Friday, 17 March 2017

How to invest in corporate fixed deposits efficiently?

Do you want to earn higher returns on your investments? You can switch from bank deposits to corporate fixed deposits and enjoy amazing returns! If you are not aware of how to invest in corporate fixed deposits, this article is the right choice for you. You can learn how to make a corporate fixed deposit without stressing about the risks associated with it.
Corporate fixed deposits tend to yield higher returns as they are not very well reputed when compared to bank deposits. When we focus only on the returns, we do not care about the risks. When we concentrate only on the risks, we are forced to go for something lesser. To tackle both these aspects, we can choose something in between and they are debt mutual funds.
You need to understand that corporate fixed deposits are highly risky even if the fund is rated well. The returns for these funds may be high or not. It depends on the market. When the rating of a particular fund goes down, there will be a delay in interest payments. Sometimes, the company may also fail to make your interest payment.
Debt mutual funds are better as they distribute this risk across different corporate fixed deposits and other forms of bonds. So, when you go for a debt mutual fund, you do not have to worry about heavy risks.
Meaning of debt mutual funds
A debt mutual fund is a blend of investments in which fixed investments are the primary holdings. A debt fund can deposit in short-term bonds, floating rate debt or long-term bonds, or money market instruments.
Types of debt mutual funds
Let us now take a look at some of the debt mutual funds:
  • Closed-ended debt funds: These funds are also known as fixed maturity plans. These funds put money in debt securities like commercial papers, government bonds, treasury bills, corporate bonds, and certificates of deposit. A fixed maturity plan is generally given for 3 years and so the bond will correspond this period. If the rating of a particular bond goes down, you cannot sell it in a hurry because the debt fund is closed. So, panic selling will be avoided. The problem with this fund is that it is locked up until it gets matured. You will not be able to invest on a monthly basis with this type of fund.
  • Open-ended income funds: An open-ended fund is a fund that allows an investor to subscribe or repurchase on a regular basis. The maturity period for these funds is not fixed. An investor can achieve both income and growth with this type of fund by buying a varied portfolio. This kind of fund will permit you to invest every month and rebalance according to your specific preferences. When a certain bond’s rating falls, the NAV will also drop. This may make you get restless and so you may start to redeem frantically. Therefore, if one bond does not work, the AMC may sell it even if it does not make any profits.
  • Semi-closed-ended debt funds: These funds are also known as interval funds. These funds are generally closed for a certain period during which you cannot subscribe or redeem your plan. It will be opened for about two days during which you can redeem and invest additional amounts. These particular two days are together known as specified transaction period.
Debt mutual funds are very stable as opposed to equity investments. These debt funds will not be affected by the changing conditions of the equity market. You can also make your entire investment portfolio stable by investing in debt mutual funds. Hence, depositing money in debt mutual funds is a very good financial idea.