the account would grow from the accumulated compound interest.

Subsequently, the accumulated amount can be withdrawn till the age of 21 years and can help your daughter support her dreams of higher education, starting a business or marriage, once she is no longer a minor.

Eligibility Criteria for Sukanya Samriddhi Yojana

The Government of India has made Sukanya Samriddhi Yojana accessible for the entire population of India, and hence, you can open an account at any post office nearest to you. The directive of the Sukanya Samriddhi Yojana is as follows :

  • Only the parents or legitimate guardians of the girl child can open a Sukanya Samriddhi account.
  • The girl child has to be under 10 years at the time of account opening.
  • The account can be operational only till the girl child is 21 years old.
  • The opening investment can begin from ₹250 with an deposit cap of ₹1,50,000 yearly with ongoing deposits in the products of ₹100.
  • An individual girl child cannot have numerous Sukanya Samridhhi accounts.
  • Only two Sukanya Samriddhi Yojana accounts are permitted per family.

Performance of the Sukanya Samriddhi Yojana

The interest rate on this scheme is fixed by the government and is reviewed by them every quarter. The Sukanya Samriddhi Yojana interest rate over the past few quarters are given below :

Time PeriodSSY Interest Rate (% annually)
Jan to Mar 2023 (Q4 FY 2022-23)7.6
Oct to Dec 2022 (Q3 FY 2022-23)7.6
Jul to Sep 2022 (Q2 FY 2022-23)7.6
Apr to Jun 2022 (Q1 FY 2022-23)7.6
Jan to Mar 2022 (Q4 FY 2021-22)7.6
Oct to Dec 2021 (Q3 FY 2021-22)7.6

Benefits of Sukanya Samriddhi Yojana

  1. High Interest : A Sukanya Samriddhi Account provides a higher rate of interest than most other savings plan that offer financial security solely for the girl child. Each financial year, the government declares the new applicable interest rate for that year, which is compounded on a yearly basis. By maturity, the assets under your Sukanya Samriddhi Yojana account will increase manifold – thanks to the power of compounding. Here we have shown how an approximate corpus can be generated using the Sukanya Samriddhi Yojana calculator :

Sukanya Samriddhi Yojana Growth Pattern

  1. Significant Tax Savings : Your investment/savings towards the Sukanya Samriddhi Yojana and the betterment of your daughter’s future are eligible for tax deductions under Section 80C of the Income Tax Act 1961. Thus, you can claim tax reductions of up to Rs 1.5 lakh invested in the scheme. Moreover, the tax-saving benefits are also available on the interest amount earned and the amount received upon maturity or withdrawals. The Sukanya Samriddhi Yojana scheme is under the authority of the Department of Revenue and is one of the more popular investment schemes that come with the exempt-exempt-exempt status.
  2. Guaranteed Maturity Benefits : Upon maturity, your entire account balance under the Sukanya Samriddhi Yojana, including the accumulated interest, will be paid directly to the policyholder. Thus, the scheme essentially assists your daughter to become financially independent and empowered once she is mature enough to make life decisions all by herself. Another benefit of investing under this scheme is that your accumulated savings continue to accrue compounding interest even after maturity up until it is finally closed by the account holder.

To conclude things

Sukanya Samriddhi Yojana provides one of the best possible investment opportunities for you to build up a sufficient corpus for your daughter when she turns 18 years old and is mature. The Sukanya Samriddhi Yojana comes with a sovereign guarantee, while its EEE status provides several benefits to both the parent and their little girl.