Negative returns from debt funds

I am a salaried person and request your help in selecting some funds as per the following:
a. Systematic Investment Plan (SIP) of Rs 15,000/month for two years.
b. Maturity can be anytime after two years, based on my needs.
c. Very defensive portfolio, so that principal may not be eroded.

- Rajesh Jain

Positively stay away from equities, for the time frame of your investments will be short. Even the investments in debt funds are prone to market risks. Although safer than equity funds, debt funds might give negative returns at times, but the downside risk is not as high as equity funds. If you are willing to take such risk, you may choose to invest in funds such as Fortis Flexi Debt or Canara Robeco Income. However, if absolute safety of principal is your prime concern, park your money in a bank fixed deposit.

I recently stopped investing in Principal Tax Savings after I saw the dismal five-year performance, rating on your website. If the market shows an upward trend in the coming times and generates handsome returns on my investments, should I redeem or stay put?

- Tukun Biswas

If you accumulate the required corpus earlier than planned, redeem your equity investments and put them in a safe avenue such as a bank fixed deposit or even a debt fund. There is no reason to stay invested and take any additional risk.

There are good reasons for you to discontinue investments in Principal Tax Savings Fund. Other funds have been good performers and you may continue investing in those. You should also keep in mind the three-year lock-in (from date of investment) involved in tax saving funds.

You have no debt exposure in your portfolio. You could consider a good debt fund such as Fortis Flexi Debt Reg or Reliance Short-Term. Alternatively, you may consider a balanced fund such as DSPBR Balanced, HDFC Prudence or Tata Balanced.

Is this the right time to invest in Magnum Contra?

- Harpreet Singh Kharbanda

Do not time the market; it has its own ups and downs. For mutual fund investments, we recommend you invest regularly through SIPs, despite the market swings. Magnum Contra, an equity diversified fund, is currently rated 4-star. This fund has been a consistent performer; you may go ahead with your plans of investing in it.

My mother, a senior citizen, wants to invest about Rs 1 lakh in monthly income schemes. She can take some risk to improve chances of gains, but not capital erosion. Could you suggest some such schemes? The target, in terms of returns, is around 12 per cent.

- Balasubramanyam

Monthly income plans (MIPs), which are considered as debt funds, involve risk-taking, too. Though MIPs aim to provide monthly income with an about 80 per cent investment in debt, the returns are neither fixed nor assured. Since your mother is a senior citizen, and her prime concern is safety of capital, ask her to go for the Senior Citizens Savings Scheme, instead of an MIP. With a fixed tenure of five years, it would let her earn a fixed return of nine per cent per annum, compounded quarterly.

Value Research